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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1998
REGISTRATION NO. 333-43553
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NATIONAL EQUIPMENT SERVICES, INC.
ALBANY LADDER COMPANY, INC.
BAT ACQUISITION CORP.
CARL'S MID SOUTH RENT-ALL CENTER INCORPORATED
FALCONITE AVIATION, INC.
FALCONITE EQUIPMENT, INC,
FALCONITE, INC.
FALCONITE REBUILD CENTER, INC.
MCCURRY & FALCONITE EQUIPMENT CO., INC.
M&M PROPERTIES, INC.
NES ACQUISITION CORP.
NES EAST ACQUISITION CORP.
NES MICHIGAN ACQUISITION CORP.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
DELAWARE 7359 36-4087016
NEW YORK 7359 14-1295523
DELAWARE 7359 86-0857699
TENNESSEE 7359 62-1230136
DELAWARE 7359 61-1312696
ILLINOIS 7359 37-0987459
ILLINOIS 7359 31-1490949
KENTUCKY 7359 31-1501864
ALABAMA 7359 63-1140920
ALABAMA 7359 63-0895405
DELAWARE 7359 76-0522698
DELAWARE 7359 36-4209300
DELAWARE 7359 38-3388768
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
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1800 SHERMAN AVENUE PAUL R. INGERSOLL
EVANSTON, ILLINOIS 60201 1800 SHERMAN AVENUE
TELEPHONE: (847) 733-1000 EVANSTON, ILLINOIS 60201
(Address, including zip code, and TELEPHONE: (847) 733-1000
telephone number, including (Name, address, including zip code,
area code, of registrants' principal and telephone number,
executive offices) including area code, of agent for
service)
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Copy to:
H. KURT VON MOLTKE
KIRKLAND & ELLIS
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
TELEPHONE: (312) 861-2295
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 29, 1998
PRELIMINARY PROSPECTUS
, 1998
NATIONAL EQUIPMENT SERVICES, INC.
OFFER TO EXCHANGE ITS 10% SENIOR SUBORDINATED NOTES DUE 2004, SERIES B
FOR ANY AND ALL OF ITS OUTSTANDING 10% SENIOR SUBORDINATED NOTES DUE 2004
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
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National Equipment Services, Inc., a Delaware corporation ("NES" or the
"Company") hereby offers (the "Exchange Offer"), upon the terms and conditions
set forth in this Prospectus (the "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount
of its 10% Senior Subordinated Notes due 2004, Series B (the "Exchange Notes"),
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which this prospectus is a part, for
each $1,000 principal amount of its outstanding 10% Senior Subordinated Notes
due 2004 (the "Old Notes"), of which $100,000,000 principal amount is
outstanding. The form and terms of the Exchange Notes are the same as the form
and term of the Old Notes except that (i) the Exchange Notes will bear a Series
B designation and a different CUSIP number from the Old Notes, (ii) the
Exchange Notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof and (iii)
holders of the Exchange Notes will not be entitled to certain rights of holders
of Old Notes under the Registration Rights Agreement (as defined). The Old
Notes and the Exchange Notes are sometimes referred to herein collectively as
the "Notes." The Exchange Notes will evidence the same debt as the Old Notes
(which they replace) and will be issued under and be entitled to the benefits
of the Indenture dated as of November 25, 1997 (the "Indenture") by and among
the Company, the Subsidiary Guarantors (as defined) and Harris Trust and
Savings Bank, as trustee, governing the Notes. See "The Exchange Offer" and
"Description of Exchange Notes."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on , 1998,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
See "The Exchange Offer."
The Old Notes were sold by the Company on November 25, 1997 to Smith Barney
Inc., First Union Capital Markets Corp. and Salomon Brothers Inc (the "Initial
Purchasers") in a transaction not registered under the Securities Act in
reliance upon an exemption under the Securities Act (the "Initial Offering").
The Initial Purchasers subsequently placed the Old Notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities Act.
Accordingly, the Old Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The Exchange Notes are being offered hereunder in
order to satisfy the obligations of the Company and the Subsidiary Guarantors
under the Registration Rights Agreement entered into by the Company, the
Subsidiary Guarantors and the Initial Purchasers in connection with the Initial
Offering (the "Registration Rights Agreement"). See "The Exchange Offer."
Interest on the Exchange Notes will accrue from their date of original
issuance and will be payable semi-annually in arrears on May 30 and November 30
of each year, commencing November 30, 1998, at the rate of 10% per annum. The
Notes will be redeemable, in whole or in part, at the option of the Company on
or after November 30, 2001 in cash at the redemption prices set forth herein
plus accrued and unpaid interest and Liquidated Damages (as defined), if any,
thereon to the date of redemption. In addition, at any time prior to November
30, 2000, the Company may, at its option, on any one or more occasions redeem
up to 33% of the initially outstanding aggregate principal amount of the Notes
at a redemption price equal to 110% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
of redemption; provided, that, in each case, at least 67% of the aggregate
principal amount of the Notes remains outstanding immediately after the
occurrence of any such redemption. Upon the occurrence of a Change in Control
(as defined), (i) the Company will have the option, at any time prior to
November 30, 2001, to redeem the Notes in whole, but not in part, at a
redemption price equal to 100% of the aggregate principal amount of the Notes,
plus the Applicable Premium (as defined), plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of redemption and (ii) if the Company
does not so redeem the Notes, or if a Change of Control occurs after November
30, 2001, each holder of Notes will have the right to require the Company to
repurchase all or any part of such holder's Notes at an offer price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of
purchase. In the event of a Change of Control, there can be no assurance that
the Company will have or be able to acquire sufficient funds to pay to purchase
price for all of the Notes that the Company might be required to purchase. In
addition, the Company will be obligated to offer to repurchase the Notes at
100% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to date of repurchase in the event of
certain Asset Sales (as defined). See "Description of Exchange Notes --
Repurchase at the Option of Holders."
The Notes will be general unsecured obligations of the Company and will rank
subordinate in right of payment to all existing and future Senior Debt (as
defined) of the Company and will rank senior or pari passu in right of payment
to all existing and future subordinated Indebtedness (as defined) of the
Company. The Notes will be fully and unconditionally guaranteed (the
"Subsidiary Guarantees") by all Restricted Subsidiaries (as defined) of the
Company, (together, the "Subsidiary Guarantors"). The Subsidiary Guarantees
will be general unsecured obligations of the Subsidiary Guarantors, will rank
subordinate in right of payment to all existing and future Senior Debt of the
Subsidiary Guarantors and will rank senior or pari passu in right of payment to
all existing and future subordinated Indebtedness of the Subsidiary Guarantors.
As of June 30, 1998, on a pro forma basis, there would have been $337.3 million
of Senior Debt of the Company and the Subsidiary Guarantors outstanding and
$238.4 million of Indebtedness of the Company that ranked pari passu in right
of payment to the Subsidiary Guarantees outstanding. See "Risk Factors --
Subordination; Holding Company Structure."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DESCRIPTION OF CERTAIN RISKS TO
BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "SEC" or the "Commission") set forth in certain no-action
letters issued to third parties, the Company believes that the Exchange Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by any holder thereof (other than
any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. See "The Exchange
Offer--Resale of the Exchange Notes." Holders of Old Notes wishing to accept
the Exchange Offer must represent to the Company, as required by the
Registration Rights Agreement, that such conditions have been met. Each
broker-dealer (a "Participating Broker-Dealer") that receives Exchange Notes
for its own account pursuant to the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any
such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter
is being used in connection with the Exchange Offer.
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"The Exchange Offer."
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors--Absence of a Public Market
Could Adversely Affect the Value of Exchange Notes." Moreover, to the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SUBSIDIARY GUARANTORS. NEITHER THE DELIVERY
OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
THE EXCHANGE NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM.
EXCEPT AS DESCRIBED UNDER "DESCRIPTION OF EXCHANGE NOTES--BOOK-ENTRY; DELIVERY
AND FORM", THE COMPANY EXPECTS THAT THE EXCHANGE NOTES ISSUED PURSUANT TO THE
EXCHANGE OFFER WILL BE REPRESENTED BY A GLOBAL NOTE (AS DEFINED), WHICH WILL
BE DEPOSITED WITH, OR ON BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC") AND
REGISTERED IN ITS NAME OR IN THE NAME OF CEDE & CO., ITS NOMINEE. BENEFICIAL
INTERESTS IN THE GLOBAL NOTE REPRESENTING THE EXCHANGE NOTES WILL BE SHOWN ON,
AND TRANSFERS THEREOF WILL BE EFFECTED THROUGH, RECORDS MAINTAINED BY DTC AND
ITS PARTICIPANTS. AFTER THE INITIAL ISSUANCE OF THE GLOBAL NOTE, NOTES IN
CERTIFICATED FORM WILL BE ISSUED IN EXCHANGE FOR THE GLOBAL NOTE ONLY UNDER
LIMITED CIRCUMSTANCES AS SET FORTH IN THE INDENTURE. SEE "DESCRIPTION OF
EXCHANGE NOTES--BOOK-ENTRY; DELIVERY AND FORM."
THE CONTENTS OF THIS PROSPECTUS ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS
OR TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN ATTORNEY,
BUSINESS ADVISOR AND TAX ADVISOR AS TO LEGAL, BUSINESS AND TAX ADVICE. NEITHER
THE COMPANY NOR ANY OF THE SUBSIDIARY GUARANTORS IS MAKING ANY REPRESENTATION
TO ANY PROSPECTIVE INVESTOR IN THE EXCHANGE NOTES REGARDING THE LEGALITY OF AN
INVESTMENT THEREIN BY SUCH PERSON UNDER APPROPRIATE LEGAL INVESTMENT OR
SIMILAR LAWS.
ii
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MARKET DATA USED THROUGHOUT THE PROSPECTUS WERE OBTAINED FROM INTERNAL
COMPANY SURVEYS AND INDUSTRY PUBLICATIONS, WHICH THE COMPANY BELIEVES TO BE
RELIABLE. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED THIS MARKET DATA.
SIMILARLY, INTERNAL COMPANY SURVEYS, WHILE BELIEVED BY THE COMPANY TO BE
RELIABLE, HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT SOURCES.
THE PROSPECTUS INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS CONCERNING THE
COMPANY. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN
THE PROSPECTUS, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE
COMPANY'S FUTURE FINANCIAL POSITION, BUSINESS STRATEGY, BUDGETS, PROJECTED
COSTS AND PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, ARE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT
CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED UNDER "RISK
FACTORS" AND ELSEWHERE IN THE PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN
CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS INCLUDED IN THE PROSPECTUS.
ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY OR PERSONS ACTING ON ITS BEHALF, ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE CAUTIONARY STATEMENTS.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the Exchange Notes being offered hereby. The Prospectus does not contain all
the information set forth in the Exchange Offer Registration Statement. For
further information with respect to the Company and the Exchange Offer,
reference is made to the Exchange Offer Registration Statement. Statements
made in the Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Exchange
Offer Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports and other information with the Commission.
The Subsidiary Guarantors will not file separate periodic reports and other
information with the Commission. The Exchange Offer Registration Statement,
including the exhibits thereto, and periodic reports and other information
filed by the Company with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, or at its regional offices located
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such materials can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the holders of the Notes and, to the
extent permitted by applicable law or regulation, file with the Commission (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company was required to file such Forms, including for each a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereof by the Company's
independent certified public accountants and (ii) all reports that would be
required to be filed on Form 8-K if it were required to file such reports. In
addition, for so long as any of the Notes remain outstanding, the Company has
agreed to make available to any prospective purchaser of the Notes or
beneficial owner of the Notes, in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act.
The Company, a corporation organized under the laws of Delaware, has its
principal executive offices located at 1800 Sherman Avenue, Evanston, Illinois
60201; its telephone number is (847) 733-1000.
iii
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the Financial Statements and notes thereto, included elsewhere in the
Prospectus. Unless otherwise stated in the Prospectus or unless the context
otherwise requires, "NES" or the "Company" shall mean National Equipment
Services, Inc., including all of its 15 acquired businesses (collectively, the
"Acquired Businesses"). References herein to various financial information on a
"pro forma basis" (i) give effect to acquisitions of the Acquired Businesses as
if such transactions had been completed as of the first day of the related
period, (ii) give effect to the Initial Stock Offering (as defined), (iii) give
effect to certain borrowings outstanding under the New Credit Facility (as
defined) and payment of related fees as if such borrowings had been outstanding
as of the first day of the related period and (iv) reflect certain adjustments
described in "Selected Pro Forma Financial Data."
THE COMPANY
GENERAL
National Equipment Services, Inc. is a leading participant in the growing and
highly fragmented $18 billion equipment rental industry. Through its 15
businesses acquired since January 1997, NES specializes in the rental of
specialty and general heavy equipment to industrial and construction end-users.
The Company rents over 750 different types of machinery and equipment and
distributes new equipment for nationally recognized original equipment
manufacturers. The Company also sells used equipment as well as complementary
parts, supplies and merchandise, and provides repair and maintenance services
to its customers. NES is geographically diversified, with 82 locations in
across 19 states, and is a leading competitor in each of the geographic markets
it serves. For the year ended December 31, 1997, on a pro forma basis, the
Company generated revenues of $228.7 million, an increase of 29.2% compared to
1996 combined revenues of $177.0 million.
Management believes the Company offers one of the most modern and well
maintained fleets of speciality or general equipment in each of its markets.
The average age of the Company's equipment fleet is approximately three years.
Speciality equipment includes electric and pneumatic hoists, hydraulic and
truck-mounted cranes, liquid storage tanks, pumps and highway safety equipment.
General industrial and construction equipment includes aerial work platforms,
air compressors, cranes, earth-moving equipment and rough terrain forklifts.
The Company rents and sells this equipment to industrial and construction end-
users, which represented approximately 54% and 43%, respectively, of the
Company's revenues for the year ended December 31, 1997, on a pro forma basis.
NES is led by a senior management team with significant industry experience
and an impressive track record of acquiring and integrating companies in the
equipment rental industry. Prior to founding the Company, the NES senior
management team was responsible for building Brambles Equipment Services
("Brambles"), the U.S. equipment rental business of an Australian public
company, into a leading participant in the industry. At Brambles, this team
executed a growth strategy that combined a disciplined acquisition program with
significant organic growth. Management believes that the team's extensive
industry experience allows to more easily identify quality acquisition targets
and successfully integrate these businesses through effective financial and
operating controls and the proper deployment of capital. The Company's local
operations are managed by experienced professionals who have an average of over
15 years of experience in the industry and have extensive knowledge of and
relationships in their local markets. These managers are typically former
owners of the businesses acquired by the Company. The Company also benefits
from the financial expertise of Golder, Thoma, Cressey, Rauner, Inc., an
established investment firm specializing in the consolidation of fragmented
industries. Golder, Thoma, Cressey, Rauner Fund V, L.P., an affiliate of
Golder, Thoma, Cressey, Rauner, Inc., is the Company's principal equity
investor.
1
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RECENT DEVELOPMENTS
In the first quarter of 1998, the Company completed seven acquisitions to add
to the six businesses acquired in 1997. These first quarter 1998 acquisitions
generated 1997 pro forma revenues of $89.3 million and added 32 locations. For
additional information on these first quarter 1998 acquisitions, see Note 13 to
the Company's Consolidated Financial Statements included elsewhere herein.
In the third quarter of 1998, the Company acquired all of the outstanding
stock of Falconite, Inc. ("Falconite") for an aggregate purchase price of
$175.0 million concurrent with the Initial Stock Offering. Falconite is a
leading aerial rental equipment company serving a diverse range of more than
5,500 active commercial customers from 29 locations in nine southern and mid-
western states. Falconite's rental fleet consists primarily of large equipment,
such as aerial work platforms, cranes and forklifts. Falconite's customers
operate in a wide range of industries, including automotive, chemical,
commercial construction, pulp and paper, and utilities. Falconite generated
1997 pro forma revenues of $74.2 million.
In the third quarter of 1998, the Company also acquired substantially all of
the assets of R&R Rentals, Inc. ("R&R Rentals") for an aggregate purchase price
of approximately $27.6 million. R&R Rentals is a Houston-based hydraulic crane
and aerial lift equipment specialist serving industrial customers along the
Texas and Louisiana gulf coast. R&R Rentals generated 1997 pro forma revenues
of $8.4 million.
2
<PAGE>
THE INITIAL OFFERING
Notes.................. The Old Notes were sold by the Company on November
25, 1997 to the Initial Purchasers pursuant to a
Purchase Agreement dated November 20, 1997 (the
"Purchase Agreement"). The Initial Purchasers
subsequently resold the Old Notes to qualified
institutional buyers pursuant to Rule 144A under the
Securities Act.
Registration Rights Pursuant to the Purchase Agreement, the Company, the
Agreement.............. Subsidiary Guarantors and the Initial Purchasers
entered into a Registration Rights Agreement dated as
of November 25, 1997 (the "Registration Rights
Agreement"), which grants the holders of the Old
Notes certain exchange and registration rights. The
Exchange Offer is intended to satisfy such exchange
rights which terminate upon the consummation of the
Exchange Offer. Upon consummation of the Exchange
Offer, the Company and the Subsidiary Guarantors will
have no further obligation under the Registration
Rights Agreement to register Old Notes except in
limited circumstances in which the Company has agreed
to file a Shelf Registration Statement (as defined).
THE EXCHANGE OFFER
Securities Offered..... $100,000,000 aggregate principal amount of 10% Senior
Subordinated Notes due 2004, Series B, of the
Company.
The Exchange Offer..... $1,000 principal amount of Exchange Notes in exchange
for each $1,000 principal amount of Old Notes. As of
the date hereof, $100,000,000 aggregate principal
amount of Old Notes are outstanding. The Company will
issue the Exchange Notes to holders on or promptly
after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions
of the Securities Act, provided that such Exchange
Notes are acquired in the ordinary course of such
holder's business and that such holder does not
intend to participate and has no arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of market-
making activities or other trading activities may be
a statutory underwriter. Each Participating Broker-
Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning
of the Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection
with resales of Exchange Notes received in exchange
for Old Notes where such Old Notes were acquired
3
<PAGE>
by such Participating Broker-Dealer as a result of
market-making activities or other trading activities.
The Company has agreed that, for a period of 180 days
after the Expiration Date, they will make this
Prospectus available to any Participating Broker-
Dealer for use in connection with any such resale.
See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff of
the Commission enunciated in no-action letters and,
in the absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection with
any resale transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities Act
for which the holder is not indemnified by the
Company.
Expiration Date........ 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in which case
the term "Expiration Date" means the latest date and
time to which the Exchange Offer is extended.
Accrued Interest on
the New Notes and the
Old Notes............. Each New Note will bear interest from its issuance
date. Holders of Old Notes that are accepted for
exchange will receive, in cash, accrued interest
thereon to, but not including, the issuance date of
the Exchange Notes. Such interest will be paid with
the first interest payment on the Exchange Notes.
Interest on the Old Notes accepted for exchange will
cease to accrue upon issuance of the Exchange Notes.
Conditions to the The Exchange Offer is subject to certain customary
Exchange Offer......... conditions, which may be waived by the Company. See
"The Exchange Offer--Conditions."
Procedures for
Tendering Old Notes...
Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof (or, in the case of a book-entry transfer,
delivering an Agent's Message (as defined) in lieu
thereof) in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such facsimile
(or, in the case of a book-entry transfer, deliver an
Agent's Message (as defined) in lieu thereof),
together with the Old Notes and any other required
documentation to the Exchange Agent (as defined) at
the address set forth herein. By executing the Letter
of Transmittal (or, in the case of a book-entry
transfer, delivering an Agent's Message in lieu
thereof), each holder will represent to the Company
that, among other things, the Exchange Notes acquired
pursuant to the Exchange Offer are being obtained in
the ordinary course of business of the person
receiving such Exchange Notes, whether or not such
person is the holder, that neither the holder nor any
such other person has any arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes and that neither
the holder nor any such other person is an
"affiliate," as defined under Rule 405 of the
Securities Act, of the Company. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer" and
"--Procedures for Tendering."
Untendered Old Notes... Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but who
do not tender their Old Notes will not have any
further exchange rights and such Old Notes will
continue to be subject
4
<PAGE>
to certain restrictions on transfer. Accordingly, the
liquidity of the market for such Old Notes could be
adversely affected.
Consequences of
Failure to Exchange...
The Old Notes that are not exchanged pursuant to the
Exchange Offer will remain restricted securities.
Accordingly, such Old Notes may be resold only (i) to
the Company, (ii) pursuant to Rule 144A or Rule 144
under the Securities Act or pursuant to some other
exemption under the Securities Act, (iii) outside the
United States to a foreign person pursuant to the
requirements of Rule 904 under the Securities Act, or
(iv) pursuant to an effective registration statement
under the Securities Act. See "The Exchange Offer--
Consequences of Failure to Exchange."
Shelf Registration If (i) the Exchange Offer is prohibited by applicable
Statement............. law or (ii) any holder of the Old Notes (other than
any such holder which is an "affiliate" of the
Company or a Subsidiary Guarantor within the meaning
of Rule 405 under the Securities Act) notifies the
Company that (A) it is prohibited by law or policy
from participating in the Exchange Offer, (B) that it
may not resell the Exchange Notes acquired by it in
the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not
appropriate or available for such resales or (C) that
it is a broker-dealer and holds Notes acquired
directly from the Company or an affiliate of the
Company, the Company has agreed to register the Old
Notes on a shelf registration statement (the "Shelf
Registration Statement"). If the Company fails to
satisfy these registration obligations, it will be
required to pay liquidated damages ("Liquidated
Damages") to holders of Notes under certain
circumstances.
Special Procedures for
Beneficial Owners.....
Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder promptly
and instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the
Letter of Transmittal (or in the case of a book-entry
transfer, delivering an Agent's Message in lieu
thereof) and delivering its Old Notes, either make
appropriate arrangements to register ownership of the
Old Notes in such owner's name or obtain a properly
completed bond power from the registered holder. The
transfer of registered ownership may take
considerable time. The Company will keep the Exchange
Offer open for not less than twenty business days in
order to provide for the transfer of registered
ownership.
Guaranteed Delivery Holders of Old Notes who wish to tender their Old
Procedures............ Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes, the
Letter of Transmittal (or, in the case of a book-
entry transfer, delivering an Agent's Message in lieu
thereof) or any other documents required by the
Letter of Transmittal to the Exchange Agent (or
comply with the procedures for book-entry transfer)
prior to the Expiration Date must tender their Old
Notes according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Guaranteed Delivery
Procedures."
5
<PAGE>
Withdrawal Rights...... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Old
Notes and Delivery of
Exchange Notes........ The Company will accept for exchange any and all Old
Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Use of Proceeds........ There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
Exchange Agent......... Harris Trust and Savings Bank.
THE EXCHANGE NOTES
General................ The form and terms of the Exchange Notes are the same
as the form and terms of the Old Notes (which they
replace) except that (i) the Exchange Notes bear a
Series B designation and a different CUSIP number
from the Old Notes, (ii) the Exchange Notes have been
registered under the Securities Act and, therefore,
will not bear legends restricting the transfer
thereof, and (iii) the holders of Exchange Notes will
not be entitled to certain rights under the
Registration Rights Agreement, including the
provisions providing for Liquidated Damages on the
Old Notes in certain circumstances relating to the
timing of the Exchange Offer, which rights will
terminate when the Exchange Offer is consummated. See
"The Exchange Offer -- Purpose and Effect of the
Exchange Offer." The Exchange Notes will evidence the
same debt as the Old Notes and will be entitled to
the benefits of the Indenture. See "Description of
Exchange Notes."
Securities Offered..... $100,000,000 aggregate principal amount of the
Company's 10% Senior Subordinated Notes due 2004,
Series B.
Interest Rate.......... The Exchange Notes will bear interest at the rate of
10% per annum, payable semi-annually on May 30 and
November 30 of each year, commencing November 30,
1998.
Subsidiary Guarantees.. The Exchange Notes will be fully and unconditionally
guaranteed by all Restricted Subsidiaries (as
defined) of the Company (together, the "Subsidiary
Guarantors").
Subordination..........
The Exchange Notes will be general unsecured
obligations of the Company, will rank subordinate in
right of payment to all existing and future Senior
Debt of the Company and will rank senior or pari
passu in right of payment to all existing and future
subordinated Indebtedness of the Company. The
Subsidiary Guarantees will be general unsecured
obligations of the Subsidiary Guarantors, will rank
subordinate in right of payment to all existing and
future Senior Debt of the Subsidiary Guarantors and
will rank senior or pari passu in right of payment to
all existing and future subordinated Indebtedness of
the Subsidiary Guarantors. As of June 30, 1998, on a
pro forma basis, there would have been $337.3 million
of Senior Debt of the Company and the Subsidiary
Guarantors outstanding and $238.4 million of
Indebtedness of the Company that ranked pari passu in
right of payment to the Subsidiary Guarantees
outstanding. See "Risk Factors--Subordination;
Holding Company Structure."
6
<PAGE>
Optional Redemption.... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after
November 30, 2001 in cash at the redemption prices
set forth herein, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date
of redemption. In addition, at any time prior to
November 30, 2000, the Company may on any one or more
occasions redeem up to 33% of the initially
outstanding aggregate principal amount of Notes at a
redemption price equal to 110% of the principal
amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption
date, with the net proceeds of a public offering of
Common Stock of the Company; provided that, in each
case, at least 67% of the aggregate principal amount
of Notes remains outstanding immediately after the
occurrence of any such redemption. See "Description
of Exchange Notes--Optional Redemption."
Change of Control...... Upon the occurrence of a Change of Control, (i) the
Company will have the option, at any time prior to
November 30, 2001, to redeem the Notes in whole, but
not in part, at a redemption price equal to 100% of
the aggregate principal amount of the Notes, plus the
Applicable Premium, plus accrued and unpaid interest
and Liquidated Damages, if any, to the date of
redemption and (ii) if the Company does not so redeem
the Notes, or if a Change of Control occurs after
November 30, 2001, each holder of Notes will have the
right to require the Company to repurchase all or any
part of such holder's Notes at an offer price in cash
equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of
purchase. See "Description of Exchange Notes--
Optional Redemption" and
"--Repurchase at the Option of Holders--Change of
Control." There can be no assurance that, in the
event of a Change of Control, the Company would have
sufficient funds to purchase all Notes tendered. See
"Risk Factors--Limitations on Change of Control."
Certain Covenants...... The Indenture contains certain covenants that limit,
among other things, the ability of the Company and
its Subsidiaries (as defined) to: (i) pay dividends,
redeem capital stock or make certain other restricted
payments or investments; (ii) incur additional
indebtedness or issue preferred equity interests;
(iii) merge, consolidate or sell all or substantially
all of its assets; (iv) create liens on assets; and
(v) enter into certain transactions with affiliates
or related persons. See "Description of Exchange
Notes--Certain Covenants."
Use of Proceeds........
There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer. The net
proceeds from the sale of the Old Notes in the
Initial Offering were used to repay all indebtedness
outstanding under the Company's former credit
facility (the "Old Credit Facility") and certain
seller notes and for acquisitions. See "Use of
Proceeds."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered before tendering Old Notes in exchange for Exchange Notes. These
risk factors are generally applicable to the Old Notes as well as the Exchange
Notes.
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company was founded in June 1996 to acquire and integrate equipment
rental companies. In 1997, the Company acquired six businesses in separate
transactions. In 1998, the Company acquired nine businesses in separate
transactions and consummated the Initial Stock Offering. While the Acquired
Businesses were acquired at various dates during 1997 and 1998, the following
pro forma operating, per share and other data are presented as if all such
acquisitions, the Initial Stock Offering, and certain borrowings under the New
Credit Facility had occurred on January 1, 1997. The following pro forma
balance sheet data give effect to the aforementioned transactions as if they
had occurred on March 31, 1998. See "Capitalization." The summary historical
and pro forma financial information should be read in conjunction with the
information contained in "Selected Pro Forma Financial Data," "Selected
Historical Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1997 MARCH 31, 1998
-------------------- --------------------- --------------------
ACTUAL PRO FORMA(A) ACTUAL PRO FORMA(A) ACTUAL PRO FORMA(A)
------- ------------ ------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues......... $41,288 $228,688 $ 2,319 $47,416 $22,151 $55,949
Gross profit........... 15,573 134,207 843 17,942 8,651 22,179
Operating income
(loss)................ 6,187 40,608 (28) 5,787 3,313 7,787
Interest expense, net.. 4,336 28,024 262 7,006 3,100 7,006
Income (loss) before
income taxes.......... 1,923 13,022 (290) (1,075) 290 806
Income tax expense
(benefit)............. 818 5,464 (135) (452) 151 326
Net income (loss)...... 1,105 7,558 (155) (623) 139 480
PER SHARE DATA:
Basic earnings (loss)
per share............. $ 0.09 $ 0.34 $ (0.02) $ (0.03) $ 0.01 $ 0.02
Basic shares
outstanding........... 12,793 22,091 9,699 21,919 14,823 22,149
Diluted earnings (loss)
per share............. $ 0.08 $ 0.32 $ (0.01) $ (0.03) $ 0.01 $ 0.02
Diluted shares
outstanding........... 14,150 23,448 11,228 23,448 16,122 23,448
OTHER DATA:
Rental fleet purchases. $15,336 $ 93,239 $ 853 $28,678 $12,385 $17,073
EBITDA(b).............. 12,744 82,667 395 16,264 6,924 18,476
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1998
---------------------
ACTUAL PRO FORMA(A)
-------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Cash.......... $ 3,773 $ 2,158
Rental
equipment,
net.......... 104,937 220,892
Total assets.. 242,303 462,742
Total debt.... 193,954 310,144
Total
stockholders'
equity....... 26,860 116,495
</TABLE>
- --------
(a) For an explanation of the calculation of the pro forma adjustments, see
"Selected Pro Forma Financial Data."
(b) Reflects operating income plus other income (expense), net, before interest
expense, net, income taxes, rental equipment depreciation and non-rental
depreciation and amortization. EBITDA is not intended to represent cash
flow from operations or net income as defined by generally accepted
accounting principles and should not be considered as a measure of
liquidity or an alternative to, or more meaningful than, cash flow from
operations or net income as an indication of the Company's operating
performance. EBITDA is included herein because management believes that
EBITDA, as presented, represents a useful measure of assessing the
performance of the Company's ongoing operating activities as it reflects
the earnings trends of the Company without the impact of interest, income
taxes and certain non-cash charges.
8
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information set forth in the Prospectus before tendering
Old Notes in exchange for Exchange Notes. The risk factors set forth below are
generally applicable to the Old Notes as well as to the Exchange Notes.
LEVERAGED FINANCIAL POSITION; RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Company has incurred significant indebtedness. As of June 30, 1998, on a
pro forma basis, the Company would have had $337.3 million of indebtedness
outstanding (which amount includes the Old Notes), its stockholders' equity
would have been approximately $124.7 million and there would have been $86.6
million available for future borrowings under the New Credit Facility subject
to availability based on certain financial tests including a borrowing base.
The level of the Company's indebtedness could have important consequences to
holders of Exchange Notes, including: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to debt service and will
not be available for other purposes; (ii) the Company's ability to obtain
additional debt financing in the future for working capital, capital
expenditures or acquisitions may be limited; and (iii) the Company's level of
indebtedness could limit its flexibility in reacting to changes in the
industry and economic conditions generally. The Company's ability to pay
interest on the Exchange Notes, to repay portions of its long-term
indebtedness (including the Exchange Notes and borrowings under the New Credit
Facility) and to satisfy its other debt obligations will depend upon the
future operating performance and the availability of refinancing indebtedness,
which will be affected by prevailing economic conditions and financial,
business and other factors, certain of which are beyond its control.
The Indenture and the New Credit Facility contain certain covenants that
restrict, among other things, the Company's ability to incur additional
indebtedness, incur liens, pay dividends or make certain other restricted
payments, consummate certain asset sales, enter into certain transactions with
affiliates, impose restrictions on the ability of a subsidiary to pay
dividends or make certain payments to the Company, merge or consolidate with
any other person or sell, assign, transfer, lease, convey, or otherwise
dispose of all or substantially all of the assets of the Company. In addition,
the New Credit Facility contains certain other and more restrictive covenants
and also requires the Company to maintain specified financial ratios and to
satisfy certain financial condition tests. The Company's ability to meet these
financial ratio and financial condition tests can be affected by events beyond
its control and there can be no assurance that the Company will meet those
tests. A breach of any of these covenants could result in a default under the
New Credit Facility or the Indenture. In the event of an event of default
under the New Credit Facility or the Indenture, the lenders thereunder could
elect to declare all amounts outstanding thereunder, together with accrued and
unpaid interest, to be immediately due and payable. If the indebtedness under
the New Credit Facility were to be accelerated, there can be no assurance that
the assets of the Company would be sufficient to repay in full that
indebtedness and the other indebtedness of the Company, including the Exchange
Notes. See "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Description of New Credit
Facility," "Description of Exchange Notes--Subordination" and "--Certain
Covenants."
SUBORDINATION
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Notes and the Subsidiary Guarantees will be
subordinated to the prior payment in full of all existing and future Senior
Debt of the Company and the Subsidiary Guarantors (including, without
limitation, indebtedness incurred under the New Credit Facility). In the event
of the bankruptcy, liquidation, dissolution, reorganization or other winding-
up of the Company or a Subsidiary Guarantor, the assets of the Company or such
Subsidiary Guarantor will be available to pay obligations on the Exchange
Notes or the Subsidiary Guarantees only after all Senior Debt (including
amounts incurred under the New Credit Facility) has been so paid in full;
accordingly, there may not be sufficient assets remaining to pay amounts due
on any or all of the Exchange Notes or the Subsidiary Guarantees then
outstanding. In addition, under certain circumstances, the Company and the
Subsidiary
9
<PAGE>
Guarantors may not pay principal of, premium, if any, or interest on, or any
other amounts owing in respect of the Exchange Notes or the Subsidiary
Guarantees, or purchase, redeem or otherwise retire the Exchange Notes, in the
event of certain defaults with respect to certain classes of Senior Debt,
including Senior Debt incurred under the New Credit Facility. As of June 30,
1998, on a pro forma basis, there would have been $238.4 million of Senior
Debt outstanding and the Company and the Subsidiary Guarantees would have been
able to incur additional Senior Debt from time to time, subject to certain
restrictions. See "Description of New Credit Facility" and "Description of
Exchange Notes--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock."
The Exchange Notes and the Subsidiary Guarantees will be general unsecured
obligations of the Company and the Subsidiary Guarantors and will be
subordinated in right of payment to all existing and future secured
indebtedness of the Company and the Subsidiary Guarantors, to the extent of
the value of the assets securing such indebtedness. The New Credit Facility is
currently secured by substantially all of the assets of the Company and the
Subsidiary Guarantors.
HOLDING COMPANY STRUCTURE
The Company is a holding company with no significant assets other than its
investments in its subsidiaries. Accordingly, the Company must rely entirely
upon distributions from its subsidiaries to generate the funds necessary to
meet its obligations, including the payment of principal and interest on the
Exchange Notes. The ability of the subsidiaries of the Company to pay
dividends or make other payments or advances to the Company will depend upon
their operating results and will be subject to applicable laws and contractual
restrictions contained in the instruments governing any indebtedness of such
subsidiaries (including the New Credit Facility). Although the Indenture
limits the ability of such subsidiaries to enter into consensual restrictions
on their ability to pay dividends and make other payments to the Company, such
limitations are subject to a number of significant qualifications. See
"Description of Exchange Notes--Certain Covenants--Dividend and Other Payment
Restrictions Affecting Subsidiaries."
LIMITATIONS ON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required
under certain circumstances to make an offer for cash to repurchase the
Exchange Notes at a price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest and Liquidated Damages, if any, to
the date of repurchase. If a Change of Control were to occur, there can be no
assurance that the Company would have, or would be able to acquire, sufficient
funds to pay the purchase price for all of the Exchange Notes that the Company
might be required to purchase. Certain events involving a Change of Control
may result in an event of default under the New Credit Facility or other
indebtedness of the Company that may be incurred in the future. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing the Exchange Notes, the Company could seek the consent of its
lenders to purchase the Exchange Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such
a consent or repay such borrowings, the Company would remain prohibited from
purchasing the Exchange Notes. In such case, the Company's failure to purchase
tendered Exchange Notes would constitute an Event of Default under the
Indenture. If, as a result thereof, a default occurs with respect to any
Senior Debt, the subordination provisions of the Exchange Notes would require
payment in full of the New Credit Facility and any other such Senior Debt
before repurchase of the Exchange Notes. See "Description of New Credit
Facility," "Description of Exchange Notes--Subordination" and "--Repurchase at
the Option of the Holders--Change of Control."
FRAUDULENT CONVEYANCE
A substantial portion of the proceeds of the Initial Offering was used to
refinance existing indebtedness. Accordingly, the obligations of the Company
under the Exchange Notes may be subject to review under relevant federal and
state fraudulent conveyance statutes ("fraudulent conveyance statutes") in a
bankruptcy, reorganization or rehabilitation case or similar proceeding or a
lawsuit by or on behalf of unpaid creditors of the Company. If a court were to
find under relevant fraudulent conveyance statutes that, at the time the
Exchange Notes were issued, (a) the Company issued the Exchange Notes with the
intent of hindering, delaying or
10
<PAGE>
defrauding current or future creditors or (b)(i) the Company received less
than reasonably equivalent value or fair consideration for issuing the
Exchange Notes (including, to the extent the proceeds from the Initial
Offering were used to refinance any indebtedness of the Company or any of its
subsidiaries, by virtue of an invalidation as a fraudulent conveyance of the
incurrence of such indebtedness) and (ii)(A) was insolvent, (B) was rendered
insolvent by reason of such issuance and/or such related transactions, (C) was
engaged, or about to engage, in a business or transaction for which its
remaining assets constituted unreasonably small capital, (D) intended to
incur, or believed that it would incur, obligations beyond its ability to pay
as such obligations matured (as all of the foregoing terms are defined in or
interpreted under such fraudulent conveyance statutes) or (E) was a defendant
in an action for money damages, or had a judgment for money damages docketed
against it (if, in either case, after final judgment, the judgment was
unsatisfied), such court could further subordinate the Exchange Notes to
presently existing and future indebtedness of the Company and take other
action detrimental to the holders of the Exchange Notes, including, under
certain circumstances, invalidating the Exchange Notes.
The fraudulent conveyance statutes may apply to the Subsidiary Guarantors'
issuance of the Subsidiary Guarantees. To the extent that a court were to find
that (a) a Subsidiary Guarantee was incurred by a Subsidiary Guarantor with
the intent to hinder, delay or defraud any present or future creditor or (b)
such Subsidiary Guarantor did not receive fair consideration or reasonably
equivalent value for issuing its Subsidiary Guarantee and such Subsidiary
Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of the
issuance of such Subsidiary Guarantee, (iii) was engaged or about to engage in
a business or transaction for which the remaining assets of such Subsidiary
Guarantor constituted unreasonably small capital to carry on its business,
(iv) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured or (v) was a defendant in an action
for money damages, or had a judgment for money damages docketed against it
(if, in either case, after final judgment, the judgment was unsatisfied), the
court could avoid or further subordinate such Subsidiary Guarantee in favor of
the Subsidiary Guarantor's creditors. Among other things, a legal challenge of
a Subsidiary Guarantee on fraudulent conveyance grounds may focus on the
benefits, if any, realized by the Subsidiary Guarantor as a result of the
issuance by the Company of the Exchange Notes. To the extent any Subsidiary
Guarantees were avoided as a fraudulent conveyance or held unenforceable for
any other reason, the claims of holders of the Exchange Notes in respect of
such Subsidiary Guarantor would be adversely affected and such holders would,
to such extent, be creditors solely of the Company and any Subsidiary
Guarantor whose Subsidiary Guarantee was not avoided or held unenforceable. To
the extent the claims of the holders of the Exchange Notes against the issuer
of an invalid Subsidiary Guarantee were further subordinated, they could be
subject to the prior payment of all liabilities of such Subsidiary Guarantor.
There can be no assurance that, after providing for all prior claims, there
would be sufficient assets to satisfy the claims of the holders of the
Exchange Notes relating to any voided portions of any of the Subsidiary
Guarantees.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally however,
the Company or a Subsidiary Guarantor may be considered insolvent if the sum
of its debts, taking contingent liabilities into account, is greater than the
fair marketable value of all of its assets at a fair valuation or if the
present fair marketable value of its assets is less than the amount that would
be required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature.
COMPETITION
The equipment rental industry is highly fragmented and competitive. The
Company's competitors include: large national companies; regional competitors
which operate in one or two states; small, independent businesses with one or
two rental locations; and equipment vendors and dealers who both sell and rent
equipment to customers. Some of the Company's competitors have greater
financial resources, are more geographically diverse and have greater name
recognition than the Company. There can be no assurance that the Company will
not encounter increased competition from existing competitors or new market
entrants that may be significantly larger and have greater financial and
marketing resources. In addition, to the extent existing or future competitors
seek to gain or retain market share by reducing prices, the Company may be
required to lower its prices and rates, thereby adversely affecting operating
results. Existing or future competitors also may seek to compete with
11
<PAGE>
the Company for acquisitions, which could have the effect of increasing the
price for acquisitions or reducing the number of suitable acquisitions. See
"Business--Competition."
ABILITY TO COMPLETE AND INTEGRATE ACQUISITIONS; RISKS RELATING TO GROWTH
STRATEGY
A significant portion of the Company's strategy is to pursue and complete
acquisitions that meet its acquisition criteria. The Company has acquired and
seeks to acquire other companies that can benefit from the Company's
operations, management and access to capital. The Company's ability to grow by
acquisition is dependent upon, and may be limited by, the availability of
suitable acquisition candidates and capital, and the restrictions contained in
the New Credit Facility and the Indenture and the Company's other financing
arrangements. See "Description of New Credit Facility" and "Description of
Exchange Notes." To the extent that cash generated internally and cash
available under the New Credit Facility are not sufficient to provide the
capital required for acquisitions, the Company will require additional debt
and/or equity financing in order to provide for such capital. Future debt
financings, if available, will result in increased interest and amortization
expense, increased leverage and decreased income available to fund
acquisitions and expansion, and may limit the Company's ability to withstand
competitive pressures and render the Company more vulnerable to economic
downturns. Growth by acquisition also involves risks that could adversely
affect the Company's operating results, including difficulties in integrating
the operations and personnel of acquired companies, eliminating duplicative
costs and reducing overhead and the potential loss of key employees of
acquired companies. In addition, although the Company performs a due diligence
investigation of each business that it acquires, there may nevertheless be
liabilities of the Acquired Businesses or future acquired companies that the
Company fails or is unable to discover during its due diligence investigation
and for which the Company, as a successor owner, may be responsible.
There can be no assurance that the Company will be able to obtain the
capital necessary to pursue its growth strategy, consummate acquisitions on
satisfactory terms or, if any such acquisitions are consummated, successfully
integrate such acquired businesses into the Company and remedy any
undiscovered liabilities of any acquired companies. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources," "Description of New Credit Facility" and
"Description of Exchange Notes."
DEPENDENCE ON KEY PERSONNEL
Certain of the executive officers of the Company are of significant
importance to the direction and management of the Company. The loss of the
services of such persons could have a material adverse effect on the Company's
business and future operations, and there can be no assurance that the Company
would be able to find replacements for such persons with comparable business
experience. The Company does not maintain key man life insurance with respect
to such executive officers. See "Management--Directors and Executive
Officers."
GENERAL ECONOMIC CONDITIONS
A majority of the Company's revenues are derived from customers which are in
industries and businesses that are cyclical in nature and subject to changes
in general economic conditions, such as the construction industry. In
addition, because the Company conducts its operations in a variety of
geographic markets, it is subject to the economic conditions in each such
geographic market. General economic downturns or localized downturns in
markets where the Company has operations, including any downturns in the
construction industry, could have a material adverse effect on the Company and
its business, results of operations and financial condition.
GOLDER, THOMA, CRESSEY, RAUNER FUND V, L.P. HAS SIGNIFICANT CONTROL OVER THE
COMPANY
Golder, Thoma, Cressey, Rauner Fund V, L.P. owns and controls a majority of
the Common Stock of the Company. As a result, Golder, Thoma, Cressey, Rauner
Fund V, L.P. has significant control over the election of
12
<PAGE>
the Company's Board of Directors (the "Board of Directors" or the "Board") and
significant control over the affairs and management of the Company, including
corporate transactions such as mergers, acquisitions, divestitures and asset
sales. Circumstances may occur in which the interests of Golder, Thoma,
Cressey, Rauner Fund V, L.P., as a stockholder of the Company, could be in
conflict with the interests of the holders of the Exchange Notes. In addition,
Golder, Thoma, Cressey, Rauner Fund V, L.P., as a stockholder of the Company,
may have an interest in pursuing acquisitions, divestitures or other
transactions that, in its judgment, could enhance its equity investment, even
though such transactions might involve risks to the holders of the Exchange
Notes. See "Certain Relationships and Related Transactions--Stockholders
Agreement" and "--Registration Agreement."
ENVIRONMENTAL LIABILITIES
The Company's facilities are subject to federal, state and local
environmental requirements, including those relating to discharges to air,
water and land, the handling and disposal of solid and hazardous waste and the
cleanup of properties affected by hazardous substances. Certain environmental
laws impose substantial penalties for noncompliance, and others impose strict,
retroactive, joint and several liability upon persons responsible for releases
of hazardous substances.
The Company does not currently anticipate any material adverse effect on its
operations or financial condition as a result of its efforts to comply with,
or its liabilities under, such requirements. Some risk of environmental
liability is inherent in the Company's business, however, and there can be no
assurance that material environmental costs will not arise in the future. See
"Business--Governmental and Environmental Regulation."
LIABILITY AND INSURANCE
The Company's business exposes it to claims for personal injury or death
resulting from the use of equipment rented or sold by the Company, from
injuries caused in motor vehicle accidents in which Company delivery and
service personnel are involved, as well as workers' compensation claims and
other employment-related claims by the Company's employees. The Company
carries insurance coverage for product liability, general and automobile
liability and employment related claims from various national insurance
carriers. There can be no assurance, however, that existing or future claims
will not exceed the level of the Company's insurance, that the Company will
have sufficient capital available to pay any uninsured claims or that its
insurance will continue to be available on economically reasonable terms, if
at all. See "Business--Legal Proceedings."
INTANGIBLE ASSETS
The Company's balance sheet immediately following the Exchange Offer and
after giving effect to all completed acquisitions of the Acquired Businesses
will include an amount designated as "goodwill" that represents 32% of total
assets and 129% of stockholders' equity. Goodwill arises when an acquirer pays
more for a business than the fair value of the tangible and separately
measurable intangible net assets. Generally accepted accounting principles
require that this and all other intangible assets be amortized over the period
benefitted. Management has determined that period to be no less than 40 years.
If management were not to give effect to shorter benefit periods of factors
giving rise to a material portion of the goodwill, earnings reported in
periods immediately following the acquisition would be overstated. In later
years, the Company would be burdened by a continuing charge against earnings
without the associated benefit to income valued by management in arriving at
the consideration paid for the business. Earnings in later years could also be
significantly affected if management determined then that the remaining
balance of goodwill was impaired.
13
<PAGE>
Management has reviewed with its independent accountants all of the factors
and related future cash flows which it considered in arriving at the amount
incurred to acquire each of the Acquired Businesses. Management concluded that
the anticipated future cash flows associated with intangible assets recognized
in the acquisitions will continue indefinitely, and there is no persuasive
evidence that any material portion will dissipate over a period shorter than
40 years.
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange
Offer, there has not been any public market for the Old Notes. The Old Notes
have not been registered under the Securities Act and will be subject to
restrictions on transferability to the extent that they are not exchanged for
Exchange Notes by holders who are entitled to participate in this Exchange
Offer. After consummation of the Exchange Offer, the market for Old Notes not
tendered or exchanged (or tendered but not accepted for exchange) in the
Exchange Offer will be even more limited than their existing market. The
holders of Old Notes (other than any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) who are not
eligible to participate in the Exchange Offer are entitled to certain
registration rights, and the Company is required to file a Shelf Registration
Statement with respect to such Old Notes. The Exchange Notes will constitute a
new issue of securities with no established trading market. The Company does
not intend to list the Exchange Notes on any national securities exchange or
seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. The Initial Purchasers have
advised the Company that they currently intend to make a market in the
Exchange Notes, but they are not obligated to do so and may discontinue such
market making at any time. In addition, such market making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act and
may be limited during the Exchange Offer and the pendency of the Shelf
Registration Statement. Accordingly, no assurance can be given that an active
public or other market will develop for the Exchange Notes or as to the
liquidity of the trading market for the Exchange Notes. If a trading market
does not develop or is not maintained, holders of the Exchange Notes may
experience difficulty in reselling the Exchange Notes or may be unable to sell
them at all. If a market for the Exchange Notes develops, any such market may
be discontinued at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from
their principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal (or,
in the case of a book-entry transfer, an Agent's Message in lieu thereof) and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tenders of Old
Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to
be subject to the existing restrictions upon transfer thereof, and, upon
consummation of the Exchange Offer, certain registration rights under the
Registration Rights Agreement will terminate. In addition, any holder of Old
Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities, and if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old Notes could be
adversely affected. See "The Exchange Offer."
14
<PAGE>
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights
Agreement. The Company will not receive any cash proceeds from the issuance of
the Exchange Notes offered hereby. In consideration for issuing the Exchange
Notes contemplated in the Prospectus, the Company will receive Old Notes in
like principal amount, the form and terms of which are the same as the forms
and terms of the Exchange Notes (which replace the Old Notes), except as
otherwise described herein. The Old Notes surrendered in exchange for Exchange
Notes will be retired and cancelled and cannot be reissued. Accordingly, the
issuance of the Exchange Notes will not result in any increase or decrease in
the indebtedness of the Company. As such, no effect has been given to the
Exchange Offer in the pro forma financial data or capitalization tables.
The net proceeds to the Company from the sale of the Old Notes in the
Initial Offering (after deducting discounts, fees and expenses) were utilized
by the Company for the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Net Proceeds from the Initial Offering (1).................... $95,652
=======
Uses of Funds:
Repayment of Old Credit Facility............................ $59,513
-------
Repayment of Sellers Notes.................................. $ 1,015
-------
Acquisitions (2)............................................ $35,124
-------
Total..................................................... $95,652
=======
</TABLE>
- --------
(1) Reflects $100,000 aggregate principal amount of Old Notes net of a $1,233
discount at issuance and net of $3,115 of underwriting, legal, accounting
and other fees and expenses.
(2) The Company used the remainder of the net proceeds from the Initial
Offering after the repayment of the Old Credit Facility to acquire the
seven businesses it acquired in the first quarter of 1998.
15
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 30, 1998, on an actual basis and on a pro forma basis. The
information in this table should be read in conjunction with "Selected Pro
Forma Financial Data," "Selected Historical Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
AT JUNE 30,
1998
---------------
PRO
ACTUAL FORMA
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................... $ 1,007 $ 1,007
======= =======
Debt:
Notes......................................................... $ 98.9 $ 98.9
New Credit Facility........................................... 125.3 238.4
------- -------
Total debt................................................. 224.2 337.3
Total stockholders' equity................................. 28.8 124.7
------- -------
Total capitalization....................................... $ 253.0 $ 462.0
======= =======
</TABLE>
16
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
The Company was founded in June 1996 to acquire and integrate equipment
rental companies. In 1997, the Company acquired six businesses in separate
transactions. In 1998, the Company acquired nine businesses in separate
transactions and consummated the Initial Stock Offering. While the Acquired
Businesses were acquired at various dates during 1997 and 1998, the following
pro forma statements of operations are presented as if all such acquisitions,
the Initial Stock Offering and certain borrowings under the New Credit
Facility had occurred on January 1, 1997. The following pro forma balance
sheet gives effect to the aforementioned transactions as if they had occurred
on March 31, 1998.
The following selected pro forma financial data have been derived from
Company (the Company herein defined to include the Acquired Businesses)
prepared financial information (and, when applicable, includes adjustments to
conform fiscal periods to calendar periods), the audited and unaudited
Financial Statements and notes thereto of certain of the Acquired Businesses
for certain periods and the audited and unaudited Financial Statements and
notes thereto of the Company since inception, which Financial Statements
appear elsewhere in this Prospectus.
The selected pro forma financial data have been prepared for comparative
purposes only and do not purport to be indicative of the results which would
have been achieved had the Acquired Businesses been purchased, the Initial
Stock Offering been consummated and certain borrowings under the New Credit
Facility been made as of the assumed dates, nor are the results indicative of
the Company's future results. The selected pro forma financial data should be
read in conjunction with "Selected Historical Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and notes thereto of the Company since inception and
certain of the Acquired Businesses for certain periods and the Unaudited Pro
Forma Financial Statements and notes thereto included elsewhere herein.
17
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------
THE ACQUIRED
COMPANY(A) BUSINESSES(B) ADJUSTMENTS(C) PRO FORMA
---------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rental revenues.......... $26,398 $122,566 $ 5,144 $154,108
Rental equipment sales... 4,186 15,638 2,910 22,734
New equipment sales and
other................... 10,704 38,749 2,393 51,846
------- -------- ------- --------
Total revenues............. 41,288 176,953 10,447 228,688
COST OF REVENUES:
Rental equipment
depreciation............ 5,009 25,474 591 (d) 31,074
Cost of rental equipment
sales................... 2,935 10,579 2,561 16,075
Cost of new equipment
sales................... 4,872 17,479 1,579 23,930
Other operating expenses. 12,899 50,556 (327)(e) 63,128
------- -------- ------- --------
Total cost of revenues..... 25,715 104,088 4,404 134,207
------- -------- ------- --------
Gross profit............... 15,573 72,865 6,043 94,481
Selling, general and
administrative expenses... 7,910 39,932 (4,516)(f) 43,326
Non-rental depreciation and
amortization.............. 1,476 3,903 5,168 (g) 10,547
------- -------- ------- --------
Operating income........... 6,187 29,030 5,391 40,608
Other income (expense),
net....................... 72 (1,006) 1,372 (h) 438
Interest expense, net...... 4,336 11,701 11,987 (i) 28,024
------- -------- ------- --------
Income before income taxes. 1,923 16,323 (5,224) 13,022
Income tax expense......... 818 3,172 1,474 (j) 5,464
------- -------- ------- --------
Net income................. $ 1,105 $ 13,151 $(6,698) $ 7,558(k)
======= ======== ======= ========
Basic earnings per share... $ 0.34(k)
Diluted earnings per share. $ 0.32(k)
</TABLE>
(See Notes to Selected Pro Forma Financial Data)
18
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------
THE ACQUIRED
COMPANY(A) BUSINESSES(B) ADJUSTMENTS(C) PRO FORMA
---------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rental revenues......... $1,276 $27,507 $ 1,228 $30,011
Rental equipment sales.. 93 5,564 727 6,384
New equipment sales and
other.................. 950 9,515 556 11,021
------ ------- ------- -------
Total revenues............ 2,319 42,586 2,511 47,416
COST OF REVENUES:
Rental equipment
depreciation........... 335 6,763 661 (d) 7,759
Cost of rental equipment
sales.................. 75 3,495 640 4,210
Cost of new equipment
sales.................. 306 4,252 395 4,953
Other operating
expenses............... 760 11,817 (25)(e) 12,552
------ ------- ------- -------
Total cost of revenues.... 1,476 26,327 1,671 29,474
------ ------- ------- -------
Gross profit.............. 843 16,259 840 17,942
Selling, general and
administrative expenses.. 783 9,795 (997)(f) 9,581
Non-rental depreciation
and amortization......... 88 1,025 1,461 (g) 2,574
------ ------- ------- -------
Operating income (loss)... (28) 5,439 376 5,787
Other income, net......... -- 161 (17)(h) 144
Interest expense, net..... 262 2,646 4,098 (i) 7,006
------ ------- ------- -------
Income (loss) before
income taxes............. (290) 2,954 (3,739) (1,075)
Income tax expense
(benefit)................ (135) 935 (1,252)(j) (452)
------ ------- ------- -------
Net income (loss)......... $ (155) $ 2,019 $(2,487) $ (623)(k)
====== ======= ======= =======
Basic earnings per share.. $ (0.03)(k)
Diluted earnings per
share.................... $ (0.03)(k)
</TABLE>
(See Notes to Selected Pro Forma Financial Data)
19
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
------------------------------------------------
THE ACQUIRED
COMPANY(A) BUSINESSES(B) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rental revenues........... $15,815 $22,800 $ 261 $38,876
Rental equipment sales.... 1,742 2,100 -- 3,842
New equipment sales and
other.................... 4,594 8,393 244 13,231
------- ------- ------- -------
Total revenues.............. 22,151 33,293 505 55,949
COST OF REVENUES:
Rental equipment
depreciation............. 2,727 5,420 (174)(d) 7,973
Cost of rental equipment
sales.................... 1,037 1,316 -- 2,353
Cost of new equipment
sales.................... 2,187 4,173 -- 6,360
Other operating expenses.. 7,549 9,697 (162)(e) 17,084
------- ------- ------- -------
Total cost of revenues...... 13,500 20,606 (336) 33,770
------- ------- ------- -------
Gross profit................ 8,651 12,687 841 22,179
Selling, general and
administrative expenses.... 4,531 8,466 (1,296)(f) 11,701
Non-rental depreciation and
amortization............... 807 957 927 (g) 2,691
------- ------- ------- -------
Operating income............ 3,313 3,264 1,210 7,787
Other income (expense), net. 77 (62) 10 25
Interest expense, net....... 3,100 3,014 892 (i) 7,006
------- ------- ------- -------
Income before income taxes.. 290 188 328 806
Income tax expense.......... 151 -- 175 (j) 326
------- ------- ------- -------
Net income.................. $ 139 $ 188 $ 153 $ 480(k)
======= ======= ======= =======
Basic earnings per share.... $ 0.02(k)
Diluted earnings per share.. $ 0.02(k)
</TABLE>
(See Notes to Selected Pro Forma Financial Data)
20
<PAGE>
PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT MARCH 31, 1998
----------------------------------------------------
THE ACQUIRED PRO
COMPANY(L) BUSINESSES(L) ADJUSTMENTS(M)(N) FORMA
---------- ------------- ----------------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents. $ 3,773 $ 3,239 $(4,854)(i) $ 2,158
Accounts receivable, net.. 24,095 10,859 (1,775) 33,179
Inventory, net............ 7,158 2,658 23 9,839
Rental equipment, net..... 104,937 122,750 (6,795)(ii) 220,892
Property and equipment,
net...................... 6,968 12,027 2,230 (iii) 21,225
Intangible assets, net.... 86,888 17,069 62,397 (iv) 166,354
Loan origination costs,
net...................... 6,139 -- (1,133)(v) 5,006
Prepaid and other assets,
net...................... 2,345 5,104 (3,360) 4,089
-------- -------- ------- --------
Total assets.......... $242,303 $173,706 $46,733 $462,742
======== ======== ======= ========
LIABILITIES
Accounts payable.......... $ 9,647 $ 1,916 $ (160) $ 11,403
Accrued interest.......... 3,904 1,075 (360) 4,619
Accrued expenses and other
liabilities.............. 7,938 12,318 (175) 20,081
Debt...................... 193,954 124,279 (8,089)(vi) 310,144
-------- -------- ------- --------
Total liabilities..... 215,443 139,588 (8,784) 346,247
Stockholders' equity...... 26,860 34,118 55,517 (vii) 116,495
-------- -------- ------- --------
Total liabilities and
stockholders' equity. $242,303 $173,706 $46,733 $462,742
======== ======== ======= ========
</TABLE>
(See Notes to Selected Pro Forma Financial Data)
21
<PAGE>
NOTES TO SELECTED PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) Results for the year ended December 31, 1997 and for the three months
ended March 31, 1997 represent actual historical 1997 results for the
Company, including results for the Acquired Businesses purchased in the
related 1997 period from the date of acquisition. Results for the three
months ended March 31, 1998 represent actual historical results for the
Company, including results for the Acquired Businesses purchased in the
first quarter of 1998 from the date of acquisition.
(b) Results for the year ended December 31, 1997 and for the three months
ended March 31, 1997 represent combined historical 1997 results for (i)
the Acquired Businesses purchased in the related 1997 period prior to the
date of acquisition and (ii) the Acquired Businesses purchased in 1998.
Results for the three months ended March 31, 1998 represent combined
historical results for the Acquired Businesses purchased in 1998 prior to
the date of acquisition.
(c) In each of the following items, reflects the elimination of a location
not purchased from Cormier Equipment as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ ------------
<S> <C> <C>
Rental revenues......... $ 130 $100
New equipment sales and
other.................. 21 17
----- ----
Total revenues.......... 151 117
Rental equipment
depreciation........... 81 60
Other operating
expenses............... 102 50
----- ----
Total cost of revenues.. 183 110
----- ----
Gross profit (loss)..... (32) 7
Selling, general and
administrative
expenses............... 72 41
Non-rental depreciation
and amortization....... 1 1
----- ----
Operating loss.......... $(105) $(35)
===== ====
</TABLE>
In addition, reflects the acquisition of GenEquip, Inc., a business
acquired by Falconite, Inc. in January 1998, and Aerial Equipment Rental,
Inc., a business acquired by Falconite in May 1998, as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1997 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Rental revenues................... $ 5,274 $1,327 $142
Rental equipment sales............ 2,910 728 --
New equipment sales and other..... 2,415 571 121
------- ------ ----
Total revenues.................... 10,599 2,626 263
Rental equipment depreciation..... 1,808 464 24
Cost of rental equipment sales.... 2,561 640 --
Cost of new equipment sales....... 1,578 395 --
Other operating costs............. 2,503 629 140
------- ------ ----
Total cost of revenues............ 8,450 2,128 164
------- ------ ----
Gross profit...................... 2,149 498 99
Selling, general and
administrative expenses.......... 1,789 400 54
Non-rental depreciation and
amortization..................... 121 31 2
------- ------ ----
Operating income.................. 239 67 43
Other income, net................. 179 16 23
Interest income (expense), net.... (25) (7) (5)
------- ------ ----
Income before income taxes........ $ 393 $ 76 $ 61
======= ====== ====
</TABLE>
22
<PAGE>
(d) Pursuant to SEC reporting requirements, rental equipment depreciation has
been derived utilizing the rental equipment asset values of each of the
Acquired Businesses at the time of their acquisition rather than utilizing
values of rental equipment assets actually held by each of the Acquired
Businesses in the period presented. Reflects the impact on rental
equipment depreciation resulting from the application of the Company's
depreciation policy rather than those of the former owners of the Acquired
Businesses. In addition, reflects the change in rental equipment
depreciation resulting from the write-up or write-down of rental equipment
assets to fair value arising from purchase accounting. In addition,
reflects the increase in rental equipment depreciation resulting from the
purchase of equipment referred to in note (e) below.
(e) Reflects the elimination of lease expense resulting from the termination
of certain rental equipment leases which occurred with the purchase of the
underlying equipment. Also reflects the rent expense resulting from the
Company's current lease terms as compared to lease terms entered into by
former owners. In addition, reflects the increase in rent expense and
corresponding decrease in depreciation expense and real estate tax expense
resulting from the Company leasing rather than owning certain related
facilities and, conversely, the decrease in rent expense and corresponding
increase in depreciation expense and real estate tax expense resulting
from the termination of certain facility leases which occurred with the
purchase of the underlying facility by the Company. Also, reflects the
decrease in rent expense resulting from the termination of certain
facility leases.
(f) Reflects the decrease resulting from differentials between the
compensation levels of former owners of the Acquired Businesses and the
terms of the employment agreements entered into between certain of the
former owners and the Company. The employment agreements provide for
bonuses to be paid based on increased future earnings. Compensation
amounts presented reflect bonuses due based on current operating results.
Additional bonuses would be due if increased earnings levels are achieved.
(g) Pursuant to SEC reporting requirements, non-rental depreciation has been
derived utilizing the property, plant and equipment values of each of the
Acquired Businesses at the time of their acquisition, rather than
utilizing values of property, plant and equipment actually held by each of
the Acquired Businesses in the period presented. Reflects the decrease in
non-rental depreciation resulting from the application of the Company's
depreciation policy rather than those of the former owners of the Acquired
Businesses. In addition, reflects the increase in non-rental depreciation
resulting from the write-up of property, plant and equipment to fair value
arising from purchase accounting. Also reflects amortization of goodwill
calculated on a goodwill life of 40 years and amortization of non-compete
agreements calculated on their contract terms of two to five years, in
each case specifically related to the purchases of the Acquired
Businesses. The pro forma adjustments consist of the following:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------
1997 1997 1998
------------ ------ ----
<S> <C> <C> <C>
Non-rental depreciation......................... $1,321 $ 352 $260
Amortization of goodwill........................ 3,223 890 607
Amortization of non-compete agreements.......... 624 219 60
------ ------ ----
$5,168 $1,461 $927
====== ====== ====
</TABLE>
(h) Reflects discontinuation and elimination of unrelated businesses
previously operated and related charges incurred by the former owners of
certain of the Acquired Businesses.
(i) Reflects increased interest expense at the Company's borrowing rate under
the New Credit Facility of 7.75% on the indebtedness resulting from (i)
the purchase of the Acquired Businesses for $113,172 after giving effect
to the partial repayment of the New Credit Facility with $3,434 of cash on
hand at the Acquired Businesses purchased or to be purchased on or after
March 31, 1998 and (ii) the borrowing of $3,085 under the New Credit
Facility to fund certain potential purchase price adjustments in
connection with the Acquired Businesses purchased in 1998.
(j) Reflects the income tax rate that would have been in effect if the
Acquired Businesses had been combined and subject to a federal statutory
rate of 34% and the applicable state statutory rate for each of the
Acquired Businesses throughout the period presented.
23
<PAGE>
(k) Unaudited pro forma earnings per share has been computed based on the
weighted average number of common shares outstanding during the period,
after giving effect to the Reclassification, the Stock Split, the Initial
Stock Offering and the mandatory conversion of the 8% convertible
subordinated promissory notes to be issued in connection with the
acquisition of Falconite, but without giving effect to shares issuable
upon exercise of outstanding options because they are not dilutive.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("SFAS 123") allows entities to choose between
a new fair value based method of accounting for employee stock options or
similar equity instruments and the current intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB
No. 25"). Entities electing to account for employee stock options or
similar equity instruments under APB No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value
method of accounting has been applied. The Company has elected APB No. 25,
and will provide such pro forma disclosure of net income and earnings per
share, as applicable, in the notes to future consolidated financial
statements. Had pro forma compensation cost for NES's stock based
compensation plans been determined based on the pro forma fair value at
the assumed grant date for awards under those plans consistent with the
method of SFAS 123, the Company's pro forma net income and net income per
share would have been as follows for the year ended December 31, 1997 and
the three month periods ended March 31, 1997 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------
1997 1997 1998
------------ ------ -----
<S> <C> <C> <C>
Net income.................................... $6,986 $ (768) $ 333
Basic earnings per share...................... $ 0.32 $(0.04) $0.02
Diluted earnings per share.................... $ 0.30 $(0.03) $0.01
</TABLE>
The pro forma fair value of the options was estimated on the assumed date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions: dividend yield of 0%, expected volatility of
30%, risk free interest rates of 5.67% and expected lives of 5 years.
(l) Represents actual historical balance sheets of the Company, Falconite and
R&R Rentals as of March 31, 1998.
(m) The following are adjustments to the aforementioned balance sheets:
(i) Reflects the use of the cash on hand at the Acquired Businesses
purchased on or after March 31, 1998 of $3,434 and the elimination of
cash not purchased in the R&R Rentals acquisition.
(ii) Reflects the write-down of rental equipment as part of purchase
accounting related to the residual value in excess of fair value.
(iii) Reflects the write-up of property and equipment to fair value as part
of purchase accounting.
(iv) Reflects $61,797 of goodwill representing the excess of the purchase
price over the fair value of net assets acquired. In addition,
reflects $600 of noncompete agreements entered into by the Company and
certain selling shareholders.
(v) Reflects the incremental loan origination costs related to the New
Credit Facility.
(vi) Reflects the use of cash on hand at the Acquired Businesses purchased
or to be purchased on or after March 31, 1998 of $3,434 and the
elimination of the Acquired Businesses' indebtedness of $124,279,
offset by additional borrowings under the New Credit Facility of
$116,190, and the borrowing of $3,085 under the New Credit Facility to
fund potential purchase price adjustments in connection with the
Acquired Businesses purchased in 1998.
(vii) Reflects the cash proceeds from the Initial Stock Offering of $94,500
and the mandatory conversion at the initial public offering price of
$3,750 of 8% subordinated promissory notes issued in connection with
the Falconite acquisition, net of estimated Initial Stock Offering
costs of $8,615 and the elimination of equity of Falconite of $33,232
and R&R Rentals of $886.
24
<PAGE>
(n) In addition, reflects the acquisition of Aerial Rental Equipment, Inc., a
business acquired by Falconite in May 1998, as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
<S> <C>
Cash and cash equivalents.................................. $ 177
Accounts receivable, net................................... 222
Inventory, net............................................. 23
Rental equipment, net...................................... 506
Property and equipment, net................................ 80
Prepaids and other assets, net............................. 2
------
Total assets........................................... $1,010
======
Accounts payable........................................... $ 41
Accrued expenses and other liabilities..................... 9
Debt....................................................... 488
------
Total liabilities...................................... 538
Stockholders' equity....................................... 472
------
Total liabilities and stockholders' equity................. $1,010
======
</TABLE>
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
The Company was founded in June 1996 to acquire and integrate equipment
rental companies. In 1997, the Company acquired Aerial Platforms, BAT Rentals,
Equipco Rentals & Sales, Industrial Hoist Services, Lone Star Rentals and
Sprintank in separate transactions. For historical financial data presentation
purposes, Aerial Platforms, BAT Rentals, Equipco Rentals & Sales, Lone Star
Rentals and Sprintank have been identified as the predecessor companies and
are collectively referred to herein as the "Predecessor Companies." The
following selected historical financial data of the Predecessor Companies as
of and for the years ended December 31, 1996 and 1997 (or the corresponding
fiscal year) have been derived from audited Financial Statements and notes
thereto included elsewhere in this Prospectus. The following selected
historical financial data of BAT Rentals, Equipco Rentals & Sales, Lone Star
Rentals and Sprintank as of and for the year ended December 31, 1995 (or the
corresponding fiscal year) have been derived from audited Financial Statements
and notes thereto included elsewhere in this Prospectus. The following
selected historical financial data of Aerial Platforms as of and for the year
ended December 31, 1995 (or the corresponding fiscal year) have been derived
from unaudited financial statements which have been prepared on the same basis
as the audited Financial Statements and, in the opinion of management, reflect
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of such data. The following selected historical
financial data of the Predecessor Companies as of and for the years ended
December 31, 1993 and 1994 (or the corresponding fiscal year) have been
derived from unaudited financial statements, which have been prepared on the
same basis as the audited Financial Statements and, in the opinion of
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such data.
In 1998, the Company acquired Falconite concurrent with the Initial Stock
Offering. Due to the materiality of Falconite to the Company on a pro forma
basis, the following selected historical financial data includes results of
Falconite, which year end information has been derived from audited Financial
Statements and notes thereto included elsewhere herein.
The selected historical financial data of the Company as of and for the
period from inception (June 4, 1996) through December 31, 1996 and as of and
for the year ended December 31, 1997 have been derived from audited Financial
Statements and notes thereto appearing elsewhere in this Prospectus.
The selected historical financial data of Falconite and the Company as of
and for the three months ended March 31, 1997 and 1998 have been derived from
unaudited Financial Statements included elsewhere in this Prospectus, which
have been prepared on the same basis as the audited Financial Statements and,
in the opinion of management, reflect all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of such data.
The selected historical financial data should be read in conjunction with
the information contained in "Selected Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and notes thereto included elsewhere
herein.
25
<PAGE>
OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------- ----------------
1993 1994 1995 1996 1997(A) 1997 1998
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
COMPANIES:(B)
Aerial Platforms
Total revenues......... $1,571 $ 2,039 $ 3,269 $ 4,746 $ 233
Operating income
(loss)................ 356 351 887 998 (8)
Income (loss) before
income taxes.......... 265 266 818 874 (14)
BAT Rentals
Total revenues......... $9,214 $10,932 $12,453 $13,140 $ 3,802
Operating income....... 1,893 2,099 1,973 2,877 757
Income before income
taxes................. 1,956 1,944 1,899 2,801 710
Equipco Rentals & Sales
Total revenues......... $3,080 $ 3,768 $ 5,390 $ 5,832 $ 4,369
Operating income....... 133 216 305 407 911
Income before income
taxes................. 65 124 145 227 837
Lone Star Rentals
Total revenues......... $7,333 $ 8,935 $ 9,703 $ 9,349 $ 1,643
Operating income
(loss)................ 993 1,263 1,103 640 (229)
Income (loss) before
income taxes.......... 598 707 726 381 (254)
Sprintank
Total revenues......... $3,810 $ 5,182 $ 7,879 $ 9,598 $ 6,042
Operating income....... 482 830 1,522 1,503 2,179
Income before income
taxes................. 98 407 655 480 1,616
THE COMPANY:
Total revenues......... $ -- $41,288 $ 2,319 $22,151
Operating income
(loss)................ (336) 6,187 (28) 3,313
Income (loss) before
income taxes.......... (332) 1,923 (290) 290
FALCONITE:(B)
Total revenues......... $35,661 $48,086 $63,646 $14,374 $16,633
Operating income....... 11,306 12,075 11,959 2,672 1,969
Income before income
taxes and minority
interests............. 8,094 7,959 3,817 1,343 (219)
R&R RENTALS:(B)
Total revenues......... $ 6,581 $ 6,341 $ 8,444 $ 1,795 $ 2,613
Operating income....... (194) (397) 368 2 446
Income before income
taxes and minority
interests............. (198) (1,004) (573) (165) 113
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
AT DECEMBER 31, AT
---------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------ ------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANIES:
Aerial Platforms
Rental equipment, net...... $ 326 $ 306 $ 1,396 $ 1,758
Total assets............... 921 944 2,455 2,889
Total debt................. 878 549 1,216 1,243
BAT Rentals
Rental equipment, net...... $3,122 $ 3,499 $ 4,434 $ 5,779
Total assets............... 8,603 9,212 10,111 11,504
Total debt................. 2,734 2,659 3,191 3,302
Equipco Rentals & Sales
Rental equipment, net...... $1,112 $ 1,588 $ 2,047 $ 2,553
Total assets............... 2,102 2,750 3,337 4,102
Total debt................. 1,224 1,470 1,846 2,393
Lone Star Rentals
Rental equipment, net...... $4,765 $ 6,954 $ 7,622 $ 6,952
Total assets............... 7,144 9,910 10,094 9,405
Total debt................. 4,301 6,390 6,121 4,983
Sprintank
Rental equipment, net...... $4,664 $ 4,665 $ 8,118 $ 9,741
Total assets............... 6,831 6,807 10,727 12,546
Total debt................. 4,739 4,702 7,370 8,987
THE COMPANY:
Rental equipment, net...... $ -- $ 46,801 $104,937
Total assets............... 216 131,137 242,303
Total debt................. -- 98,782 193,954
Total stockholders' equity. 106 26,473 26,860
FALCONITE:
Rental equipment, net...... $ 81,583 $107,721 $112,937
Total assets............... 117,458 148,068 156,226
Total debt................. 60,619 100,200 108,430
R&R RENTALS:
Rental equipment, net...... $ 7,613 $ 10,633 $ 9,813
Total assets............... 14,251 17,793 17,480
Total debt................. 12,259 16,339 15,849
</TABLE>
- --------
(a) With respect to the Predecessor Companies, includes results prior to
acquisition by the Company. With respect to Falconite, represents actual
1997 results. With respect to the Company, represents actual 1997 results,
including results for the Predecessor Companies and Industrial Hoist
Services after acquisition by the Company.
(b) Operating income (loss) and income (loss) before income taxes reflect
private company expenses such as certain owners' compensation which would
not be included in the Company's results going forward.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN THOUSANDS)
The following discussion and analysis of the Company's and Falconite's
results of operations, and the Company's financial condition and liquidity
should be read in conjunction with "Selected Pro Forma Financial Data" and
"Selected Historical Financial Data" and the Financial Statements and notes
thereto included elsewhere herein.
GENERAL
NES was founded in June 1996 to acquire and integrate businesses that
specialize in the rental of specialty and general equipment to industrial and
construction end-users. Since January 1997, the Company has acquired 15
businesses in separate transactions. The following discussion of the Company's
pro forma results of operations is presented as if the 15 acquisitions and the
Initial Stock Offering had been completed and certain borrowings under the New
Credit Facility had been outstanding on the first day of the earliest period
discussed. The Company's pro forma results are based upon adjustments
described in the notes to "Selected Pro Forma Financial Data." Management
believes that the Acquired Businesses and others that the Company will acquire
will benefit from increased access to capital, the support of experienced and
professional senior management, centrally coordinated purchasing and an
increased emphasis on financial management. Therefore, the Company's pro forma
results discussed below do not necessarily represent the results of the
Company had each of the Acquired Businesses been operated by the Company
during those periods.
The Company derives its revenues from four sources: (i) rental of equipment;
(ii) rental equipment sales; (iii) new equipment sales; and (iv) the sale of
complementary parts and services. The Company's primary source of revenue is
the rental of equipment to industrial and construction end-users. The growth
of rental revenues is dependent on several factors, including demand for
rental equipment, the amount and quality of equipment available for rent,
rental rates and general economic conditions. Revenues generated from the sale
of used rental equipment are impacted by price, general economic conditions
and the fleet maintenance programs conducted by the Company. Sales of new
equipment are impacted by price and general economic conditions. Revenues from
the sale of complementary parts and services are primarily affected by
equipment rental and sales volumes.
Cost of revenues consists primarily of rental equipment depreciation, the
cost of new equipment, the net book value of rental equipment sold and other
direct operating costs. Given the varied, and in some cases specialized,
nature of its rental equipment, the Company utilizes a range of periods over
which it depreciates its equipment on a straight line basis. On average, the
Company depreciates its equipment over an estimated useful life of seven years
with no residual value.
The Company acquired Falconite concurrent with the Initial Stock Offering.
Due to the materiality of Falconite to the Company on a pro forma basis, the
following includes a discussion and analysis of Falconite's results of
operations.
27
<PAGE>
The following table sets forth, for the periods indicated, information
derived from the combined, historical and pro forma consolidated statements of
operations of the Company expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 MARCH 31, 1997 MARCH 31, 1998
----------------- ---------------------- ------------------ -----------------
COMBINED ACTUAL PRO FORMA ACTUAL PRO FORMA ACTUAL PRO FORMA
----------------- --------- ---------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental revenues......... 67.7% 63.9% 67.4% 55.0% 63.3% 71.4% 69.5%
Rental equipment sales.. 9.7 10.2 9.9 4.0 13.5 7.9 6.9
New equipment sales and
other.................. 22.6 25.9 22.7 41.0 23.2 20.7 23.6
----- --------- --------- ----- ----- ----- -----
Total revenues.......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues........ 59.5 62.3 58.7 63.6 62.2 60.9 60.4
----- --------- --------- ----- ----- ----- -----
Gross profit............ 40.5% 37.7 41.3 36.4 37.8 39.1 39.6
=====
Selling, general and
administrative
expenses............... 19.2 18.9 33.8 20.2 20.5 20.9
Non-rental depreciation
and amortization....... 3.6 4.6 3.8 5.4 3.6 4.8
--------- --------- ----- ----- ----- -----
Operating income (loss). 14.9 17.8 (1.2) 12.2 15.0 13.9
Other income, net....... 0.2 0.2 0.0 0.3 0.3 0.0
Interest expense, net... 10.5 12.3 11.3 14.8 14.0 12.5
--------- --------- ----- ----- ----- -----
Income (loss) before
income taxes........... 4.6 5.7 (12.5) (2.3) 1.3 1.4
Income tax expense
(benefit).............. 2.0 2.4 (5.8) (1.0) 0.7 0.6
--------- --------- ----- ----- ----- -----
Net income (loss)....... 2.6% 3.3% (6.7)% (1.3)% 0.6% 0.8%
========= ========= ===== ===== ===== =====
</TABLE>
PRO FORMA AND COMBINED RESULTS OF OPERATIONS--THE COMPANY
Pro Forma Three Months Ended March 31, 1998 as Compared to Pro Forma Three
Months Ended March 31, 1997
Revenues. Total revenues increased 18.0%, or $8,533, from $47,416 to $55,949
from first quarter 1997 to first quarter 1998. Rental revenue growth accounted
for $8,865 or 104% of the increase, partially offset by a decline in rental
equipment sales of $2,542. Portions of the rental revenue growth were
attributable to increased investment in rental equipment and strong demand for
storage tanks at Sprintank and general equipment at Albany Ladder and
Falconite. Revenues from new equipment sales and other increased $2,210 or
20.1%.
Gross Profit. Gross profit increased from $17,942 to $22,179 from first
quarter 1997 to first quarter 1998. Gross margin increased from 37.8% to
39.6%. This margin improvement was primarily the result of increased higher
margin rental revenues as a percentage of total revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $9,581 to $11,701 from first quarter
1997 to first quarter 1998, primarily reflecting costs incurred to support the
growth in the Company's businesses. As a percentage of total revenues, these
costs increased from 20.2% to 20.9%.
Non-Rental Depreciation and Amortization. Non-rental depreciation and
amortization increased from $2,574 to $2,691 from first quarter 1997 to first
quarter 1998. As a percentage of total revenues, non-rental depreciation and
amortization decreased from 5.4% to 4.8%.
Operating Income. As a result of the foregoing, operating income increased
34.6% from $5,787 or 12.2% of total revenues in first quarter 1997 to $7,787
or 13.9% of total revenues in first quarter 1998.
Interest Expense, Net. Interest expense, net was $7,006 for each of first
quarter 1997 and first quarter 1998.
28
<PAGE>
Income Tax Expense. Income tax expense (benefit) was $(452) for first
quarter 1997 and $326 for first quarter 1998.
Pro Forma Year Ended December 31, 1997 as Compared to Combined Year Ended
December 31, 1996
Revenues. Total revenues increased 29.2%, or $51,699, from $176,989 to
$228,688 from 1996 to 1997. Rental revenue growth accounted for $33,423 or
64.6% of such increase. A portion of the rental revenue growth was
attributable to eight locations opened or acquired by Falconite during
November and December 1996 and the acquisition of GenEquip, Inc. by Falconite
in January 1998 and Aerial Equipment Rental, Inc. by Falconite in May 1998
which contributed approximately $16,600 in 1997. The remaining approximately
$16,900 of rental revenue growth resulted primarily from increased capital
investment in rental equipment by the Company. Rental equipment sales
increased 38.9%, or $6,371, reflecting strong demand for the Company's
equipment, the dispositions of certain equipment in order to optimize the
average age of the Company's expanding fleet and the acquisition of GenEquip,
Inc. by Falconite. New equipment sales and other increased $11,905 or 29.8%
due to strong demand for the Company's new hoists and pump equipment as well
as strong performances at Albany Ladder and Falconite.
Gross Profit. Gross profit increased from $70,771 to $94,481 from 1996 to
1997. Gross margin increased from 40.0% to 41.3%.
Pro Forma Year Ended December 31, 1997
Revenues. Total revenues were $228,688. Rental revenues accounted for 67.4%
of total revenues.
Gross Profit. Gross profit was $94,481, or 41.3% of total revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $43,326 or 18.9% of total revenues.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $10,547, or 4.6% of total revenues.
Operating Income. Operating income was $40,608, or 17.8% of total revenues.
Interest Expense, Net. Interest expense, net was $28,024, or 12.3% of total
revenues.
Income Tax Expense. Income tax expense was $5,464, or 2.4% of total
revenues.
HISTORICAL RESULTS OF OPERATIONS--THE COMPANY
The Company's historical Financial Statements included herein cover the
period from inception on June 4, 1996 through December 31, 1996, the year
ended December 31, 1997 and the three months ended March 31, 1998. The Company
believes that comparison of its historical results for such periods are not
meaningful given the fact that (i) the Company did not complete its first
acquisition until January 1997, (ii) the Company completed five additional
acquisitions at different times in 1997 and (iii) the Company completed seven
additional acquisitions at different times in the first quarter of 1998.
Three Months Ended March 31, 1998 as Compared to Three Months Ended March 31,
1997.
Revenues. Total revenues increased from $2,319 to $22,151 from first quarter
1997 to first quarter 1998. Rental revenues increased from $1,276 to $15,815.
The increases were primarily the result of the acquisition of 10 additional
businesses after the first quarter of 1997 as well as the inclusion in 1998 of
a full quarter's results for the businesses acquired during the first quarter
of 1997.
29
<PAGE>
Gross Profit. Gross profit increased from $843 to $8,651 from first quarter
1997 to first quarter 1998. Gross margin increased from 36.4% to 39.1%. This
margin improvement was primarily the result of increased higher margin rental
revenues as a percentage of total revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $783 to $4,531 from first quarter 1997
to first quarter 1998. As a percentage of total revenues, selling, general and
administrative expenses decreased from 33.8% to 20.5%.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization increased from $88 to $807 from first quarter 1997 to first
quarter 1998.
Operating Income (Loss). As a result of the foregoing, operating income
increased from ($28) for first quarter 1997 to $3,313 or 15.0% of total
revenues for first quarter 1998.
Interest Expense, Net. Interest expense, net increased from $262 to $3,100
from first quarter 1997 to first quarter 1998. This increase was due to
additional debt resulting from the acquisition of 10 additional businesses.
Income Tax Expense (Benefit). Income tax increased from a benefit of ($135)
to an expense of $151 from first quarter 1997 to first quarter 1998.
Year Ended December 31, 1997
Revenues. Total revenues were $41,288 for 1997. Rental revenues accounted
for 63.9% of such revenues.
Gross Profit. Gross profit was $15,573 for 1997. Gross margin was 37.7% for
1997.
Selling, General and Administrative Expenses. For 1997, selling, general and
administrative expenses were $7,910 or 19.2% of total revenues.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $1,476 or 3.6% of total revenues for 1997.
Operating Income. Operating income was $6,187 or 14.9% of total revenues for
1997.
Interest Expense, Net. Interest expense, net was $4,336 for 1997.
Income Tax Expense. Income tax expense was $818 for 1997.
HISTORICAL RESULTS OF OPERATIONS--FALCONITE
Three Months Ended March 31, 1998 as Compared to Three Months Ended March 31,
1997.
Revenues. Total revenues increased 15.7% from $14,374 to $16,633 from first
quarter 1997 to first quarter 1998. Rental revenues increased 33.9% from
$8,989 to $12,033. These increases resulted primarily from additional
locations opened and acquisitions made during and after the first quarter of
1997 and capital invested in new rental equipment during 1997. This increase
in rental revenues was partially offset by a decrease in rental equipment
sales due to the purchase by Falconite of a large amount of new equipment and
the corresponding sale by Falconite in first quarter 1997 of a large amount of
its older rental equipment fleet as well as the sale of a large piece of used
rental equipment during first quarter 1997.
Gross Profit. Gross profit increased from $6,186 in the first quarter 1997
to $7,131 in the first quarter 1998. Gross margin was 43.0% in first quarter
1997 as compared to 42.9% in first quarter 1998.
30
<PAGE>
Selling, General & Administrative Expenses. Selling, general and
administrative expenses increased from $2,938 to $4,482 from first quarter
1997 to first quarter 1998, primarily reflecting costs associated with the
opening of 5 new locations and the newly acquired GenEquip, Inc. locations, as
well as the opening of Falconite's re-manufacturing facility in Paducah,
Kentucky. In addition, first quarter 1998 selling, general and administrative
expenses reflects certain private company expenses including compensation not
recorded in first quarter 1997. As a percentage of total revenues, these
expenses increased from 20.4% to 26.9%, reflecting the lag between the
incurrence of expense and the related growth in revenues from locations
opened.
Non-Rental Depreciation and Amortization. Non-rental depreciation and
amortization increased from $576 or 4.0% of total revenues for first quarter
1997 to $680 or 4.1% of total revenues for first quarter 1998.
Operating Income. As a result of the foregoing, operating income decreased
from $2,672 or 18.6% of total revenues for first quarter 1997 to $1,969 or
11.8% of total revenues for first quarter 1998.
Year Ended December 31, 1997 as Compared to Year Ended December 31, 1996.
Revenues. Total revenues increased 32.4% from $48,086 to $63,646 from 1996
to 1997. Rental revenue growth accounted for $12,028 or 77.3% of such
increase. The increase in rental revenues resulted primarily from the
contribution of the eight locations opened or acquired during November and
December 1996, which generated approximately $10,700 in rental revenues in
1997. The balance of the rental revenue growth was attributable to locations
open throughout both periods, primarily due to an increase in Falconite's
rental fleet. Sales of used rental equipment increased by $1,548 or 20.2% in
the recently completed period, reflecting the opening of new locations and
dispositions of certain equipment in order to optimize the average age of
Falconite's expanding fleet. Revenues from new equipment sales and other
increased from $7,529 to $9,513 or 26.4% from 1996 to 1997.
Gross Profit. Gross profit increased from $22,824 to $29,452 from 1996 to
1997. Gross margin decreased from 47.5% to 46.3%, with rental gross margin
decreasing from 57.0% to 52.4% and sales gross margin increasing from 26.9% to
31.7%. The decline in rental gross margin was attributable primarily to an
increase in rental equipment depreciation as a percentage of rental revenues
from 20.7% to 24.7% due to the substantial additions to Falconite's rental
fleet during 1996 and 1997. The increase in sales gross margin is primarily
the result of the sale of selected high margin pieces of equipment during
1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $9,985 to $15,065 from 1996 to 1997,
primarily reflecting costs incurred to support the growth in Falconite's
business as well as an increase in executive compensation of $1,200. As a
percentage of revenues, these costs increased from 20.8% to 23.7%, reflecting
the lag between incurrence of expenses and the related growth in revenues from
locations opened in late 1996. In addition, Falconite recorded certain charges
in 1997 aggregating $1,301 resulting from the resolution of certain tax
deficiencies and the termination of certain employment agreements.
Non-Rental Depreciation and Amortization. Non-rental depreciation and
amortization increased from $764 to $2,428 from 1996 to 1997. As a percentage
of total revenues, non-rental depreciation and amortization increased from
1.6% to 3.8%. This increase was attributable primarily to the locations added
in late 1996 and to additional goodwill amortization of approximately $500 in
1997.
Operating Income. As a result of the foregoing and excluding the
aforementioned charges of $1,301, operating income increased from $12,075, or
25.1% of total revenues in 1996, to $13,260, or 20.8% of total revenues in
1997. Including these charges, operating income was $11,959 or 18.8% of total
revenues in 1997.
Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995
Revenues. Total revenues increased 34.8% from $35,661 to $48,086 from 1995
to 1996. Rental revenue growth accounted for $9,488 or 76.4% of such increase.
Rental revenues increased primarily as a result of
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additional locations. The balance of the rental revenue increases were
attributable to locations open throughout both periods, primarily due to an
increase in Falconite's rental fleet. Sales of used rental equipment increased
by $2,226 or 40.9% to $7,674 in 1996, reflecting the opening of new locations
and Falconite's increased emphasis on selling used equipment. Revenues from
new equipment sales and other increased from $6,818 to $7,529 or 10.4%.
Gross Profit. Gross profit increased from $17,576 to $22,824 from 1995 to
1996. Gross margin decreased from 49.3% to 47.5% with rental gross margin
decreasing from 61.2% to 57.0%. The decline in rental gross margin was partly
attributable to an increase in rental equipment depreciation due to
substantial additions to Falconite's rental fleet during 1996 as well as to
the substantial underutilization of equipment at one of its divisions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $5,858 to $9,985 from 1995 to 1996,
primarily reflecting facilities, personnel and administrative infrastructure
costs incurred to support the growth in Falconite's business. As a percentage
of total revenues, these expenses increased from 16.4% to 20.8%, reflecting
the lag between incurrence of expenses and the related growth in revenues from
new location openings.
Non-Rental Depreciation and Amortization. Non-rental depreciation and
amortization increased from $412 to $764 from 1995 to 1996. As a percentage of
total revenues, non-rental depreciation and amortization increased from 1.2%
to 1.6%. This increase resulted primarily from the addition of locations
during 1995, in particular, related transportation equipment and furniture,
fixtures and equipment.
Operating Income. As a result of the foregoing, operating income increased
from $11,306, or 31.7% of total revenues in 1995, to $12,075, or 25.1% of
total revenues in 1996.
HISTORICAL RESULTS OF OPERATIONS--ACQUIRED BUSINESSES
As a result of the timing of their acquisitions by the Company, the Acquired
Businesses' financial results discussed below cover periods of varying
lengths. Accordingly, comparison of historical results for such periods may
not be meaningful.
AERIAL PLATFORMS
Aerial Platforms was purchased by NES in February of 1997. All operating
results of Aerial Platforms from the date of acquisition are reflected in the
Company's results.
Seventeen Days Ended February 17, 1997 as Compared to Year Ended January 31,
1997
Revenues. Total revenues were $4,746 for 1997 and $233 for the 17-day period
ended February 17, 1997.
Gross Profit. Gross profit was $2,374 and gross margin was 50.0% for 1997.
Gross profit was $64 and gross margin was 27.5% for the 17-day period ended
February 17, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $1,302 or 27.4% of total revenues for 1997.
Selling, general and administrative expenses were $64 or 27.5% of total
revenues for the 17-day period ended February 17, 1997.
LONE STAR RENTALS
Lone Star Rentals was purchased by NES in March of 1997. All operating
results of Lone Star Rentals from the date of acquisition are reflected in the
Company's results.
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Period Ended March 16, 1997 as Compared to Year Ended December 31, 1996 as
Compared to Year Ended December 31, 1995
Revenues. Total revenues decreased 3.6% or $354 from $9,703 to $9,349 from
1995 to 1996. Rental revenues decreased $156. For the period ended March 16,
1997, total revenues were $1,643.
Gross Profit. Gross profit decreased $394 from $3,191 or 32.9% of total
revenues in 1995 to $2,797 or 29.9% of total revenues in 1996. For the period
ended March 16, 1997, gross profit was $272 or 16.6% of total revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $70 from $1,918 or 19.8% of total revenues
in 1995 to $1,988 or 21.3% of total revenues in 1996. For the period ended
March 16, 1997, selling, general and administrative expenses were $475 or
28.9% of total revenues.
BAT RENTALS
BAT Rentals was purchased by NES in April of 1997. All operating results of
BAT Rentals from the date of acquisition are reflected in the Company's
results.
Three Months Ended March 31, 1997 as Compared to Year Ended December 31, 1996
as Compared to Year Ended December 31, 1995
Revenues. Total revenues increased 5.5% or $687 from $12,453 to $13,140 from
1995 to 1996. Rental revenues increased $1,472 or 30.3%. For the three months
ended March 31, 1997, total revenues were $3,802.
Gross Profit. Gross profit increased $744 from 1995 to 1996. Gross margin
increased from 29.2% in 1995 to 33.4% in 1996. For the three months ended
March 31, 1997, gross profit was $1,271 and gross margin was 33.4%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from $1,552 or 12.5% of total revenues in
1995 to $1,399 or 10.6% of total revenues in to 1996. For the three months
ended March 31, 1997, selling, general and administrative expenses were $489
or 12.9% of total revenues.
SPRINTANK
Sprintank was purchased by NES in July of 1997. All operating results of
Sprintank from the date of acquisition are reflected in the Company's results.
Six Months Ended June 30, 1997 as Compared to Year Ended December 31, 1996 as
Compared to Year Ended December 31, 1995
Revenues. Total revenues increased 21.8% or $1,719 from $7,879 to $9,598
from 1995 to 1996. Rental revenue growth accounted for 98.7% or $1,697 of the
increase. For the six months ended June 30, 1997, total revenues were $6,042.
Gross Profit. Gross profit increased from $4,598 or 58.3% of total revenues
in 1995 to $5,981 or 62.3% of total revenues in 1996. For the six months ended
June 30, 1997, gross profit was $4,290 or 71.0% of total revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $2,977 or 37.8% of total revenues in
1995 to $4,333 or 45.1% of total revenues in 1996. For the six months ended
June 30, 1997, selling, general and administrative expenses were $2,028 or
33.6% of total revenues.
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<PAGE>
EQUIPCO RENTALS AND SALES
Equipco Rentals and Sales was purchased by NES in July of 1997. All
operating results of Equipco Rentals and Sales from the date of acquisition
are reflected in the Company's results.
Period Ended July 17, 1997 as Compared to Year Ended October 31, 1996 as
Compared to Year Ended October 31, 1995
Revenues. Total revenues increased 8.2% or $442 from $5,390 to $5,832 from
1995 to 1996. Rental revenue growth accounted for 88.7% or $392 of the
increase. For the period ended July 17, 1997, total revenues were $4,369.
Gross Profit. Gross profit increased $321 from 1995 to 1996. Gross profit
increased from $1,728 or 32.0% of total revenues in 1995 to $2,049 or 35.1% of
total revenues in 1996. For the period ended July 17, 1997, gross profit was
$1,810 and gross margin was 41.4%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $1,339 or 24.8% of total revenues in
1995 to $1,519 or 26.0% of total revenues in 1996. For the period ended July
17, 1997, selling, general and administrative expenses were $823 or 18.8% of
total revenues.
WORK SAFE SUPPLY
Work Safe Supply was purchased by NES in February 1998. All operating
results of Work Safe Supply from the date of acquisition are reflected in the
Company's results.
Year Ended December 31, 1997 as Compared to Year Ended December 31, 1996
Revenues. Total revenues increased 12.1% or $794 from $6,570 to $7,364 from
1996 to 1997. Rental revenue growth accounted for 141.9% or $1,127 of the
increase, partially offset by a decrease in rental equipment sales and other
revenues of $333.
Gross Profit. Gross profit increased from $2,755 or 41.9% of total revenues
in 1996 to $3,424 or 46.5% of total revenues in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $1,084 or 16.5% of total revenues in
1996 to $1,237 or 16.8% of total revenues in 1997.
Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995
Revenues. Total revenues increased 5.7% or $354 from $6,216 to $6,570 from
1995 to 1996. Rental revenue growth accounted for $190 or 53.7% of the
increase.
Gross Profit. Gross profit increased from $2,633 or 42.4% of total revenues
in 1995 to $2,755 or 41.9% of total revenues in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from $2,485 or 40.0% of total revenues in
1995 to $1,084 or 16.5% of total revenues in 1996.
CORMIER EQUIPMENT
Cormier Equipment was purchased by NES in March 1998. All operating results
of Cormier Equipment from the date of acquisition are reflected in the
Company's results.
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<PAGE>
Year Ended December 31, 1997 as Compared to Year Ended December 31, 1996
Revenues. Total revenues decreased $381 from $16,008 to $15,627 from 1996 to
1997.
Gross Profit. Gross profit decreased from $5,423 or 33.9% of total revenues
in 1996 to $5,138 or 32.9% of total revenues in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from $3,324 or 20.8% of total revenues in
1996 to $3,287 or 21.0% of total revenues in 1997.
Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995
Revenues. Total revenues increased 2.4% or $369 from $15,639 to $16,008 from
1995 to 1996. Rental revenue growth accounted for $276 or 74.8% of the
increase.
Gross Profit. Gross profit increased $25 from $5,398 or 34.5% of total
revenues in 1995 to $5,423 or 33.9% of total revenues in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $2,976 or 19.0% of total revenues in
1995 to $3,324 or 20.8% of total revenues in 1996.
DRAGON RENTALS
Dragon Rentals was purchased by NES in March 1998. All operating results of
Dragon Rentals from the date of acquisition are reflected in the Company's
results.
Year Ended December 31, 1997 as Compared to Year Ended December 31, 1996
Revenues. Total revenues increased 71.0% or $4,385 from $6,179 to $10,564
from 1996 to 1997. Rental revenue growth accounted for $3,929 or 89.6% of the
increase.
Gross Profit. Gross profit increased $3,056 from $1,442 or 23.3% of total
revenues in 1996 to $4,498 or 42.6% of total revenues in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1,296 from $870 or 14.1% of total revenues
in 1996 to $2,166 or 20.5% of total revenues in 1997.
LIQUIDITY AND CAPITAL RESOURCES--THE COMPANY
The Company's primary capital requirements are for the purchase of new
rental equipment fleet and for acquisitions. The Company's other capital
expenditures consist of the purchase of vehicles used for delivery and
maintenance and property, plant and equipment. The Company purchases rental
fleet throughout the year to replace equipment which has been sold as well as
to maintain adequate levels of equipment to meet existing and new customer
needs. Combined rental fleet purchases for the Company and the Acquired
Businesses were $56,981, $69,475, $93,239 and $17,073 in 1995, 1996, 1997 and
the first quarter of 1998, respectively. As the Company's business strategy
continues to be implemented, rental fleet purchases are expected to increase.
Expenditures for rental fleet are expected to be approximately $82,000 in
1998.
On an actual basis, for the years ended December 31, 1996 and 1997 and the
three months ended March 31, 1997 and 1998, the Company's net cash (used in)
provided by operations was $(269) and $7,378, respectively, and $(430) and
$7,661, respectively. On an actual basis, for the years ended December 31,
1996 and 1997 and the three months ended March 31, 1997 and 1998, the
Company's net cash used in investing activities was $20 and $81,497,
respectively, and $23,187 and $120,872, respectively. On an actual basis, for
the years ended December 31, 1996 and 1997 and the three months ended March
31, 1997 and 1998, the Company's net cash provided by financing activities was
$301 and $109,789, respectively, and $25,869 and $81,302, respectively.
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<PAGE>
Net cash provided by financing activities consists of equity capital provided
by Golder, Thoma, Cressey, Rauner Fund V, L.P. and members of management, net
borrowings under the Old Credit Facility and indebtedness under the Indenture.
In July 1998, the Company entered into a New Credit Facility which provides
for a term facility to the Company of $100,000 of term loans and a revolving
credit facility to the Company for up to $225,000 of revolving loans to meet
acquisition and expansion needs as well as seasonal working capital and
general corporate requirements. As of June 30, 1998, on a pro forma basis,
$86,600 would have been available for borrowing under the New Credit Facility,
subject to availability based on certain financial tests including a borrowing
base.
The Company believes that the New Credit Facility, together with funds
generated by operations, will provide the Company with sufficient liquidity
and capital resources through the end of 1998 to finance its operations and
pursue its business strategy, including acquisitions. Over the long-term, the
Company will need additional financing to continue its acquisition strategy.
YEAR 2000 SOFTWARE ISSUE
The Company uses a number of computer software programs and operating
systems in its operations, including applications used in sales and marketing,
billing, inventory management and other administrative functions. To the
extent that the software applications used in such functions and
communications are unable to recognize the year 2000, the Company may incur
expenses in connection with the need to remediate such software and also may
incur the risk and potential expense of disruptions that may be caused by the
software's impaired functioning as the year 2000 approaches. The Company
believes that the manufacturers of the software applications it uses most
frequently, including its systems software and its word processing and
spreadsheet software, are in the process of preparing or have already
completed Year 2000 remediations for their products. The Company believes that
with the remediations to existing software and conversions to new software,
the Year 2000 issue will not pose significant operational problems for its
computer systems.
EFFECT OF INFLATION
Management believes that inflation has not had a material effect on the
Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 "Earnings per Share." For the Company, SFAS No. 128 will be
effective for the year ended December 31, 1997. SFAS No. 128 simplifies the
standards required under current accounting rules for computing earnings per
share and replaces the presentation of primary earnings per share and fully
diluted earnings per share with a presentation of basic earnings per share
("Basic EPS") and diluted earnings per share ("Diluted EPS"). Basic EPS
excludes dilution and is determined by dividing income available to common
stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution that could
occur if securities and other contracts to issue common stock were exercised
or converted into common stock. Diluted EPS is computed similarly to fully
diluted earnings per share under current accounting rules.
Reporting Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. The Statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130
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<PAGE>
requires that an enterprise (a) classify items of other comprehensive income
by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. The Statement is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The adoption of SFAS No. 130 in
the first quarter of 1998 had no impact as the Company had no items of other
comprehensive income in any period presented.
37
<PAGE>
BUSINESS
GENERAL
National Equipment Services, Inc. is a leading participant in the growing
and highly fragmented $18 billion equipment rental industry. Through its 15
businesses acquired since January 1997, NES specializes in the rental of
specialty and general equipment to industrial and construction end users. The
Company rents over 750 different types of machinery and equipment and
distributes new equipment for nationally recognized original equipment
manufacturers. The Company also sells used equipment as well as complementary
parts, supplies and merchandise, and provides repair and maintenance services
to its customers. NES is geographically diversified, with 82 locations across
19 states and is a leading competitor in each of the geographic markets it
serves. For the year ended December 31, 1997, on a pro forma basis, the
Company generated revenues of $228.7 million, an increase of 29.2% compared to
1996 combined revenues of $177.0 million.
Management believes that the Company offers one of the most modern and well
maintained fleets of speciality or general equipment in each of its markets.
The average age of the Company's equipment fleet is approximately three years.
Specialty equipment includes electric and pneumatic hoists, hydraulic and
truck-mounted cranes, liquid storage tanks, pumps and highway safety
equipment. General industrial and construction equipment includes aerial work
platforms, air compressors, cranes, earth moving equipment and rough terrain
forklifts. The Company rents and sells this equipment to industrial and
construction end-users, which represented approximately 54% and 43%,
respectively, of the Company's revenues for the year ended December 31, 1997,
on a pro forma basis.
NES is led by a senior management team with significant industry experience
and an impressive track record of acquiring and integrating companies in the
equipment rental industry. Prior to founding the Company, the NES senior
management team was responsible for building Brambles, the U.S. equipment
rental business of an Australian public company, into a leading participant in
the industry. At Brambles, this team executed a growth strategy that combined
a disciplined acquisition program with significant organic growth. Management
believes that the team's extensive industry experience allows it to more
easily identify quality acquisition targets and successfully integrate these
businesses through effective financial and operating controls and the proper
deployment of capital. The Company's local operations are managed by
experienced professionals who have an average of over 15 years of experience
in the industry and have extensive knowledge of and relationships in their
local markets. These managers are typically former owners of the businesses
acquired by the Company. The Company also benefits from the financial
expertise of Golder, Thoma, Cressey, Rauner, Inc., an established investment
firm specializing in the consolidation of fragmented industries. Golder,
Thoma, Cressey, Rauner Fund V, L.P., an affiliate of Golder, Thoma, Cressey,
Rauner, Inc., is the Company's principal equity investor.
INDUSTRY OVERVIEW
Revenues for the $18 billion equipment rental industry have grown at a
compound annual rate of approximately 24% from 1984 to 1997 according to
surveys conducted by the Associated Equipment Distributors and have grown in
12 of the past 13 years. Management believes that the equipment rental
industry growth will continue to be driven by the trend among customers to
outsource non-core operations in order to reduce their capital investment and
minimize the downtime, maintenance, repair and storage costs associated with
equipment ownership. While customers traditionally have rented equipment for
specific purposes such as supplementing capacity during peak periods and in
connection with special projects, customers are increasingly looking to rental
operators to provide an ongoing, comprehensive supply of equipment, enabling
such customers to benefit from the economic advantages and convenience of
rental. According to a survey published in 1997 by The CIT Group, contractors
intended to increase the percentage of equipment they rent without a purchase
option to an estimated 15% of their total equipment requirements in 1997 from
less than 5% in 1994.
The highly fragmented equipment rental industry consists of a large number
of relatively small independent businesses typically serving discrete local
markets within 30 to 50 miles of the store location, and a small number
38
<PAGE>
of multi-location regional or national operators. According to Rental
Equipment Register, there are more than 12,000 participants in the industry,
with the largest 100 rental companies accounting for less than 20% of 1996
industry revenues. Management believes that the rental equipment industry
offers substantial consolidation opportunities for large, well-capitalized
equipment rental companies such as NES. Relative to smaller companies with
only one or two rental locations, multi-regional operators such as NES benefit
from a number of competitive advantages, including access to capital, the
ability to offer a broader range of modern, high-quality equipment,
standardized management information systems, volume purchasing discounts and
the ability to service larger, multi-regional accounts. In addition,
management believes that multi-regional operators are less affected by changes
in local economic conditions.
GROWTH STRATEGY
Management believes that NES is well positioned to benefit from industry
trends of growth and consolidation. The Company's strategic objective is to
continue to grow profitably in both existing and new markets by acquiring
additional specialty and general equipment rental companies, by increasing
revenues from industrial customers by maximizing higher margin rental revenues
and by leveraging its new remanufacturing center. The Company intends to
attain its objective by continuing to execute the following growth strategy:
Acquire Specialty and General Equipment Rental Businesses. The Company seeks
to acquire strong and successful specialty and general equipment rental
businesses. In 1997, NES generated approximately 36% and 64% of its revenues
on a pro forma basis from specialty and general equipment businesses,
respectively. The Company routinely evaluates attractive markets for expansion
where a leading position can be created by acquiring an existing business. The
Company generally targets acquisition candidates that (i) are profitable
businesses with a proven track record, (ii) generate a high percentage of
revenues from rentals with a significant portion derived from industrial
customers, (iii) are led by a strong management team that is willing to
continue with the business, (iv) have a strong local market share or
participate in a high-growth market, and (v) provide opportunities to expand
their customer base through better access to and employment of capital. The
Company also seeks to acquire smaller businesses in locations already served
by the Company that offer product lines or services that are complementary to
those at existing locations. Since January 1997, the Company has completed 15
acquisitions. Management believes that with over 12,000 participants, the
equipment rental industry will continue to offer a significant number of
businesses that fit the Company's acquisition profile.
Increase Revenues from Industrial Customers. The Company is committed to
increasing its revenues derived from industrial customers. Management believes
that these revenues are more stable than revenues from construction customers
due to the fact that industrial customers typically utilize rental equipment
for ongoing and periodic maintenance work on their existing facilities as well
as for material handling applications. Industrial customers tend to rent
equipment for longer periods and use equipment under less severe conditions
than contractors, thereby increasing the Company's equipment utilization and
decreasing the Company's equipment maintenance costs. The good condition and
quality of rental equipment are essential for industrial customers in order to
avoid costly slowdowns or shutdowns of plant facilities. Management believes
that larger well-capitalized companies such as NES are better able to provide
well-maintained and high quality equipment. The Company intends to continue to
expand its industrial customer base by providing additional equipment and
services to its existing industrial customers and establishing new
relationships through its existing businesses as well as through acquisitions.
For the year ended December 31, 1997, on a pro forma basis, revenues derived
from industrial end-users represented approximately 54% of the Company's total
revenues.
Maximize High-Margin Rental Revenues Through Efficient Fleet Management. The
Company is focused on growing its high-margin rental revenues by expanding
fleet inventory, efficiently managing fleet inventory in order to maximize
equipment utilization, optimizing fleet maintenance, and systematically
evaluating the optimal timing of used equipment sales. The Company's
acquisition targets have typically operated under capital constraints, which
prevented them from purchasing rental equipment sufficient to meet customer
demand and consequently resulted in lost revenue opportunities. In pursuing
acquisitions, NES evaluates the target's customer base and fleet inventory
and, following its acquisition, typically provides capital to expand the
equipment fleet and improve utilization, resulting in significant increases in
rental revenues.
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<PAGE>
Leverage New Remanufacturing Center. As part of the acquisition of
Falconite, the Company will acquire a recently-constructed 45,000 square foot
equipment remanufacturing facility in the Paducah, Kentucky area. The Company
believes this facility will enhance its ability to perform major repair
operations and maintain its rental fleet in top condition. Management
anticipates that the center will increase rental gross profit margins by
reducing capital expenditure requirements and related rental equipment
depreciation. The Company also expects that the center will provide an
additional source of revenue by allowing NES to perform repair and rebuild
services for third party equipment owners. The center incorporates four
production lines to simultaneously refurbish equipment by replacing or
rebuilding all major components including engines, transmissions and
mechanical, hydraulic and electrical systems.
ACQUIRED BUSINESSES
NES was founded in June 1996 to acquire and integrate businesses that focus
on the rental of specialty and general equipment to industrial and
construction end-users. Since January 1997, the Company has acquired 15
businesses. Management believes that with over 12,000 participants, the
equipment rental industry will continue to offer a significant number of
acquisition opportunities. The Company is led by a senior management team with
extensive industry experience. The Company believes this experience allows
management to more easily identify quality acquisition targets and
successfully integrate and optimize these businesses. The following table
summarizes the Company's completed acquisitions to date:
<TABLE>
<CAPTION>
YEARS IN
DIVISION PRODUCTS GEOGRAPHIC FOCUS BUSINESS DATE ACQUIRED
- ----------------------- ------------------------------------ ------------------------ -------- -------------
<S> <C> <C> <C> <C>
Industrial Hoist
Services Pneumatic and electric hoists National 15 January 1997
Aerial Platforms Aerial work platforms Atlanta, Georgia 14 February 1997
Lone Star Rentals General equipment Gulf Coast 16 March 1997
BAT Rentals General equipment Las Vegas, Nevada 36 April 1997
Sprintank Liquid and specialized storage tanks Gulf Coast 8 July 1997
Equipco Rentals & Sales General equipment Western Virginia 20 July 1997
GenPower Pumps Gulf Coast 14 January 1998
Eagle Scaffolding Scaffolding Las Vegas, Nevada 5 January 1998
Grand Hi-Reach Aerial work platforms Grand Rapids, Michigan 13 February 1998
Work Safe Supply Highway safety equipment Michigan 19 February 1998
Dragon Rentals Liquid storage tanks Gulf Coast 6 March 1998
Cormier Equipment General equipment Eastern Coast 14 March 1998
Albany Ladder Aerial work platforms Northeast 66 March 1998
Falconite Aerial work platforms and cranes Mid-South and Gulf Coast 43 July 1998
R&R Rentals Aerial work platforms and cranes Gulf Coast 15 July 1998
</TABLE>
PRODUCTS AND SERVICES
The Company's primary business is the rental of equipment to industrial and
construction end-users. In addition, to more fully service its customer base
and leverage its fixed costs, the Company sells complementary parts,
merchandise and rental equipment, acts as a distributor of new equipment on
behalf of original equipment manufacturers and services the equipment it sells
and rents.
Equipment Rentals. The Company rents a broad selection of general equipment
ranging from large equipment such as aerial manlifts, forklifts, light earth-
moving equipment and portable air compressors to small equipment such as hand
tools to industrial and commercial construction customers. The Company's
specialty equipment available for rent includes pumps and highway safety
equipment. The Company is the leading renter of industrial hoists in the
United States and the leading renter of portable storage tanks to the chemical
and
40
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petrochemical industries in the Gulf Coast region. The Company's rental
contracts range from a one-day rental contract for a small subcontractor to a
multi-year contract for certain industrial customers, with an overall average
rental period of 19 days. Four categories of equipment represented
approximately 80.4% of the Company's total rental equipment fleet (based on
original equipment cost), on a pro forma basis, at December 31, 1997: (i)
aerial work platforms (42.9%); (ii) forklifts (12.0%); (iii) mobile storage
tanks (10.2%); and (iv) cranes (15.3%). The mix of rental equipment at each of
the Company's locations is a function of the demands of the local customer
base and the focus of the local business. At December 31, 1997, on a pro forma
basis, the original equipment cost of the Company's rental fleet was
approximately $284.2 million and the weighted average age of the Company's
rental equipment fleet was approximately three years. Approximately 67.4% of
the Company's total revenues for the year ended December 31, 1997, on a pro
forma basis, were derived from the rental of equipment.
Sales of Rental Equipment. The Company routinely sells rental equipment to
adjust the size and composition of its rental fleet to changing market
conditions and as part of its ongoing commitment to maintain a new, top
quality fleet. The Company achieves favorable sales prices for its rental
equipment due to its strong preventive maintenance program and its practice of
selling rental equipment before it becomes irreparable or obsolete. Senior
management works with local operating management to optimize the timing of
sales of rental equipment by taking into account maintenance costs, rental
demand patterns and resale prices. The Company sells rental equipment to its
existing rental customers, as well as to domestic and international used
equipment buyers. For the year ended December 31, 1997, on a pro forma basis,
revenues from the sale of rental equipment accounted for approximately 10.0%
of the Company's total revenues.
Sales of New Equipment. The Company is a distributor for certain original
equipment manufacturers, including JLG Industries, Inc., Genie Industries,
Condor (a division of TIME Manufacturing Company), Strato-Lift and Terex Corp.
(d/b/a Marklift) (aerial work platforms and booms), Manitex Crane and
Broderson Crane (cranes), The Gradall Company, Sky Trak, Gehl Equipment and
Tovel Mfg. (rough-terrain forklifts), Atlas-Copco Industrial Compressors, Inc.
and Mitsui Inc. (d/b/a Airman) (air compressors), Mustang Manufacturing, Inc.
(skid steer loaders), Thompson Pump & Manufacturing Co. (pumps), Multiquip
Inc. (generators) and Komatsu Forklift USA, Inc. (industrial forklifts). The
Company believes that the volume of its equipment purchases creates
significant purchasing power with suppliers, which leads to favorable prices
and terms on equipment purchased for its rental fleet and for sale as new
equipment. The Company's ability to sell new equipment offers flexibility to
its customers and enhances the Company's customer relations. Approximately
14.0% of the Company's total revenues for the year ended December 31, 1997, on
a pro forma basis, were derived from the sale of new equipment.
Sales of Parts and Merchandise; Service and Repair. The Company sells a wide
range of parts and merchandise, including saw blades, drill bits, shovels,
goggles, hard hats and other safety gear, as a complement to its core
equipment rental business. These sales enable the Company to attract and
retain customers by offering the convenience of "one-stop shopping." The
Company also provides repair and maintenance services in connection with the
equipment it sells as a compliment to its core business. Revenues from the
sales of parts and merchandise and service and repair accounted for
approximately 8.6% of the Company's total revenues for the year ended December
31, 1997, on a pro forma basis.
CUSTOMERS
Management estimates that the Company currently has more than 10,000
customers, ranging from "Fortune 500" companies to small contractors. For the
year ended December 31, 1997, on a pro forma basis, zero customers accounted
for more than 1.0% of the Company's total revenues, and the Company's top five
customers represented less than 3.0% of total revenues. Customers look to the
Company as an ongoing, comprehensive source of rental equipment because of the
economic advantages and convenience of renting, as well as the high costs
associated with equipment ownership. The Company's primary customer base can
be classified by the following categories: (i) industrial, including
manufacturers, petrochemical facilities, chemical companies, paper mills and
public utilities and (ii) commercial and residential construction, repair and
renovation, including
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contractors. In addition to maintaining its historically strong relationship
with local customers, the Company is increasing its emphasis on larger
national and multi-regional accounts. For the year ended December 31, 1997, on
a pro forma basis, industrial, construction and other customers accounted for
approximately 54.4%, 42.7% and 2.9% of the Company's total revenues,
respectively.
Industrial. The Company's industrial customers, many of whom operate 24
hours per day, utilize the Company to outsource their equipment requirements
to reduce the capital investment and minimize the ongoing maintenance, repair
and storage costs associated with equipment ownership. Management believes
that the Company is well-positioned to take advantage of the increasing trend
among industrial customers to outsource equipment needs. In addition, the
Company's specialty products, such as hoists and tanks, are tailored to meet
the needs of industrial end-users. Management believes that given its multi-
regional presence, NES is well positioned to increase its industrial revenue
base. The Company intends to expand its industrial customer base by providing
additional equipment and services to its existing industrial customers and
establishing new relationships through its existing businesses as well as
through acquisitions.
Construction. The Company's construction customers include "Fortune 500"
companies, national and regional contractors and subcontractors involved in
construction projects such as (i) chemical plants and other manufacturing
facilities, (ii) roads, bridges and highways, (iii) schools, hospitals and
airports, and (iv) residential developments and apartment buildings. According
to a survey published in 1997 by The CIT Group, contractors intended to
increase the percentage of equipment they rent without a purchase option to an
estimated 15% of their total equipment requirements in 1997 from an estimated
5% in 1994. Management believes the Company is a leading supplier of rental
equipment to contractors in its markets and is well positioned to benefit from
any increased rental of equipment by such customers.
MANAGEMENT INFORMATION SYSTEMS
The Company has made significant investments in its information systems.
These information systems integrate customer tracking systems that allow the
sales force, through use of lap top computers, to track customer requirements,
while coordinating with inside sales and logistics personnel to ensure that
customer demands are met on a timely basis. These systems also provides real-
time rental management data that allows management to monitor asset
utilization, rental rates, repairs and maintenance, and inventory levels by
region, location, equipment classification, and individual rental item. These
systems are fully integrated into a financial package that tracks
profitability by branch and region, enabling the Company to implement a
decentralized management structure.
OPERATIONS
The Company's equipment rental yards typically include: (i) a customer
service center and showroom displaying selected rental equipment, new
equipment offered for sale and related merchandise; (ii) an equipment service
area; and (iii) equipment storage facilities. Each rental center is staffed by
an average of approximately 14 employees, including a manager, an assistant
manager, sales people, back office clerks, truck drivers, mechanics and yard
personnel. The rental center employees' knowledge of the equipment enables
them to recommend the best equipment for a customer's particular application.
Each rental center manager is responsible for all aspects of the center's
operation, including establishing rental rates, selecting equipment and
determining employee compensation at such location.
SALES
The Company offers rental equipment and related services primarily through
its sales force, consisting of 41 sales managers who oversee 153 sales people.
The sales force at each location is knowledgeable about all of the services
and products provided at that location. Sales managers and representatives
regularly call on contractors' job sites and industrial facilities in their
sales territories, often assisting customers in planning for their equipment
requirements. The Company also provides its sales force with extensive
training, including
42
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frequent in-house training by supplier representatives, regarding the
operating features and maintenance requirements of its equipment. Members of
the Company's sales force generally earn commissions on all equipment rentals
and sales that they generate.
PURCHASING AND SUPPLIERS
Management believes that, as a result of the Company's size, it is able to
purchase equipment directly from manufacturers at favorable prices. The
Company has developed strong relationships with many leading original
equipment manufacturers, including JLG Industries, Inc., Genie Industries,
Condor (a division of TIME Manufacturing Company), Strato-Lift, Terex Corp.
(d/b/a Marklift), Manitex Crane, Broderson Crane, The Gradall Company, Sky
Trak, Gehl Equipment, Tovel Mfg., Atlas-Copco Industrial Compressors, Inc.,
Mitsui Inc. (d/b/a Airman), Mustang Manufacturing, Inc., Thompson Pump &
Manufacturing Co., Multiquip, Inc. and Komatsu Forklift USA, Inc., and
operates as a distributor for certain lines of equipment in several of its
markets. The Company intends to acquire businesses that are distributors for
other vendors, thus allowing the Company to purchase from additional sources.
During the year ended December 31, 1997, on a pro forma basis, the Company
purchased approximately $93 million of rental equipment, of which
approximately 33.3% was obtained from its top five suppliers. No single
supplier accounted for more than 17.0% of the Company's total purchases. The
Company believes it could readily replace any of its suppliers if necessary.
LOCATIONS AND PROPERTIES
The Company operates 82 equipment rental locations in the following 19
states: Alabama (6), Florida (2), Georgia (4), Indiana (4), Kentucky (5),
Louisiana (5), Maine (5), Massachusetts (1), Michigan (6), Mississippi (1),
Missouri (1), Nevada (2), New Hampshire (1), New York (6), Pennsylvania (1),
Tennessee (5), Texas (25), Vermont (1) and Virginia (1). The Company's
properties typically include an outside storage yard and a small building
containing offices, a maintenance center and, in certain locations, a retail
showroom. The Company owns 12 of its equipment rental locations and leases the
other 67, as well as its approximately 1,400 square foot headquarters space in
Evanston, Illinois. The net book value of owned facilities was approximately
$4.4 million at December 31, 1997, on a pro forma basis, and the average
annual lease expense on each leased facility was approximately $47,000 in
1997. The Company's leases have terms expiring from 1998 to 2007, with the
majority of its leases having renewal options. Management believes that none
of the Company's leased facilities, individually, is material to the Company's
operations and that all of these leases can be readily replaced at similar
terms. The Company's interests in each of these properties secure borrowings
under the Credit Facility.
COMPETITION
The equipment rental industry is highly fragmented and competitive. Many of
the markets in which the Company operates are served by numerous competitors,
ranging from national and multi-regional companies such as Hertz Equipment
Rental Corporation (an affiliate of Ford Motor Company), U.S. Rentals, Inc.,
Rental Service Corporation and Prime Services, Inc., to small, independent
businesses with a limited number of locations. Management believes that
participants in the equipment rental industry compete on the basis of
availability and quality of equipment, service, delivery, time and price.
Geographic territories for competition are usually limited to 50 to 75 miles
due to servicing requirements and transportation costs of the equipment.
Certain specialized equipment renters, such as Industrial Hoist Services,
compete on a larger regional or national basis. In general, management
believes that national and multi-regional operators, such as the Company,
enjoy substantial competitive advantages over small, independent rental
businesses that cannot afford to maintain the comprehensive rental equipment
fleet and high level of maintenance and service that the Company offers. See
"Risk Factors--Competition."
EMPLOYEES
At June 30, 1998, the Company had a total of 1,222 employees. Only 86 of the
Company's employees are represented by unions, and management believes that
its relationship with all of its employees is excellent. The Company is
committed to, and has realized significant benefits from, its formal employee
training programs.
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<PAGE>
Management believes that this investment in training and safety awareness
programs for employees is a competitive advantage that positions the Company
to be responsive to customer needs.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The Company's facilities are subject to various evolving federal, state and
local environmental requirements, including those relating to discharges to
air, water and land, the handling and disposal of solid and hazardous waste
and the cleanup of properties affected by hazardous substances. Certain
environmental laws impose substantial penalties for noncompliance, and others,
such as the federal Comprehensive Environmental Response, Compensation, and
Liability Act, as amended, impose strict, retroactive, joint and several
liability upon persons responsible for releases of hazardous substances.
In connection with its corporate acquisitions, the Company usually obtains
environmental assessments from independent environmental consultants. These
assessments generally consist of a site visit, historical record review,
interviews with key personnel and preparation of a report. The purpose of the
consultant's work is to identify potential environmental conditions or
compliance issues associated with the subject property and operations. Based
on these assessments, the Company believes that its operations have been and
are operated in substantial compliance with environmental requirements and
that it has no material liabilities arising under environmental requirements.
Some risk of environmental liability is inherent in the nature of the
Company's business, however, and the Company might in the future incur
material costs to meet current or more stringent compliance, cleanup or other
obligations pursuant to environmental laws.
The Company is currently evaluating whether it must take additional steps at
some locations to ensure compliance with certain environmental laws, including
those relating to the discharge of stormwater and wastewater from the washing
of vehicles and other equipment. The Company does not believe any costs
associated with these efforts will have a material adverse effect on the
Company's operating results or financial position.
The Company dispenses petroleum products from aboveground and underground
storage tanks located at some locations that it operates. The Company
maintains an environmental compliance program designed to minimize the
potential for leaks and spills, to ensure proper maintenance of records and to
keep track of the regular testing and monitoring of tank systems. There can be
no assurance, however, that these tank systems have been or will at all times
remain free from leaks or that the use of these tanks has not or will not
result in spills or other releases. The Company does not believe that the
presence or operation of these tanks will have a material adverse effect on
the Company's operating results or financial position.
The Company uses hazardous substances, such as solvents, to clean and
maintain its rental equipment fleet and generates wastes, such as used motor
oil, radiator fluid and solvents, that are stored on site and disposed of at
off-site locations. Under various environmental laws, the Company could be
liable for contamination at sites where hazardous substances used in its
operations have been disposed of or otherwise released.
The Company believes that its compliance with environmental laws has not had
a material adverse effect on the Company's operating results, financial
condition or competitive position to date. See "Risk Factors--Environmental
Liabilities."
LEGAL PROCEEDINGS
From time to time, the Company has been and is involved in various legal
proceedings, all of which management believes are routine in nature and
incidental to the conduct of its business. The ultimate legal and financial
liability of the Company with respect to such proceedings cannot be estimated
with certainty, but the Company believes, based on its examination of such
matters, that none of such proceedings, if determined adversely to the
Company, would have a material adverse effect on the financial condition or
results of operations of the Company.
44
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of July 20, 1998 with
respect to the directors and executive officers of the Company and each of the
Subsidiary Guarantors. Officers of the Company and each of the Subsidiary
Guarantors serve at the discretion of the respective board of directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------ --- -------------------------------------------------------------
<S> <C> <C>
Kevin Rodgers........... 48 Director of the Company, Albany Ladder Company Inc.
("Albany"), BAT Acquisition Corp. ("BAT"), Carl's Mid South
Rent-All Center Incorporated ("CMSRACI"), Falconite Aviation,
Inc. ("FAI"), Falconite Equipment, Inc. ("FEI"), Falconite,
Inc. ("Falconite"), Falconite Rebuild Center, Inc. ("FRCI"),
McCurry & Falconite Equipment Co., Inc. ("M&FECI"), M&M
Properties, Inc. ("M&MPI"), NES Acquisition Corp. ("NES
Acquisition"), NES East Acquisition Corp. ("NES East") and
NES Michigan Acquisition Corp. ("NES Michigan"); Chief
Executive Officer of NES Acquisition; Chief Executive Officer
and President of the Company, Albany, BAT, CMSRACI, FAI, FEI,
Falconite, FRCI, M&FECI, M&MPI, NES East and NES Michigan
Dennis O'Connor......... 48 Chief Financial Officer of the Company, Albany, BAT, CMSRACI,
FAI, FEI, Falconite, FRCI, M&FECI, M&MPI, NES Acquisition,
NES East and NES Michigan
Paul Ingersoll.......... 32 Vice President of Corporate Development and Secretary of the
Company; Vice President, Secretary and Treasurer of Albany,
BAT, CMSRACI, FAI, FEI, Falconite, FRCI, M&FECI, M&MPI, NES
Acquisition, NES East and NES Michigan
Carl Thoma.............. 49 Chairman of the Board of the Company; Director of Albany,
BAT, CMSRACI, FAI, FEI, Falconite, FRCI, M&FECI, M&MPI, NES
Acquisition, NES East and NES Michigan
William Kessinger....... 32 Director of the Company, Albany, BAT, CMSRACI, FAI, FEI,
Falconite, FRCI, M&FECI, M&MPI, NES Acquisition, NES East and
NES Michigan
John Grove.............. 77 Director of the Company
Ronald St. Clair........ 60 Director of the Company
</TABLE>
The Company's by-laws provide that the size of the Board shall be fixed from
time to time by resolution of the Board and that vacancies on the Board may be
filled by the remaining directors. The Board of Directors currently consists
of five directors, who are divided into three classes, with terms expiring at
the Company's annual meetings of stockholders in 1999, 2000 and 2001. Mr. St.
Clair's term will expire at the 1999 annual meeting. Mr. Rodgers' and Mr.
Kessinger's terms will expire at the 2000 annual meeting. Mr. Thoma's and Mr.
Grove's terms will expire at the 2001 annual meeting. Each director is elected
to serve for the remaining term of any vacancy filled by the director or until
the third succeeding annual meeting of stockholders (if elected at an annual
meeting of stockholders) or until a successor is duly elected. The Board has
the power to appoint the officers of the Company. Each officer will hold
office for such term as may be prescribed by the Board and until such person's
successor is chosen and qualified or until such person's death, resignation or
removal.
Kevin Rodgers. Mr. Rodgers has been President, Chief Executive Officer and a
director of the Company since he founded the Company with Golder, Thoma,
Cressey, Rauner Fund V, L.P. in June 1996. Prior thereto, Mr. Rodgers served
as Chief Executive Officer of Brambles Equipment Services, Inc. and Brambles
Records Management, Inc. from 1991 to June 1996. From 1991 to 1996, Mr.
Rodgers also held the position of Executive Director of Brambles USA, a
subsidiary of Brambles Industries Limited, an Australian public company with
worldwide revenues of over US $2.5 billion. From 1979 to 1990, Mr. Rodgers
held several positions at Morgan Equipment Company, a privately held heavy
equipment dealership with worldwide sales of approximately $300 million,
including Chief Executive Officer of Morgan Equipment's Australian operations
from 1986 to 1990.
Dennis O'Connor. Mr. O'Connor has been Chief Financial Officer of the
Company since August 1996. Prior thereto, Mr. O'Connor served as Chief
Financial Officer of Brambles Equipment Services, Inc. from November 1991 to
August 1996, where Mr. O'Connor directed the financial and administrative
functions for its seven operating divisions and assisted in operations
management. From May 1986 to May 1990, Mr. O'Connor held various positions at
Morgan Equipment Company, including Chief Financial Officer and General
Manager.
45
<PAGE>
Paul Ingersoll. Mr. Ingersoll has been Vice President of Corporate
Development and Secretary of the Company since June 1996. Prior thereto, Mr.
Ingersoll served as Assistant to the Executive Director of Brambles USA from
March 1992 to May 1996 and as Financial Analyst from November 1989 to March
1992. During his tenure at Brambles, Mr. Ingersoll closed 19 acquisitions
related to equipment services and records management.
Carl Thoma. Mr. Thoma is Chairman of the Board of the Company and has served
as a director of the Company since its founding in June 1996. Mr. Thoma is the
Managing Partner of Thoma Cressey Equity Partners, a private equity investment
company in Chicago, Illinois, Denver, Colorado and San Francisco, California
formed in December 1997 as a successor to Golder, Thoma, Cressey, Rauner, Inc.
He also co-founded and has been a Managing Director of Golder, Thoma, Cressey,
Rauner, Inc., the general partner of Golder, Thoma, Cressey, Rauner Fund V,
L.P. and its predecessor funds, in Chicago, Illinois since 1980. Mr. Thoma is
also a director of Global Imaging, Inc., Outsource Partners, Inc. and Paging
Network, Inc.
William Kessinger. Mr. Kessinger has served as a director of the Company
since its founding in June 1996. Mr. Kessinger is a Principal of GTCR Golder
Rauner, LLC, a private equity investment company in Chicago, Illinois formed
in January 1998 as a successor to Golder, Thoma, Cressey, Rauner, Inc. Mr.
Kessinger joined Golder, Thoma, Cressey, Rauner, Inc. in May 1995 and has been
a Principal since September 1997. Prior thereto, Mr. Kessinger was a Principal
with The Parthenon Group from July 1994 to May 1995. From August 1992 to June
1994, Mr. Kessinger attended Harvard Business School and received his MBA.
Prior to that time, Mr. Kessinger served as an Associate with Prudential Asset
Management Asia from August 1988 to June 1992. Mr. Kessinger is also a
director of Answerthink Consulting Group, Inc., Excaliber, Inc., Global
Imaging, Inc., National Computer Print, Inc. and Users, Inc.
John Grove. Mr. Grove has served as a director of the Company since May
1998. Mr. Grove co-founded JLG Industries, Inc., a manufacturer of
hydraulically-operated machinery specializing in aerial work platforms, in
1969 and served as Chairman and Chief Executive Officer until his retirement
in 1993. Prior to 1969, Mr. Grove co-founded Grove Manufacturing Co. and
developed the modern hydraulic crane. Mr. Grove is also a director of Falling
Spring Corp., Truckcraft Corporation and Sentry Trust, Inc.
Ronald St. Clair. Mr. St. Clair has served as a director of the Company
since October 1997. Mr. St. Clair founded High Reach Equipment, an aerial
platform rental company headquartered in Baton Rouge, Louisiana. In 1993, Mr.
St. Clair sold High Reach Equipment to Brambles Equipment Services, Inc. In
1994, Mr. St. Clair retired from High Reach Equipment.
COMPENSATION OF DIRECTORS
Directors of the Company currently do not receive a salary or an annual
retainer for their services, except for (i) Mr. St. Clair, who receives an
annual fee of $40,000 and (ii) Mr. Grove, who receives an annual fee of $8,000
and fees of $1,500 for each Board meeting (or $500 if such Board meeting is
telephonic) and $500 for each Board committee meeting Mr. Grove attends. The
Company expects that new non-employee Directors not otherwise affiliated with
the Company or its stockholders will be paid an annual cash retainer. All
directors are reimbursed for out-of-pocket expenses related to their service
as directors, including expenses incurred in connection with attending
meetings. Directors may also be issued options pursuant to the Incentive Plan
(as defined). See "--Long Term Incentive Plan."
In connection with the Initial Stock Offering, the Company granted each of
Mr. Grove and Mr. St. Clair, under the Incentive Plan, an option to acquire
10,000 shares of Common Stock that will vest in equal annual installments at
each of the first five anniversaries of the date of grant. The Company granted
such options at an option price equal to the public offering price. In
addition, at each anniversary of the Initial Stock Offering, the Company
intends to grant each of Mr. Grove and Mr. St. Clair, under the Incentive
Plan, an option to acquire 2,000 shares of Common Stock that will vest in
equal annual installments at each of the first five anniversaries of the date
of grant. The Company intends to grant such options at an option price equal
to the fair market value of the Common Stock on the date of grant.
COMPENSATION OF EXECUTIVE OFFICERS
The compensation of executive officers of the Company will be determined by
the Board of Directors of the Company. The following table sets forth
information regarding the compensation paid or accrued by the Company to the
Chief Executive Officer and each of the Company's other executive officers
(the "Named Executive Officers") for services rendered to the Company in all
capacities during 1996 and 1997.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- -------------------------------
AWARDS PAYOUTS
----------------------- -------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION STOCK OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) AWARDS ($) ($) ($) ($)
- ------------------------ ---- ------- ------- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kevin Rodgers(1)........ 1997 225,000 112,500 -- -- -- -- 10,125(2)
President, Chief 1996 131,250(3) -- -- -- -- -- --
Executive Officer and
Director
Dennis O'Connor(4)...... 1997 125,000 62,500 -- -- -- -- 4,545(5)
Chief Financial Officer 1996 44,015(6) -- -- -- -- -- 30,741(7)
Paul Ingersoll(8)....... 1997 80,000 40,000 -- -- -- -- 3,200(9)
Vice President and 1996 52,464(10) -- -- -- -- -- --
Secretary
</TABLE>
- --------
(1) Mr. Rodgers became an employee of the Company effective June 4, 1996.
(2) The amount shown includes $4,500 of Company 401(k) matching contributions
under the Savings Plan and a $5,625 profit sharing contribution under the
Savings Plan (as defined).
(3) The amount shown includes $43,750 of accrued salary paid in 1997 pursuant
to Mr. Rodgers' employment agreement upon the Company's acquisition of
equipment rental businesses meeting certain financial criteria.
(4) Mr. O'Connor became an employee of the Company effective August 19, 1996.
(5) The amount shown includes $2,045 of Company 401(k) matching contributions
under the Savings Plan and a $2,500 profit sharing contribution under the
Savings Plan.
(6) The amount shown includes $10,909 of accrued salary paid in 1997 pursuant
to Mr. O'Connor's employment agreement upon the Company's acquisition of
equipment rental businesses meeting certain financial criteria.
(7) The amount shown represents reimbursement for relocation and moving
expenses.
(8) Mr. Ingersoll became an employee of the Company effective June 4, 1996.
(9) The amount shown includes $1,600 of Company 401(k) matching contributions
under the Savings Plan and a $1,600 profit sharing contribution under the
Savings Plan.
(10) The amount shown includes $13,116 of accrued salary paid in 1997 pursuant
to Mr. Ingersoll's employment agreement upon the Company's acquisition of
equipment rental businesses meeting certain financial criteria. In
addition, the amount shown includes $5,797 of salary paid by the Company
for work Mr. Ingersoll performed for Golder, Thoma, Cressey, Rauner, Inc.
prior to June 4, 1996 to prepare for the organization and formation of
the Company.
MANAGEMENT EMPLOYMENT AGREEMENTS
Kevin Rodgers. Mr. Rodgers is party to a senior management agreement with
the Company dated as of June 4, 1996, as amended. Under the agreement, Mr.
Rodgers will receive an annual base salary of $250,000, which amount shall be
reviewed (but not reduced) annually by the Board in its sole discretion. Mr.
Rodgers will be eligible for a bonus of up to 50% of his base salary, which
the Board anticipates awarding if Mr. Rodgers meets or exceeds annual
operational and financial objectives agreed to by the Board and Mr. Rodgers.
If the Company has not met or exceeded its financial or operational
objectives, the Board in its discretion may award Mr. Rodgers a bonus of less
than 50% of his base salary. Mr. Rodgers will also be entitled to all other
benefits as are approved by the Board and made available to the Company's
senior management.
Under the agreement, Mr. Rodgers purchased 96 shares of Class B Common Stock
at a price of $10 per share. In addition, under the agreement, Mr. Rodgers
agreed to purchase (upon consummation of certain additional investments by
Golder, Thoma, Cressey, Rauner Fund V, L.P. in the Company) up to an
additional 7,904 shares of Class B Common Stock at a price of $10 per share;
provided that Mr. Rodgers was entitled to
47
<PAGE>
purchase all or any portion of such shares at a price of $10 per share at such
earlier time as Mr. Rodgers determined. Mr. Rodgers purchased all 7,904 of
such additional shares in January 1997. All shares of Class B Common Stock
owned by Mr. Rodgers will vest over a five-year period beginning March 1997.
In connection with and immediately prior to the consummation of the Initial
Stock Offering, each share of Class B Common Stock owned by Mr. Rodgers was
converted into Common Stock. Upon completion of the Initial Stock Offering,
the portions of the agreement which restrict the transfer of the Company's
securities were terminated.
Mr. Rodgers' employment with the Company will continue until terminated by
the resignation, death or disability of Mr. Rodgers or by the Board in its
good faith judgment that termination of Mr. Rodgers' employment is in the best
interests of the Company. In the event Mr. Rodgers' employment is terminated
(i) by the Company without cause, (ii) by Mr. Rodgers with good reason or
(iii) as a result of Mr. Rodgers' death or disability, until the end of the
six-month period commencing on the date of his termination, the Company shall
pay to Mr. Rodgers (or his estate) his annual base salary and allow Mr.
Rodgers to continue to participate in all of the Company's medical, disability
and life insurance plans to the extent permitted by the Company's insurance
carriers at a cost not materially in excess of the Company's cost for such
insurance immediately prior to the date of termination. In addition, the
Company shall have the option to extend the severance period to the second
anniversary of the date of termination, during which period the Company shall
pay to Mr. Rodgers (or his estate) his annual base salary and allow Mr.
Rodgers to continue to participate in all of the Company's medical, disability
and life insurance plans to the extent permitted by the Company's insurance
carriers at a cost not materially in excess of the Company's cost for such
insurance immediately prior to the date of termination. Mr. Rodgers has agreed
not to compete with the Company during the term of his employment and for six
months thereafter and during the extended period (if any) and has agreed not
to solicit any employees or customers of the Company during the two years
following the date of termination of his employment.
Dennis O'Connor. Mr. O'Connor is party to a senior management agreement with
the Company dated as of December 31, 1996, as amended. Under the agreement,
Mr. O'Connor will receive an annual base salary of $165,000, which amount
shall be reviewed (but not reduced) annually by the Company's Chief Executive
Officer with the approval of the Board in its sole discretion. Mr. O'Connor
will also be entitled to all other benefits as are approved by the Board and
made available to the Company's senior management.
Under the agreement, Mr. O'Connor purchased 24 shares of Class B Common
Stock at a price of $10 per share. In addition, under the agreement, Mr.
O'Connor agreed to purchase (upon consummation of certain additional
investments by Golder, Thoma, Cressey, Rauner Fund V, L.P. in the Company) up
to an additional 1,976 shares of Class B Common Stock at a price of $10 per
share; provided that Mr. O'Connor was entitled to purchase all or any portion
of such shares at a price of $10 per share at such earlier time or times as
Mr. O'Connor determined. Mr. O'Connor purchased all 1,976 of such additional
shares in January 1997. All shares of Class B Common Stock owned by Mr.
O'Connor will vest over a five-year period beginning March 1997. In connection
with and immediately prior to the consummation of the Initial Stock Offering,
each share of Class B Common Stock owned by Mr. O'Connor was converted into
Common Stock. Upon completion of the Initial Stock Offering, the portions of
the agreement which restrict the transfer of the Company's securities were
terminated.
Mr. O'Connor's employment with the Company will continue until terminated by
the resignation, death or disability of Mr. O'Connor or by the Board in its
good faith judgment that termination of Mr. O'Connor's employment is in the
best interests of the Company. In the event Mr. O'Connor's employment is
terminated (i) by the Company without cause, (ii) by Mr. O'Connor with good
reason or (iii) as a result of Mr. O'Connor's death or disability, until the
end of the six-month period commencing on the date of his termination, the
Company shall pay to Mr. O'Connor (or his estate) his annual base salary and
allow Mr. O'Connor to continue to participate in all of the Company's medical,
disability and life insurance plans to the extent permitted by the Company's
insurance carriers at a cost not materially in excess of the Company's cost
for such insurance immediately prior to the date of termination. In addition,
the Company shall have the option to extend the severance period to the second
anniversary of the date of termination, during which period the Company shall
pay to Mr. O'Connor (or his estate) his annual base salary and allow Mr.
O'Connor to continue to participate in all of the Company's medical,
disability and life insurance plans to the extent permitted by the Company's
insurance carriers at a cost not materially in excess of the Company's cost
for such insurance immediately prior to the date of termination. Mr. O'Connor
has agreed not to compete with the Company during the term of his
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<PAGE>
employment and for six months thereafter and during the extended period (if
any) and has agreed not to solicit any employees or customers of the Company
during the two years following the date of termination of his employment.
Paul Ingersoll. Mr. Ingersoll is party to a senior management agreement with
the Company dated as of June 4, 1996, as amended. Under the agreement, Mr.
Ingersoll will receive an annual base salary of $120,000, which amount shall
be reviewed (but not reduced) annually by the Company's Chief Executive
Officer with the approval of the Board in its sole discretion. Mr. Ingersoll
will also be entitled to all other benefits as are approved by the Board and
made available to the Company's senior management.
Under the agreement, Mr. Ingersoll purchased 12 shares of Class B Common
Stock at a price of $10 per share. In addition, under the agreement, Mr.
Ingersoll agreed to purchase (upon consummation of certain additional
investments by Golder, Thoma, Cressey, Rauner Fund V, L.P. in the Company) up
to an additional 988 shares of Class B Common Stock at a price of $10 per
share; provided that Mr. Ingersoll was entitled to purchase all or any portion
of such shares at a price of $10 per share at such earlier time or times as
Mr. Ingersoll determined. Mr. Ingersoll purchased all 988 of such additional
shares in January 1997. All shares of Class B Common Stock owned by Mr.
Ingersoll will vest over a five-year period beginning March 1997. In
connection with and immediately prior to the consummation of the Initial Stock
Offering, each share of Class B Common Stock owned by Mr. Ingersoll was
converted into Common Stock. Upon completion of the Initial Stock Offering,
the portions of the agreement which restrict the transfer of the Company's
securities were terminated.
Mr. Ingersoll's employment with the Company will continue until terminated
by the resignation, death or disability of Mr. Ingersoll or by the Board in
its good faith judgment that termination of Mr. Ingersoll's employment is in
the best interests of the Company. In the event Mr. Ingersoll's employment is
terminated (i) by the Company without cause, (ii) by Mr. Ingersoll with good
reason or (iii) as a result of Mr. Ingersoll's death or disability, until the
end of the six-month period commencing on the date of his termination, the
Company shall pay to Mr. Ingersoll (or his estate) his annual base salary and
allow Mr. Ingersoll to continue to participate in all of the Company's
medical, disability and life insurance plans to the extent permitted by the
Company's insurance carriers at a cost not materially in excess of the
Company's cost for such insurance immediately prior to the date of
termination. In addition, the Company shall have the option to extend the
severance period to the second anniversary of the date of termination, during
which period the Company shall pay to Mr. Ingersoll (or his estate) his annual
base salary and allow Mr. Ingersoll to continue to participate in all of the
Company's medical, disability and life insurance plans to the extent permitted
by the Company's insurance carriers at a cost not materially in excess of the
Company's cost for such insurance immediately prior to the date of
termination. Mr. Ingersoll has agreed not to compete with the Company during
the term of his employment and for six months thereafter and during the
extended period (if any) and has agreed not to solicit any employees or
customers of the Company during the two years following the date of
termination of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1996 and 1997, the Company had no compensation committee or other
committee of the Board performing similar functions. Accordingly, decisions
concerning compensation of executive officers were made by the entire Board.
Other than Kevin Rodgers, there were no officers or employees of the Company
who participated in deliberations concerning such compensation matters.
401(K) PROFIT SHARING PLAN
The Company maintains a savings plan (the "Savings Plan") qualified under
Section 401(a) and 401(k) of the Internal Revenue Code. Generally, all
employees of the Company in the United States who are at least 21 years of age
and who have completed six months of service are eligible to participate in
the Savings Plan. For each employee who elects to participate in the Savings
Plan and makes a contribution thereto, the Company makes a matching
contribution of 50% of the first 5% of annual compensation contributed. In
addition, the Company may make discretionary profit sharing contributions
under the Savings Plan. The maximum contribution for any participant for any
year is the maximum amount permitted under Internal Revenue Code.
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<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has two standing committees of its Board of Directors: the
Compensation Committee (the "Compensation Committee") and the Audit Committee
(the "Audit Committee"). The Audit Committee, which currently consists of
Messrs. Thoma, Kessinger and Grove, is responsible for making recommendations
to the Board of Directors regarding the selection of independent auditors,
reviewing the results and scope of the audit and other services provided by
the Company's independent accountants and reviewing and evaluating the
Company's audit and control functions. The Compensation Committee, which
currently consists of Messrs. Thoma, Kessinger and St. Clair, makes
recommendations regarding the Incentive Plan and decisions concerning salaries
and incentive compensation for executive officers, key employees and
consultants of the Company.
The Board of Directors may also create other committees, including an
executive committee and a nominating committee.
LONG TERM INCENTIVE PLAN
The Company has established the National Equipment Services, Inc. Long Term
Incentive Plan (the "Incentive Plan"). A maximum of 2,200,000 shares of Common
Stock, subject to adjustment, have been initially authorized for the granting
of stock options under the Incentive Plan. Options granted under the Incentive
Plan may be either "incentive stock options," which qualify for special tax
treatment under the Internal Revenue Code, or nonqualified stock options. The
purposes of the Incentive Plan are to advance the interests of the Company and
stockholders by providing Company employees with an additional incentive to
continue their efforts on behalf of the Company, as well as to attract to the
Company people of experience and ability. The Incentive Plan is intended to
comply with Rule 16b-3 of the Exchange Act.
All officers, directors and other key employees and consultants of the
Company or its subsidiaries are eligible to participate under the Incentive
Plan, as deemed appropriate by the Compensation Committee of the Board of
Directors. Eligible employees will not pay any cash consideration to the
Company to receive the options. The Incentive Plan is administered by the
Compensation Committee of the Board of Directors. The exercise price for
incentive stock options must be no less than the fair market value of the
common stock on the date of grant. The exercise price of nonqualified stock
options is not subject to any limitation based upon the then current market
value of the common stock. Options will expire no later than the tenth
anniversary of the date of grant. An option holder will be able to exercise
options from time to time, subject to vesting. Options will vest immediately
upon death or disability of a participant. Upon termination for cause or at
will by the Company, the unvested portion of the options will be forfeited.
Subject to the above conditions, the exercise price, duration of the options
and vesting provisions will be set by the Compensation Committee of the Board
of Directors in its discretion.
In connection with the Initial Stock Offering, the Company granted stock
options to purchase 880,000 shares of Common Stock to certain members of
management, including Messrs. O'Connor and Ingersoll who each received options
to purchase 24,000 shares of Common Stock at the initial public offering
price. Such options will vest in five equal installments beginning of the
first anniversary of the grant date. The options have a term of ten years.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of July 27, 1998 by (i)
each stockholder known by the Company to own beneficially five percent or more
of the outstanding shares of the Company's Common Stock, (ii) each current
director of the Company, (iii) each Named Executive Officer of the Company and
(iv) all directors of the Company and executive officers of the Company as a
group. As of July 27, 1998, there were 23,744,716 shares of Common Stock
outstanding. To the knowledge of the Company, each stockholder has sole voting
and investment power with respect to the shares indicated as beneficially
owned, unless otherwise indicated in a footnote. Unless otherwise indicated,
the business address of each person is the Company's corporate address.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
---------- -------
<S> <C> <C>
Golder, Thoma, Cressey, Rauner Fund V, L.P.(a).............. 13,861,142 58.4%
Kevin Rodgers(b)............................................ 1,112,100 4.7
Dennis O'Connor............................................. 278,000 1.2
Paul Ingersoll.............................................. 139,000 *
Carl Thoma(c)............................................... 13,861,142 58.4
William Kessinger(c)........................................ 13,861,142 58.4
John Grove.................................................. -- --
Ronald St. Clair............................................ 65,381 *
All Directors and Executive Officers as a Group (7
persons)(c)................................................ 15,455,623 65.1
</TABLE>
- --------
* Less than one percent.
(a) Includes 24,287 shares of Common Stock held by GTCR Associates V, a
partnership affiliated with Golder, Thoma, Cressey, Rauner Fund V, L.P.
The address of each of Golder, Thoma, Cressey, Rauner Fund V, L.P. and
GTCR Associates V is 6100 Sears Tower, Chicago, Illinois 60606.
(b) Includes 1,112,000 shares of Common Stock owned by Mr. Rodgers' family
limited partnership, Rodgers Investment Partners, L.P., as to which he
disclaims beneficial ownership.
(c) Includes 13,836,855 shares of Common Stock held by Golder, Thoma, Cressey,
Rauner Fund V, L.P., of which GTCR V, L.P. is the general partner, and
also includes 24,287 shares of Common Stock held by GTCR Associates V.
Each of Messrs. Thoma and Kessinger is a principal of Golder, Thoma,
Cressey, Rauner, Inc., the general partner of GTCR V, L.P. and the
managing general partner of GTCR Associates V, and therefore may be deemed
to share investment and voting control over the shares of Common Stock
held by Golder, Thoma, Cressey, Rauner Fund V, L.P. and GTCR Associates V.
Each of Messrs. Thoma and Kessinger disclaims beneficial ownership of the
shares of Common Stock owned by Golder, Thoma, Cressey, Rauner Fund V,
L.P. and GTCR Associates V. The address of each of these holders is 6100
Sears Tower, Chicago, Illinois 60606.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN LOANS TO EXECUTIVES
The Company loaned $64,000 to Mr. Rodgers, $20,000 to Mr. O'Connor and
$10,000 to Mr. Ingersoll pursuant to promissory notes (the "Executive Notes")
to finance their purchase of the Company's securities. See "Management--
Management Employment Agreements." Each of the Executive Notes is secured by a
pledge of the securities purchased with such Executive Note pursuant to an
Executive Stock Pledge Agreement between the Company and each of Messrs.
Rodgers, O'Connor and Ingersoll. The Executive Notes bear interest at a rate
per annum equal to the applicable federal rate as set forth in Section 1274(d)
of the Internal Revenue Code of 1986, as amended. The principal amount of the
Executive Notes and all interest accrued thereon mature in part on June 4,
2006, with the remainder maturing on January 6, 2007. The Executive Notes may
be prepaid in full or in part at any time.
PROFESSIONAL SERVICES AGREEMENT
In connection with the formation of the Company, the Company entered into a
Professional Services Agreement (the "Professional Services Agreement") with
Golder, Thoma, Cressey, Rauner, Inc. pursuant to which Golder, Thoma, Cressey,
Rauner, Inc. provided financial and management consulting services to the
Company. Under the Professional Services Agreement, Golder, Thoma, Cressey,
Rauner, Inc. received an annual management fee of $200,000 (plus reimbursement
of out-of-pocket expenses) and a fee of 1% of the amount of debt or equity
capital raised by the Company from any source, for their assistance in
obtaining such capital. For the period from inception (June 4, 1996) through
December 31, 1996, the Company had paid or accrued $0 in fees under the
Professional Services Agreement. For the year ended December 31, 1997, the
Company had paid or accrued $1,047,238 in fees under the Professional Service
Agreement. The agreement was terminated upon consummation of the Initial Stock
Offering, and no fee was payable with respect to the issuance of Common Stock
in the Initial Stock Offering. Messrs. Thoma and Kessinger continue to serve
as directors of the Company.
STOCKHOLDERS AGREEMENT AND REGISTRATION AGREEMENT
In connection with the formation of the Company, the Company and its
stockholders entered into a Stockholders Agreement dated as of June 4, 1996
(the "Stockholders Agreement") which (i) provided for the designation of the
Board of Directors of the Company, (ii) imposed certain restrictions on the
transfer of shares of the Company, (iii) required the stockholders to take
certain actions upon the approval by a majority of the stockholders in
connection with an initial public offering or a sale of the Company, (iv)
required the Company to offer to sell shares to the stockholders under certain
circumstances upon authorization of an issuance or sale of additional shares
and (v) granted certain of the stockholders certain participation rights in
connection with a sale of shares by other stockholders. The Stockholders
Agreement was terminated upon consummation of the Initial Stock Offering.
In connection with the formation of the Company, the Company and its
stockholders entered into a Registration Agreement dated as of June 4, 1996
(the "Registration Agreement") pursuant to which the stockholders have the
right in certain circumstances and, subject to certain conditions, to require
the Company to register shares of the Company's Common Stock held by them
under the Securities Act. Under the Registration Agreement, except in limited
circumstances, the Company is obligated to pay all expenses in connection with
such registration.
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<PAGE>
DESCRIPTION OF NEW CREDIT FACILITY
On July 17, 1998 (the "Borrowing Date"), the Company, as borrower, each of
Albany Ladder Company, Inc., BAT Acquisition Corp., Carl's Mid South Rent-All
Center Incorporated, Falconite Aviation, Inc., Falconite Equipment, Inc.,
Falconite Inc., Falconite Rebuild Center, Inc., McCurry & Falconite Equipment
Co., Inc., M&M Properties, Inc., NES Acquisition Corp., NES East Acquisition
Corp. and NES Michigan Acquisition Corp., as guarantors (collectively, the
"Guarantors" and, together with the Company, the "Obligors"), entered into a
credit agreement (as amended, the "New Credit Facility") with First Union
National Bank, as agent, and certain other financial institutions (the
"Banks"). The New Credit Facility provides to the Company (i) a $100.0 million
term loan and (ii) up to $225.0 million of revolving loans (with a letter of
credit subfacility not to exceed $25.0 million), subject to availability based
on certain financial tests including a borrowing base (which is based on a
percentage of eligible receivables, eligible parts and supplies inventory,
eligible rental equipment and eligible equipment held for resale). The New
Credit Facility was used to refinance indebtedness under the Old Credit
Facility and to finance the acquisition of Falconite. Subject to certain
restrictions, the New Credit Facility may be used to finance future permitted
acquisitions and for working capital and other general corporate purposes. The
New Credit Facility ranks senior in right of payment to the Notes.
Repayment. Outstanding term loans and revolving loans under the New Credit
Facility must be repaid on the fifth anniversary of the Borrowing Date.
Revolving loans made pursuant to the New Credit Facility may be borrowed,
repaid and reborrowed, without premium or penalty, from time to time until the
fifth anniversary of the Borrowing Date, subject to the satisfaction of
certain conditions on the date of any such borrowing.
Security; Guaranty. The obligations of the Obligors under the Credit
Facility are jointly and severally secured by all of the Obligors' existing
and future property, subject to certain exceptions. In addition, the Company
has pledged the stock of each of its subsidiaries and Falconite has pledged
the stock of each of its subsidiaries as further security for the obligations
under the New Credit Facility. In addition, the obligations of the Company
under the New Credit Facility are guaranteed by each of the Guarantors and
certain of the Company's future subsidiaries.
Interest. At the Company's option, the interest rate per annum applicable to
the loans under the New Credit Facility will be a fluctuating rate of interest
measured by reference to one or a combination of the following: (i) the Base
Rate (as defined in the New Credit Facility), plus the applicable borrowing
margin or (ii) the relevant LIBOR Rate (as defined in the New Credit
Facility), plus the applicable borrowing margin. The applicable borrowing
margin under the New Credit Facility will range from 0.00% to 1.25% for Base
Rate-based borrowings and 1.25% to 2.50% for LIBOR Rate-based borrowings. Both
Base Rate and LIBOR rate interest on the New Credit Facility will be
determined quarterly based on the ratio of Total Funded Debt (as defined in
the New Credit Facility) to EBITDA (as defined in the New Credit Facility).
Fees. The Company has agreed to pay certain fees in connection with the New
Credit Facility, including (i) letter of credit fees, (ii) agency and lender's
fees and (iii) unused line fees. Unused line fees are payable quarterly at a
rate per annum ranging from 0.3125% to 0.50% on the undrawn amounts of the
revolving loan commitment under the New Credit Facility based on the ratio of
Total Funded Debt to EBITDA.
Covenants. The New Credit Facility requires the Company to meet certain
financial tests, including maintaining (i) a minimum interest coverage ratio
of (A) 2.25 to 1.0 for each fiscal quarter ending prior to March 31, 1999 and
(B) 2.50 to 1.0 for each fiscal quarter ending on or after March 31, 1999;
(ii) a maximum total debt leverage ratio of (A) 4.75 to 1.0 for each fiscal
quarter ending prior to March 31, 1999, (B) 4.50 to 1.0 for each fiscal
quarter ending on or after March 31, 1999 but prior to December 31, 1999 and
(C) 4.25 to 1.0 for each fiscal quarter ending on or after December 31, 1999;
(iii) a maximum senior debt leverage ratio of (A) 3.25 to 1.0 for each fiscal
quarter ending prior to March 31, 1999, (B) 3.0 to 1.0 for each fiscal quarter
ending on or after March 31, 1999 but prior to December 31, 1999 and (C) 2.75
to 1.0 for each fiscal quarter ending on or after December 31, 1999 (provided
that in the event the Company elects in certain circumstances to reduce by
0.25% its borrowing margins under the New Credit Facility, the maximum
allowable senior debt leverage ratio for each corresponding period shall be
reduced by 0.25); (iv) a minimum consolidated net worth of
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<PAGE>
$100,000,000, increased on a cumulative basis as of the end of each fiscal
quarter of the Company, commencing with the fiscal quarter ending December 31,
1997, by an amount equal to (A) 50% of Consolidated Net Income (as defined in
the New Credit Facility) for the fiscal quarter then ended (without any
deductions for any losses) and (B) 100% of the Net Cash Proceeds (as defined
in the New Credit Facility) of issuances of capital stock by the Company and
the Guarantors occurring subsequent to the Borrowing Date. The New Credit
Facility also contains covenants which, among other things, restrict the
ability of the Obligors (subject to certain exceptions) to incur liens, incur
indebtedness, sell assets, engage in mergers, amend their certificates of
incorporation or bylaws, guarantee debt, declare dividends or redeem or
repurchase capital stock, make loans and investments, transact with
affiliates, issue additional securities, modify material contracts, grant
liens, engage in sale-leaseback transactions and make capital expenditures.
The New Credit Facility also requires the Obligors to satisfy certain
customary affirmative covenants and to make certain customary indemnifications
to the Banks and the agent under the New Credit Facility.
Events of Default. The New Credit Facility contains customary events of
default, including payment defaults, breach of representations or warranties,
covenant defaults, certain events of bankruptcy and insolvency, ERISA
violations, judgment defaults, cross-defaults to certain other indebtedness
and a change in control of the Company. Upon the occurrence of an event of
default under the New Credit Facility the Banks could, among other things, (1)
make a demand for immediate payment of all amounts due and owing under the New
Credit Facility, (2) terminate all commitments to make revolving loans under
the New Credit Facility, and (3) the enforce their rights under the New Credit
Facility and the security documents relating thereto, either judicially or
otherwise, including, among other things, the right to sell the Company's
assets and retain the proceeds to the extent of amounts due and owing under
the New Credit Facility.
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<PAGE>
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes offered hereby will be issued as a separate series
pursuant to the Indenture (the "Indenture") dated November 25, 1995 among the
Company, the Subsidiary Guarantors and Harris Trust and Savings Bank, as
trustee (the "Trustee"). The form and terms of the Exchange Notes are the same
as the form and terms of the Old Notes (which they replace) except that (i)
the Exchange Notes bear a Series B designation and a different CUSIP number
from the Old Notes, (ii) the Exchange Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof, and (iii) the holders of Exchange Notes will not be entitled to
certain rights under the Registration Rights Agreement, including the
provisions providing for an increase in the interest rate on the Old Notes in
certain circumstances relating to the timing of the Exchange Offer, which
rights will terminate when the Exchange Offer is consummated. The terms of the
Exchange Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust
Indenture Act"). The Exchange Notes are subject to all such terms, and Holders
of Exchange Notes are referred to the Indenture and the Trust Indenture Act
for a statement thereof. Any Old Notes that remain outstanding after
completion of the Exchange Offer, together with the Exchange Notes issued in
connection with the Exchange Offer, will be treated as a single class of
securities under the Indenture. The following summary of the material
provisions of the Indenture does not purport to be complete and is qualified
in its entirety by reference to the Indenture, including the definitions
therein of certain terms used below. Copies of the proposed form of Indenture
and Registration Rights Agreement are available as set forth below under "--
Additional Information." The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions." For
purposes of this summary, the term "Company" refers only to National Equipment
Services, Inc. and not to any of its Subsidiaries.
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to all current and future Senior Debt. As of
June 30, 1998, there would have been $337.3 million of Senior Debt of the
Company and the Subsidiary Guarantors outstanding and $238.4 million of
Indebtedness of the Company that ranked pari passu in right of payment to the
Subsidiary Guarantees outstanding. As of June 30, 1998, on a pro forma basis,
the Company, through its Subsidiaries, would have had liabilities (including
trade payables) aggregating approximately $374.5 million. The Indenture
permits the incurrence of additional Senior Debt in the future.
All of the Company's current Subsidiaries are Restricted Subsidiaries.
However, under certain circumstances, the Company is able to designate current
or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries
are not subject to many of the restrictive covenants set forth in the
Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $100.0 million and
will mature on November 30, 2004. Interest on the Exchange Notes will accrue
at the rate of 10% per annum and will be payable semi-annually in arrears on
May 30 and November 30, commencing on November 30, 1998, to Holders of record
on the immediately preceding May 15 and November 15. Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if
no interest has been paid, from the date of original issuance. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest and Liquidated Damages on the Notes
will be payable at the office or agency of the Company maintained for such
purpose within the City and State of New York or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check
mailed to the Holders of the Notes at their respective addresses set forth in
the register of Holders of Notes; provided that all payments of principal,
premium, interest and Liquidated Damages with respect to Notes the Holders of
which have given wire transfer instructions to the Company will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Company,
the Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of
$1,000 and integral multiples thereof.
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<PAGE>
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes will
be subordinated in right of payment, as set forth in the Indenture, to the
prior payment in full of all Senior Debt, whether outstanding on the date of
the Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) before the Holders of Notes will be
entitled to receive any payment with respect to the Notes, and until all
Obligations with respect to Senior Debt are paid in full, any distribution to
which the Holders of Notes would be entitled shall be made to the holders of
Senior Debt (except that Holders of Notes may receive and retain Permitted
Junior Securities and payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under "--
Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of
the principal of, premium, if any, or interest on Designated Senior Debt
occurs and is continuing beyond any applicable period of grace or (ii) any
other default occurs and is continuing with respect to Designated Senior Debt
that permits holders of the Designated Senior Debt as to which such default
relates to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the Company or the holders of any
Designated Senior Debt. Payments on the Notes may and shall be resumed (a) in
the case of a payment default, upon the date on which such default is cured or
waived and (b) in case of a nonpayment default, the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the maturity
of any Designated Senior Debt has been accelerated. No new period of payment
blockage may be commenced unless and until (i) 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, and interest on the Notes
that have come due have been paid in full in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice unless such default shall have been cured or waived for a
period of not less than 90 consecutive days.
The Indenture requires that the Company promptly notify holders of Senior
Debt if payment of the Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. On a pro forma basis,
$337.3 million of Senior Debt and $238.4 million of Indebtedness of the
Company that ranked pari passu in right of payment to the Subsidiary
Guarantees would have been outstanding as of June 30, 1998. The Indenture will
limit, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Debt, that the Company and its Subsidiaries can
incur. See "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be fully and
unconditionally and jointly and severally guaranteed (the "Subsidiary
Guarantees") by the Subsidiary Guarantors. The Subsidiary Guarantee of each
Subsidiary Guarantor will be subordinated to the prior payment in full of all
Senior Debt of such Subsidiary Guarantor. The obligations of each Subsidiary
Guarantor under its Subsidiary Guarantee will be limited so as not to
constitute a fraudulent conveyance under applicable law. See, however, "Risk
Factors--Fraudulent Conveyance."
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation, Person or entity whether or not
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affiliated with such Subsidiary Guarantor unless (i) except in the case of a
merger of such Subsidiary Guarantor with or into the Company or another
Subsidiary Guarantor and subject to the provisions of the following paragraph,
the Person formed by or surviving any such consolidation or merger (if other
than such Subsidiary Guarantor) assumes all the obligations of such Subsidiary
Guarantor pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under the Notes, the Indenture and the
Registration Rights Agreement, (ii) immediately after giving effect to such
transaction, no Event of Default exists and (iii) except in the case of a
merger of such Subsidiary Guarantor with or into the Company or another
Subsidiary Guarantor, the Company would be permitted by virtue of the
Company's pro forma Fixed Charge Coverage Ratio, immediately after giving
effect to such transaction, to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant
described below under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Subsidiary Guarantor, by way of merger, consolidation
or otherwise, or a sale or other disposition of all of the capital stock of
any Subsidiary Guarantor, then such Subsidiary Guarantor (in the event of a
sale or other disposition, by way of such a merger, consolidation or
otherwise, of all of the capital stock of such Subsidiary Guarantor) or the
corporation acquiring the property (in the event of a sale or other
disposition of all of the assets of such Subsidiary Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the Indenture. See "--
Repurchase at Option of Holders--Asset Sales."
OPTIONAL REDEMPTION
Except as described in the following paragraphs, the Notes will not be
redeemable at the Company's option prior to November 30, 2001. Thereafter, the
Notes will be subject to redemption at any time at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days' notice, at
the redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the applicable redemption date, if redeemed during the twelve-month period
beginning on November 30 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001........................................ 105.000%
2002........................................ 102.500%
2003 and thereafter......................... 100.000%
</TABLE>
Notwithstanding the foregoing, during the first 36 months after the date of
the Indenture, the Company may on any one or more occasions redeem up to 33%
of the aggregate principal amount of Notes originally issued under the
Indenture at a redemption price of 110% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
redemption date, with the net cash proceeds of a public offering of common
stock of the Company; provided that at least 67% of the aggregate principal
amount of Notes remain outstanding immediately after the occurrence of such
redemption (excluding Notes held by the Company and its Subsidiaries); and
provided, further, that such redemption shall occur within 45 days of the date
of the closing of such public offering.
In addition, at any time on or prior to November 30, 2001, the Notes may be
redeemed as a whole but not in part at the option of the Company upon the
occurrence of or in connection with a Change of Control, upon not less than 30
nor more than 60 days' notice (but in no event may any such redemption occur
prior to or more than 90 days after the occurrence of such Change of Control),
at a redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium as of, and plus accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date, subject to the right of Holders on
the relevant record date to receive interest due on the relevant interest
payment date.
"Applicable Premium" means, with respect to a Note at any redemption date,
the greater of (i) 1.0% of the principal amount of such Note or (ii) the
excess of (A) the present value at such time of (1) the redemption price
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of such Note at November 30, 2001 (such redemption price being set forth in
the table above) plus (2) all required interest payments due on such Note
through November 30, 2001 (excluding accrued but unpaid interest), computed
using a discount rate equal to the Treasury Rate plus 75 basis points, over
(B) the principal amount of such Note.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H. 15(519)
which has become publicly available at least two Business Days prior to the
redemption date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data)) most nearly equal to the
period from the redemption date to November 30, 2001, provided, however, that
if the period from the redemption date to November 30, 2001 is not equal to
the constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such
yields are given, except that if the period from the redemption date to
November 30, 2001 is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of
one year shall be used.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of Notes to be redeemed at
its registered address. If any Note is to be redeemed in part only, the notice
of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal
to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. Notes called for redemption
become due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of
purchase (the "Change of Control Payment"). Within 30 days following any
Change of Control, the Company will mail a notice to each Holder describing
the transaction or transactions that constitute the Change of Control and
offering to repurchase Notes on the date specified in such notice, which date
shall be no earlier than 30 days and no later than 60 days from the date such
notice is mailed (the "Change of Control Payment Date"), pursuant to the
procedures required by the Indenture and described in such notice. The Company
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying
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Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to
the Trustee the Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each Holder
of Notes so tendered the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Company will issue a press release announcing the results of the
Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
In the event of a Change of Control, there can be no assurance that the
Company will have or be able to acquire sufficient funds to pay to purchase
price for all of the Notes that the Company might be required to purchase. In
addition, the New Credit Facility currently prohibits the Company from
purchasing any Notes prior to maturity, and also provides that certain change
of control events with respect to the Company would constitute a default
thereunder. Any future credit agreements or other agreements relating to
Senior Debt to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Company is prohibited from purchasing Notes, the Company could seek
the consent of its lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does
not obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture which would, in turn, constitute as default under the New Credit
Facility. In such circumstances, the subordination provisions in the Indenture
would restrict payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than a Principal or a Related Party of a
Principal (as defined below); (ii) the adoption by the Company of a plan
relating to its liquidation or dissolution; (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than the
Principals and their Related Parties, becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except
that a person shall be deemed to have "beneficial ownership" of all securities
that such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Voting Stock of
the Company (measured by voting power rather than number of shares); or (iv)
the first day on which a majority of the members of the Board of Directors of
the Company are not Continuing Directors. The definition of Change of Control
includes any transaction described in the preceding sentence that is approved
by the Board of Directors.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Restricted Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Notes
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<PAGE>
to require the Company to repurchase such Notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of
the Company and its Restricted Subsidiaries taken as a whole to another Person
or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture, (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election or (iii) was nominated for election or elected to such
Board of Directors pursuant to Golder, Thoma, Cressey, Rauner Fund V, L.P.'s
rights under the Stockholders Agreement.
"Principals" means Golder, Thoma, Cressey, Rauner Fund V, L.P. and its
affiliates and Messrs. Kevin Rodgers, Dennis O'Connor and Paul Ingersoll,
members of their immediate families and trusts of which such persons are the
beneficiaries.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary
is in the form of cash; provided that the amount of (x) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance
sheet), of the Company or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Notes
or any guarantee thereof) that are assumed by the transferee of any such
assets and as to which the Company or such Restricted Subsidiary is released
from further liability and (y) any securities, notes or other obligations
received by the Company or any such Restricted Subsidiary from such transferee
that are contemporaneously (subject to ordinary settlement periods) converted
by the Company or such Restricted Subsidiary into cash (to the extent of the
cash received), shall be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to repay Senior
Debt, or (b) to the acquisition of a majority of the assets of, or a majority
of the Voting Stock of, another Permitted Business, the making of a capital
expenditure or the acquisition of other long-term assets or properties
(including, without limitation, equipment) that are used or useful in a
Permitted Business. Pending the final application of any such Net Proceeds,
the Company may temporarily reduce revolving credit borrowings or otherwise
invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested
as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $7.0 million, the Company will be required to make an offer to all
Holders of Notes and all holders of pari passu Indebtedness containing
provisions similar to those set forth in the Indenture with respect to offers
to purchase or redeem with the proceeds of sales of assets (an "Asset Sale
Offer") to purchase the maximum principal amount of Notes and such other
Indebtedness that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase, in accordance with the procedures set forth in the Indenture
and such other Indebtedness. To the extent that any Excess Proceeds remain
after consummation of an Asset Sale Offer, the Company may use such Excess
Proceeds for any purpose not otherwise prohibited by the Indenture. If the
aggregate principal amount of Notes and such other Indebtedness
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<PAGE>
tendered into such Asset Sale Offer surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes and such other
Indebtedness to be purchased on a pro rata basis. Upon completion of such
offer to purchase, the amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving the Company or any of its Restricted Subsidiaries) or to the direct
or indirect holders of the Company's or any of its Restricted Subsidiaries'
Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of
the Company or to the Company or a Restricted Subsidiary of the Company); (ii)
purchase, redeem or otherwise acquire or retire for value (including, without
limitation, in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company or any direct or indirect parent
of the Company; (iii) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness that
is pari passu with or subordinated to the Notes, except a payment of interest
or principal at Stated Maturity; or (iv) make any Restricted Investment (all
such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time
of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii), (iv), (vi) and (viii) of the next
succeeding paragraph), is less than the sum, without duplication, of (i)
50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company since
the date of the Indenture as a contribution to its common equity capital or
from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or debt
securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company), plus
(iii) to the extent that any Restricted Investment that was made after the
date of the Indenture is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment, plus (iv) in the event the
Company or any Restricted Subsidiary makes any Investment in a Person that,
as a result of or in connection with such Investment, becomes a Restricted
Subsidiary, an amount equal to the Company's or any Restricted Subsidiary's
existing Restricted Investment in such Person that was previously treated
as a Restricted Payment.
The foregoing provisions do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture, (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu or subordinated Indebtedness or Equity Interests
of the Company in exchange for, or out of the net cash proceeds
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of the substantially concurrent sale (other than to a Subsidiary of the
Company) of, other Equity Interests of the Company (other than any
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement, defeasance
or other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph, (iii) the defeasance, redemption, repurchase or other acquisition
of pari passu or subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness, (iv) the payment of any
dividend by a Restricted Subsidiary of the Company to the holders of any class
of its common Equity Interests on a pro rata basis, (v) the repurchase,
redemption or other acquisition or retirement for value of any Equity
Interests of the Company or any Restricted Subsidiary of the Company held by
any member of the Company's (or any of its Restricted Subsidiaries')
management pursuant to any management equity subscription agreement or stock
option agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$1.0 million in any twelve-month period and no Default or Event of Default
shall have occurred and be continuing immediately after such transaction, (vi)
the making and consummation of an Asset Sale Offer to holders of Indebtedness
pari passu with or subordinate to the Notes in accordance with the provisions
described above under "Asset Sales," (vii) the making of loans to officers and
directors of the Company or any Restricted Subsidiary, the proceeds of which
are contemporaneously used to purchase common stock of the Company, in an
amount not to exceed $5.0 million at any one time outstanding, (viii) the
repurchase, redemption, defeasance, retirement, refinancing or acquisition for
value or payment of principal of subordinated or pari passu Indebtedness at a
purchase price not greater than 101% of the principal amount of such
subordinated or pari passu Indebtedness in the event of a Change of Control
pursuant to a provision similar to the "--Repurchase at the Option of the
Holders--Change of Control" provisions above; provided, however, that prior to
the repurchase of any subordinated Indebtedness and concurrently with the
repurchase of any pari passu Indebtedness, the Company has made an offer to
purchase as provided in "Repurchase at the Option of the Holders--Change of
Control" above with respect to the Notes and has repurchased all Notes validly
tendered for payment in connection with such offer to purchase and (ix) the
making of additional Restricted Payments in an amount not to exceed $5.0
million.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined
by the Board of Directors whose resolution with respect thereto shall be
delivered to the Trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing selected by the Board of Directors if such fair market value
exceeds $5.0 million. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by the covenant "Restricted Payments"
were computed, together with a copy of any fairness opinion or appraisal
required by the Indenture.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Restricted Subsidiaries to issue any shares of
preferred stock; provided, however, that the Company may incur Indebtedness
(including Acquired
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Debt) or issue shares of Disqualified Stock and the Subsidiary Guarantors may
incur Indebtedness or issue preferred stock if the Fixed Charge Coverage Ratio
for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock or
preferred stock is issued would have been at least 2.0 to 1, determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock or preferred stock had been issued, as the case may be, at
the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness under the New Credit Facility; provided that the aggregate
principal amount of all Indebtedness (with letters of credit being deemed
to have a principal amount equal to the maximum potential liability of the
Company and the Subsidiary Guarantors thereunder) outstanding under the New
Credit Facility after giving effect to such incurrence does not exceed the
greater of (a) $115.0 million or (b) the Borrowing Base;
(ii) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness represented by the Notes and the Subsidiary Guarantees;
(iv) the incurrence by the Company or any of the Subsidiary Guarantors of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Subsidiary Guarantor, in an aggregate principal amount not
to exceed $10.0 million at any time outstanding;
(v) the incurrence by the Company or any of the Subsidiary Guarantors of
Indebtedness in connection with the acquisition of assets or a new
Subsidiary; provided that such Indebtedness was incurred by the prior owner
of such assets or such Subsidiary prior to such acquisition by the Company
or one of the Subsidiary Guarantors and was not incurred in connection
with, or in contemplation of, such acquisition by the Company or one of the
Subsidiary Guarantors; and provided further that the principal amount (or
accreted value, as applicable) of such Indebtedness, together with any
other outstanding Indebtedness incurred pursuant to this clause (v) and any
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (v), does not exceed
$10.0 million at any time outstanding;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to be
incurred under the first paragraph hereof or clauses (i), (ii) or (iii) of
this paragraph or this clause (vi);
(vii) the incurrence by the Company or any of the Subsidiary Guarantors
of intercompany Indebtedness or preferred stock between or among the
Company and any of the Subsidiary Guarantors; provided, however, that (A)
any subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness or preferred stock being held by a Person other than the
Company or a Subsidiary Guarantor and (B) any sale or other transfer of any
such Indebtedness or preferred stock to a Person that is not either the
Company or a Subsidiary Guarantor shall be deemed, in each case, to
constitute an incurrence of such Indebtedness or an issuance of such
preferred stock by the Company or such Subsidiary Guarantor, as the case
may be, that was not permitted by this clause (vii);
(viii) the incurrence by the Company or any of the Subsidiary Guarantors
of Hedging Obligations;
(ix) the guarantee by the Company or any of the Subsidiary Guarantors of
Indebtedness of the Company or a Subsidiary Guarantor that was permitted to
be incurred by another provision of this covenant;
(x) the incurrence by the Company or any of the Subsidiary Guarantors of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all
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Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (x), not to exceed $10.0
million; and
(xi) the incurrence by the Company's Unrestricted Subsidiaries of Non-
Recourse Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (xi).
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Debt described in clauses (i) through (xi) above or is entitled
to be incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms, and
the payment of dividends on Disqualified Stock in the form of additional
shares of the same class of Disqualified Stock will not be deemed to be an
incurrence of Indebtedness or an issuance of Disqualified Stock for purposes
of this covenant; provided, in each such case, that the amount thereof is
included in Fixed Charges of the Company as accrued.
Liens
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien securing Indebtedness or trade payables on any asset now
owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1)
on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (b) pay any Indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii)
transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries. However, the foregoing restrictions do not apply to
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the New Credit
Facility as in effect as of the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are not materially more restrictive, taken as a
whole, with respect to such dividend and other payment restrictions than those
contained in the New Credit Facility as in effect on the date of the
Indenture, (c) the Indenture and the Notes, (d) applicable law, (e) any
instrument or contract of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except
to the extent such instrument or contract was entered into in connection with
or in contemplation of such acquisition), which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired, (f)
customary non-assignment provisions in leases and other agreements entered
into in the ordinary course of business and consistent with past practices,
(g) purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii)
above on the property so acquired, (h) any agreement for the sale of a
Restricted Subsidiary that restricts distributions by that Restricted
Subsidiary pending its sale, (i) Permitted Refinancing Indebtedness, provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced (as
determined in good faith by the Board of Directors), (j) secured Indebtedness
otherwise permitted to be incurred pursuant to the provisions of the covenant
described above under the caption "--Liens" that limits the right of the
debtor to dispose of the
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assets securing such Indebtedness, (k) provisions with respect to the
disposition or distribution of assets or property in joint venture agreements
and other similar agreements entered into in the ordinary course of business
and (l) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall acquire or create another Subsidiary after the date of the
Indenture (other than an Unrestricted Subsidiary), then such newly acquired or
created Subsidiary shall become a Subsidiary Guarantor and execute a
Supplemental Indenture in accordance with the terms of the Indenture.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
another corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia, (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Registration Rights Agreement, the Notes
and the Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, (iii) immediately after such transaction no Event
of Default exists and (iv) except in the case of a merger of the Company with
or into a Subsidiary Guarantor, the Company or the entity or Person formed by
or surviving any such consolidation or merger (if other than the Company), or
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at
the beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or
such Restricted Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0 million, an
opinion as to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment
banking firm of national standing selected by the Board of Directors.
Notwithstanding the foregoing, the following items shall not be deemed to be
Affiliate Transactions: (i) any employment agreement entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of
business; (ii) transactions between or among the Company and/or its Restricted
Subsidiaries; (iii) payment of reasonable directors fees to Persons who are
not otherwise Affiliates of the Company; (iv) Restricted
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Payments that are permitted by the provisions of the Indenture described above
under the caption "--Restricted Payments" as well as transactions that do not
constitute Restricted Payments by virtue of exceptions set forth in the
definitions of "Investments" and "Permitted Investments" set forth below under
the caption "Certain Definitions;" (v) reasonable indemnity provided on behalf
of officers, directors, employees, consultants or agents of the Company or any
of its Restricted Subsidiaries as determined in good faith by the Company's
Board of Directors; and (vi) any transactions undertaken pursuant to any
contractual obligations or rights in existence on the date of the Indenture
(as in effect on such date) as described herein under the caption "Certain
Relationships and Related Transactions."
Anti-Layering
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes, and (ii) no Subsidiary Guarantor
will incur, create, issue, assume, guarantee or otherwise become liable for
any Indebtedness that is subordinate or junior in right of payment to the
Senior Debt of such Subsidiary Guarantor and senior in any respect in right of
payment to the Subsidiary Guarantees.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent
as would not be material to the Company and its Restricted Subsidiaries taken
as a whole.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any Holder of any Notes for
or as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid or is paid to all Holders of the Notes that consent, waive or agree
to amend in the time frame, on the terms and subject to the conditions set
forth in the solicitation documents relating to such consent, waiver or
agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-
K if the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of the Company and
its consolidated Subsidiaries and, with respect to the annual information
only, a report thereon by the Company's certified independent accountants and
(ii) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports, in
each case within the time periods specified in the Commission's rules and
regulations. In addition, whether or not required by the rules and regulations
of the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission
will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company has agreed that, for so long as is required for an offer or sale of
the Notes to qualify for an exemption under Rule 144A, it will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not
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prohibited by the subordination provisions of the Indenture); (ii) default in
payment when due of the principal of or premium, if any, on the Notes (whether
or not prohibited by the subordination provisions of the Indenture); (iii)
failure by the Company or any of its Subsidiaries to comply with the
provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control," "--Asset Sales," "--Certain Covenants--Restricted
Payments" or "--Incurrence of Indebtedness and Issuance of Preferred Stock,"
and such default continues for ten days; (iv) failure by the Company or any of
its Subsidiaries for 60 days after notice to comply with any of its other
agreements in the Indenture or the Notes; (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Subsidiaries) whether such Indebtedness or guarantee
now exists, or is created after the date of the Indenture, which default (a)
is caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$10 million or more; (vi) failure by the Company or any of its Subsidiaries to
pay final judgments aggregating in excess of $10 million, not covered by
insurance, which judgments are not paid, discharged or stayed for a period of
60 days; (vii) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries; and (viii) except as permitted
by the Indenture, any Subsidiary Guarantee shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be
in full force and effect or any Subsidiary Guarantor, or any Person acing on
behalf of any Subsidiary Guarantor, shall deny or disaffirm its obligations
under its Subsidiary Guarantee (other than by reason of release pursuant to
the Indenture).
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a
Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Notes ("Legal Defeasance") except for (i) the
rights of Holders of outstanding Notes to receive payments in respect of the
principal of, premium, if any, and interest and Liquidated Damages on such
Notes when such payments are due from the trust referred to below, (ii) the
Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and
the maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date, (ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from,
or there has been published by, the Internal Revenue Service a ruling or (B)
since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred, (iii) in the case of
Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred, (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of
funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit, (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the
Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound, including, without
limitation, the New Credit Facility, (vi) the Company must have delivered to
the Trustee an opinion of counsel to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally, (vii) the Company must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the
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Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or
exchange any Note selected for redemption. Also, the Company is not required
to transfer or exchange any Note for a period of 15 days before a selection of
Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, the
Notes or the Subsidiary Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes),
and any existing default or compliance with any provision of the Indenture,
the Notes or the Subsidiary Guarantees may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders"); (iii) reduce the
rate of or change the time for payment of interest on any Note; (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Notes (except a rescission of acceleration of the Notes by
the Holders of at least a majority in aggregate principal amount of the Notes
and a waiver of the payment default that resulted from such acceleration); (v)
make any Note payable in money other than that stated in the Notes; (vi) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of Notes to receive payments of principal of
or premium, if any, or interest on the Notes; (vii) waive a redemption payment
with respect to any Note (other than a payment required by one of the
covenants described above under the caption "--Repurchase at the Option of
Holders"); or (viii) make any change in the foregoing amendment and waiver
provisions. In addition, any amendment to the provisions of Article 10 or
Article 12 of the Indenture (which relate to subordination) will require the
consent of the Holders of at least 75% in aggregate principal amount of the
Notes then outstanding if such amendment would adversely affect the rights of
Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company, the Subsidiary Guarantors and the Trustee may amend or supplement
the Indenture, the Notes or the Subsidiary Guarantees to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Notes in addition to or
in place of certificated Notes, to provide for the assumption of the Company's
obligations to Holders of Notes in the case of a merger or consolidation or
sale of all or substantially all of the Company's assets, to make any change
that would provide any additional rights or benefits to the Holders of Notes
or that does not adversely affect the legal rights under the Indenture of any
such Holder, to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act
or to provide for additional Subsidiary Guarantors in accordance with the
terms of the Indenture.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be
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cured), the Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent man in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of
Notes, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Offering Memorandum may obtain a copy of the
Indenture and Registration Rights Agreement without charge by writing to
National Equipment Services, Inc., 1800 Sherman Avenue, Evanston, Illinois
60201; Attention: Secretary.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Notes to be resold as set
forth herein will initially be issued in the form of one or more Global Notes
(the "Global Notes"). The Global Notes will be deposited on the date of the
closing of the sale of the Notes offered hereby (the "Closing Date") with, or
on behalf of, The Depository Trust Company (the "Depositary") and registered
in the name of Cede & Co., as nominee of the Depositary (such nominee being
referred to herein as the "Global Note Holder").
Notes that are issued as described below under "--Certificated Securities"
will be issued in the form of registered definitive certificates (the
"Certificated Securities"). Upon the transfer of Certificated Securities, such
Certificated Securities may, unless all Global Notes have previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Notes being transferred,
subject to the transfer restrictions set forth in the Indenture.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit
the accounts of Participants with portions of the principal amount of the
Global Notes and (ii) ownership of the Notes evidenced by the Global Notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by the Depositary (with respect to the interests
of the Depositary's Participants), the Depositary's Participants and the
Depositary's Indirect Participants. Prospective purchasers are advised that
the laws of some states require that certain persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer Notes evidenced by the Global Note will be limited to such extent.
For certain other restrictions on the transferability of the Notes, see
"Notice to Investors."
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of
any Notes evidenced by the Global Notes. Beneficial owners of Notes evidenced
by the Global Notes will not be considered the owners or Holders thereof under
the Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the
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Trustee to or at the direction of the Global Note Holder in its capacity as
the registered Holder under the Indenture. Under the terms of the Indenture,
the Company and the Trustee may treat the persons in whose names Notes,
including the Global Notes, are registered as the owners thereof for the
purpose of receiving such payments. Consequently, neither the Company nor the
Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of Notes. The Company believes, however,
that it is currently the policy of the Depositary to immediately credit the
accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in a
Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). In addition, if (i) the Company notifies the
Trustee in writing that the Depositary is no longer willing or able to act as
a depositary and the Company is unable to locate a qualified successor within
90 days or (ii) the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of Notes in the form of Certificated
Securities under the Indenture, then, upon surrender by the Global Note Holder
of its Global Note, Notes in such form will be issued to each person that the
Global Note Holder and the Depositary identify as being the beneficial owner
of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available funds to
the accounts specified by the Global Note Holder. With respect to Certificated
Securities, the Company will make all payments of principal, premium, if any,
interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no
such account is specified, by mailing a check to each such Holder's registered
address. The Company expects that secondary trading in the Certificated
Securities will also be settled in immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person, in each case to the
extent not repaid within five days after the date of the acquisition.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise.
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"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales and leases of inventory and equipment in the
ordinary course of business consistent with past practices (provided that the
sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Company and its Restricted Subsidiaries taken as a whole
will be governed by the provisions of the Indenture described above under the
caption "--Repurchase at the Option of Holders--Change of Control" and/or the
provisions described above under the caption "--Certain Covenants--Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant) and (ii) the issue or sale by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $2.0 million or (b) for net proceeds in excess of $2.0
million. Notwithstanding the foregoing, the following items shall not be
deemed to be Asset Sales: (i) a transfer of assets by the Company to a Wholly
Owned Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to the
Company or to another Wholly Owned Restricted Subsidiary; (ii) an issuance of
Equity Interests by a Wholly Owned Restricted Subsidiary to the Company or to
another Wholly Owned Restricted Subsidiary; (iii) a Restricted Payment that is
permitted by the covenant described above under the caption "--Certain
Covenants--Restricted Payments;"(iv) the creation of any Lien not prohibited
by the covenant described above under the caption "Certain Covenants Liens;"
and (v) the conversion of Cash Equivalents into cash.
"Borrowing Base" means, as of any date, an amount equal to the sum of (a)
85% of the face amount of all accounts receivable owned by the Company and its
Restricted Subsidiaries as of such date that are not more than 90 days past
due, plus (b) 50% of the book value of the parts and supplies inventory owned
by the Company and its Restricted Subsidiaries as of such date, plus (c) 80%
of the orderly liquidation value of the rental equipment owned by the Company
and its Restricted Subsidiaries as of such date, plus (d) 80% of the cost of
the new equipment owned by the Company and its Restricted Subsidiaries as of
such date, all calculated on a consolidated basis and in accordance with GAAP.
To the extent that information is not available as to the amount of accounts
receivable or inventory or equipment as of a specific date, the Company may
utilize the most recent available information for purposes of calculating the
Borrowing Base.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding
one year and overnight bank deposits, in each case with any domestic
commercial bank having capital and surplus in excess of $500 million and a
Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with
a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having a rating of at least A-2 by Standard & Poor's
Corporation or at least P-2 by Moody's Investors Service, Inc. or at least an
equivalent rating category of another nationally recognized securities rating
agency and in each case maturing within one year after the date of acquisition
and (vi) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (i)--(v) of this
definition.
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"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent
that such provision for taxes was included in computing such Consolidated Net
Income, plus (iii) consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligation, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing
such Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
expenses (including non-cash write-ups and non-cash charges relating to
inventory and fixed assets) of such Person and its Subsidiaries for such
period to the extent that such depreciation, amortization and other non-cash
expenses were deducted in computing such Consolidated Net Income plus (v) an
amount equal to 1/3 of the Consolidated Lease Expense of such person and its
Subsidiaries for such period, to the extent that any such expense was deducted
in computing such Consolidated Net Income, minus (vi) non-cash items
increasing such Consolidated Net Income for such period, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of a
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in the same proportion) that the Net Income of
such Subsidiary was included in calculating the Consolidated Net Income of
such Person and only if a corresponding amount would be permitted at the date
of determination to be dividended to the Company by such Subsidiary without
prior approval (that has not been obtained), pursuant to the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to that Subsidiary or its
stockholders.
"Consolidated Lease Expense" means, with respect to any Person for any
period, the aggregate rental obligations of such Person and its consolidated
Restricted Subsidiaries determined on a consolidated basis in accordance with
GAAP payable in respect of such period under leases of real and/or personal
property (net of income from subleases thereof, but including taxes,
insurance, maintenance and similar expenses that the lessee is obligated to
pay under the terms of such leases), whether or not such obligations are
reflected as liabilities or commitments on a consolidated balance sheet of
such Person and its Restricted Subsidiaries or in the notes thereto.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement (other than the New Credit Facility as in
effect as of the date of the Indenture, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are not materially more restrictive, taken as a whole, with
respect to such restrictions on dividends and similar distributions than those
contained in the New Credit Facility as in effect on the date of the
Indenture), instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction
for any period prior to the date of such acquisition shall be excluded, (iv)
the cumulative effect of a change in accounting principles shall be excluded
and (v) the Net Income (but not loss) of any Unrestricted Subsidiary shall be
excluded, whether or not
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distributed to the Company or one of its Restricted Subsidiaries, for purposes
of the covenant described under the caption "-- Certain Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock," and shall be included for
purposes of the covenant described under the caption "--Certain Covenants--
Restricted Payments" but only to the extent of the amount of dividends or
distributions paid in cash to the Company or one of its Restricted
Subsidiaries.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
New Credit Facility and (ii) any other Senior Debt permitted under the
Indenture the principal amount of which is $25.0 million or more and that has
been designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means up to $2.0 million in aggregate principal
amount of Indebtedness of the Company and its Restricted Subsidiaries (other
than Indebtedness under the New Credit Facility) in existence on the date of
the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person and its Restricted
Subsidiaries for any period, the sum, without duplication, of (i) the
consolidated interest expense of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued (including, without limitation,
amortization of debt issuance costs (other than debt issuance costs incurred
in connection with the Offering and the original Old Credit Facility) and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest of such Person and its
Restricted Subsidiaries that was capitalized during such period, and (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its Restricted Subsidiaries (whether or not such
Guarantee or Lien is called upon), (iv) the product of (a) all dividend
payments, whether or not in cash, on any series of preferred stock of such
Person or any of its Restricted Subsidiaries, other than dividend payments on
Equity Interests payable solely in Equity Interests of the Company (other than
Disqualified Stock) or to the Company or a Restricted Subsidiary of the
Company, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP and (v) an amount equal to
1/3 of the Consolidated Lease Expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued.
"Fixed Charge Coverage Ratio" means with respect to any Person and its
Restricted Subsidiaries for any period, the ratio of the Consolidated Cash
Flow of such Person and its Restricted Subsidiaries for such period to the
Fixed Charges of such Person and its Restricted Subsidiaries for such period.
In the event that the referent
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Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues or
redeems preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall
be calculated giving pro forma effect to such incurrence, assumption,
Guarantee or redemption of Indebtedness, or such issuance or redemption of
preferred stock, as if the same had occurred at the beginning of the
applicable four-quarter reference period. In addition, for purposes of making
the computation referred to above, (i) acquisitions that have been made by the
Company or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first
day of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated (A) without giving effect to clause (iii)
of the proviso set forth in the definition of Consolidated Net Income and (B)
after giving pro forma effect to net cost savings that the Company reasonably
believes in good faith could have been achieved during the four-quarter
reference period as a result of such acquisition, which cost savings could
then be reflected in pro forma financial statements under GAAP, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable
to discontinued operations, as determined in accordance with GAAP, and
operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such
Fixed Charges will not be obligations of the referent Person or any of its
Restricted Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other
Person. The amount of any Indebtedness outstanding as of any date shall be (i)
the accreted value thereof, in the case of any Indebtedness issued with
original issue discount and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as
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investments on a balance sheet prepared in accordance with GAAP. If the
Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain
or loss, together with any related provision for taxes on such extraordinary
or nonrecurring gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness secured by a Lien on the asset or assets that
were the subject of such Asset Sale, any reserve for adjustment in respect of
the sale price of such asset or assets established in accordance with GAAP and
any reserve established in accordance with GAAP for liabilities associated
with such assets that are the subject of such Asset Sale (including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale), all as determined in good faith
and reflected in an Officers' Certificate delivered to the Trustee, provided,
that the amount of any such reserve shall be deemed to constitute Net Cash
Proceeds at the time such reserve shall have been reversed or is not otherwise
required to be retained as a reserve.
"New Credit Facility" means that certain Credit Agreement, dated as of July
17, 1998, by and among the Company, as Borrower, NES Acquisition Corp., BAT
Acquisition Corp., NES East Acquisition Corp., NES Michigan Acquisition Corp.,
Albany Ladder Company, Inc., Falconite, Inc., Falconite Equipment, Inc., M&M
Properties, Inc., Carl's Mid South Rent-All Center Incorporated, Falconite
Rebuild Center, Inc., Falconite Aviation, Inc. and McCurry & Falconite
Equipment Co., Inc., as Guarantors, First Union National Bank, as Agent and
Lender, and American National Bank and Trust Company of Chicago, Comerica
Bank, The CIT Group/Business Credit, Inc. and Mercantile Business Credit Inc.,
as Lenders, providing for a term loan and revolving credit borrowings,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including,
without limitation, increasing the amount of available borrowings thereunder
or adding Subsidiaries of the Company as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement, whether by the same or any other agent,
lender or group of lenders, whether contained in one or more agreements.
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"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other
than the Notes) of the Company or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity; and (iii) as to which
the lenders have been notified in writing that they will not have any recourse
to the stock or assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for
in the New Credit Facility, whether or not such interest is an allowed claim
under applicable law), penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing any
Indebtedness.
"Permitted Business" means any business or activities conducted by the
Company on the date of the Indenture, any business or activities related,
ancillary or complementary to such business or activities, and any business or
activities reasonably developed, derived or extended from such business or
activities.
"Permitted Investments" means (a) any Investment in the Company or in a
Subsidiary Guarantor, (b) any Investment in Cash Equivalents, (c) any
Investment by the Company or any Restricted Subsidiary of the Company in a
Person, if as a result of such Investment (i) such Person becomes a Wholly
Owned Restricted Subsidiary of the Company or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company, (d) any Investment made as
a result of the receipt of non-cash consideration from an Asset Sale that was
made pursuant to and in compliance with the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales", (e) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of the Company and (f) other Investments in
any Person having an aggregate fair market value (measured on the date each
such Investment was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to this
clause (e) that are at the time outstanding, not to exceed $5.0 million.
"Permitted Junior Securities" means Equity Interests in the Company or any
Subsidiary Guarantor or debt securities that are subordinated to all Senior
Debt (and any debt securities issued in exchange for Senior Debt) to
substantially the same extent as, or to a greater extent than, the Notes are
subordinated to Senior Debt pursuant to Article 10 of the Indenture.
"Permitted Liens" means the following Liens securing Indebtedness or trade
payables: (i) Liens to secure the Notes or the Subsidiary Guarantees; (ii)
Liens in favor of the Company or a Subsidiary Guarantor; (iii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Subsidiary of the Company; provided that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (iv) Liens on property existing
at the time of acquisition thereof by the Company or any Subsidiary of the
Company, provided that such Liens were in existence prior to the contemplation
of such acquisition; (v) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of
a like nature incurred in the ordinary course of business; (vi) Liens to
secure Indebtedness (including Capital Lease Obligations) permitted by clause
(iv) of the second paragraph of the covenant entitled "Incurrence of
Indebtedness" covering only the assets acquired with such Indebtedness; (vii)
Liens existing on the date of the Indenture; (viii) Liens incurred in the
ordinary course of business of the Company or any Subsidiary of the Company
with respect to obligations that do not exceed $5.0 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially
detract from the value of the property or materially impair the use thereof in
the operation of business
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by the Company or such Subsidiary; (ix) Liens on stock or assets of
Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries; (x) Liens on assets of the Company or any Subsidiary Guarantor
to secure Senior Debt of the Company or such Subsidiary Guarantor that was
permitted by the Indenture to be incurred; and (xi) Liens to secure any
refinancings, renewals, extensions, modifications or replacements
(collectively, "refinancings") (or successive refinancings), in whole or in
part, of any Indebtedness secured by Liens referred to in clauses (iii), (iv),
(vii) and (x) above so long as such Lien does not extend to any other property
(other than improvements thereto).
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal
amount (or accreted value, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount of (or accreted value, if
applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
premiums and reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of, the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either
by the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" means (i) all Indebtedness under the New Credit Facility and
all Hedging Obligations with respect thereto, whether outstanding on the date
of the Indenture or thereafter created, (ii) any other Indebtedness permitted
to be incurred by the Company or a Subsidiary Guarantor under the terms of the
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes or the Subsidiary Guarantees and (iii) all Obligations
with respect to the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (w) any liability for federal, state,
local or other taxes owed or owing by the Company or a Subsidiary Guarantor,
(x) any Indebtedness between or among the Company, any of its Subsidiaries or
any of its other Affiliates, (y) any trade payables or (z) that portion of any
Indebtedness that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person
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(or a combination thereof) and (ii) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Subsidiary Guarantors" means each of (i) Albany Ladder Company, Inc., BAT
Acquisition Corp., Carl's Mid South Rent-All Center Incorporated, Falconite
Aviation, Inc., Falconite Equipment, Inc., Falconite, Inc., Falconite Rebuild
Center, Inc., McCurry & Falconite Equipment Co., Inc., M&M Properties, Inc.,
NES Acquisition Corp., NES East Acquisition Corp. and NES Michigan Acquisition
Corp. and (ii) any other Subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the Indenture, and their respective
successors and assigns.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation (x) to subscribe for additional Equity Interests
or (y) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
the Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption "--
Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," the Company shall be in default of such covenant). The Board of
Directors of the Company may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that such designation shall be deemed
to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company
of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted
under the covenant described under the caption "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a
pro forma basis as if such designation had occurred at the beginning of the
four-quarter reference period, and (ii) no Default or Event of Default would
be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on November 25, 1997 to
the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Old Notes to qualified institutional buyers
in reliance on Rule 144A under the Securities Act. As a condition to the
Purchase Agreement, the Company, the Subsidiary Guarantors and the Initial
Purchasers entered into the Registration Rights Agreement on the date of the
Initial Offering (the "Issue Date"). Pursuant to the Registration Rights
Agreement, the Company agreed to file with the Commission the Exchange Offer
Registration Statement on the appropriate form under the Securities Act with
respect to the Exchange Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company will offer to the holders of Transfer
Restricted Securities pursuant to the Exchange Offer who are able to make
certain representations the opportunity to exchange their Securities for
Exchange Notes. If (i) the Company is not required to file the Exchange Offer
Registration Statement or permitted to consummate the Exchange Offer because
the Exchange Offer is not permitted by applicable law or Commission policy or
(ii) any holder of Transfer Restricted Securities notifies the Company prior
to the 20th day following consummation of the Exchange Offer that (A) it is
prohibited by law or Commission policy from participating in the Exchange
Offer or (B) that it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (C) that it is a broker-dealer
and owns Old Notes acquired directly from the Company or an affiliate of the
Company, the Company will file with the Commission a Shelf Registration
Statement to cover resales of the Old Notes by the Holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement. For purposes of the foregoing, "Transfer
Restricted Securities" means each Old Note until (i) the date on which such
Note has been exchanged by a person other than a broker-dealer for an Exchange
Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in
the Exchange Offer of an Old Note for an Exchange Note, the date on which such
Exchange Note is sold to a purchaser who receives from such broker-dealer on
or prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Old Note
has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iv) the date on which
such Old Note is distributed to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company will file an
Exchange Offer Registration Statement with the Commission on or prior to 90
days after the Closing Date, (ii) the Company will use its best efforts to
have the Exchange Offer Registration Statement declared effective by the
Commission on or prior to 150 days after the Closing Date, (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will commence the Exchange Offer and use its best efforts to issue
on or prior to 30 business days after the date on which the Exchange Offer
Registration Statement was declared effective by the Commission, Exchange
Notes in exchange for all Old Notes tendered prior thereto in the Exchange
Offer and (iv) if obligated to file the Shelf Registration Statement, the
Company will use its best efforts to file the Shelf Registration Statement
with the Commission on or prior to 90 days after such filing obligation arises
and to cause the Shelf Registration to be declared effective by the Commission
on or prior to 150 days after such obligation arises. If (a) the Company fails
to file any of the Registration Statements required by the Registration Rights
Agreement on or before the date specified for such filing, (b) any of such
Registration Statements is not declared effective by the Commission on or
prior to the date specified for such effectiveness (the "Effectiveness Target
Date"), or (c) the Company fails to consummate the Exchange Offer within 30
business days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement, or (d) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of Transfer
Restricted Securities during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then the Company will pay Liquidated Damages to each
Holder of Old Notes, with respect to the first 90-day period immediately
following the occurrence of the first Registration Default in an amount equal
to $.05 per week per $1,000 principal amount of Old Notes held by such Holder.
The amount of
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the Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of Old Notes with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages for all Registration Defaults of $.50 per week per $1,000
principal amount of Old Notes. All accrued Liquidated Damages will be paid by
the Company on each Damages Payment Date to the Global Old Note Holder by wire
transfer of immediately available funds or by federal funds check and to
Holders of Certificated Securities by wire transfer to the accounts specified
by them or by mailing checks to their registered addresses if no such accounts
have been specified. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
Pursuant to the terms of the Registration Rights Agreement, the Company paid
additional interest on the Old Notes from April 24, 1998 until the date the
registration statement of which this Prospectus is a part was declared
effective by the Commission. Such additional interest accrued in an amount
equal to $5,000 per week.
Holders of Old Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver certain
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time
periods set forth in the Registration Rights Agreement in order to have their
Old Notes included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth above.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B
designation and a different CUSIP number from the Old Notes, (ii) the Exchange
Notes have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof and (iii) the holders of the Exchange
Notes will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Old Notes in certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
terminated. The Exchange Notes will evidence the same debt as the Old Notes
and will be entitled to the benefits of the Indenture.
As of the date of the Prospectus, $100,000,000 aggregate principal amount of
Old Notes were outstanding. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
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If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
1998, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will notify the holders
by issuing a press release regarding such extension, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of original issuance.
Holders of Old Notes that are accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the date of issuance of the
Exchange Notes. Such interest will be paid with the first interest payment on
the Exchange Notes on November 30, 1998. Interest on the Old Notes accepted
for exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each May 30 and
November 30, commencing on November 30, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
For a holder to tender Old Notes validly pursuant to the Exchange Offer, a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantee, or (in the case of a book-
entry transfer) an Agent's Message in lieu of the Letter of Transmittal, and
any other required documents must be received by the Exchange Agent at the
address set forth under "Exchange Agent" prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, prior to 5:00 p.m., New York City
time, on the Expiration Date, either (A) certificates for tendered Old Notes
must be received by the Exchange Agent at such address or (B) such Old Notes
must be transferred pursuant to the procedures for book-entry transfer
described below (and a confirmation of such tender received by the Exchange
Agent, including an Agent's Message if the tendering holder has not delivered
a Letter of Transmittal). The term "Agent's Message" means a message,
transmitted by the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), to and received by the Exchange Agent
and forming a part of a book-entry confirmation, which states that the Book-
Entry Transfer Facility has received an express acknowledgment from the
tendering participant that such participant has received and agrees to be
bound by the Letter of Transmittal and that the Company may enforce such
Letter of Transmittal against such participant.
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By executing the Letter of Transmittal, (or, in the case of a book-entry
transfer, an Agent's Message in lieu thereof) each holder will make to the
Company the representations set forth above in the third paragraph under the
heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL, INCLUDING
DELIVERY THROUGH DTC AND ANY ACCEPTANCE OF AN AGENT'S MESSAGE TRANSMITTED
THROUGH THE DTC AUTOMATED TENDER OFFER PROGRAM, AND ALL OTHER REQUIRED
DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE
HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at the Book-Entry Transfer Facility for the purpose of facilitating
the Exchange Offer, and, subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly
completed and duly executed with any required signature guarantee, or (in the
case of a book-entry transfer) an Agent's Message in lieu of the Letter of
Transmittal, and all other required documents must in each case be transmitted
to and received or confirmed by the Exchange Agent at its address set forth
below on or prior to the Expiration Date, or, if the
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guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to the Book-
Entry Transfer Facility does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in its sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal (or in the case of a book-entry transfer) an Agent's Message in
lieu thereof) or any other required documents to the Exchange Agent or (iii)
who cannot complete the procedures for book-entry transfer (including delivery
of an Agent's Message), prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution (i) an Agent's Message with respect to guaranteed
delivery that is accepted by the Company or (ii) a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the holder,
the certificate number(s) of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof) (or,
in the case of a book-entry transfer, an Agent's Message in lieu thereof)
together with the certificate(s) representing the Old Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility), and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof) (or, in the case of a book-entry transfer, an Agent's
Message in lieu thereof), as well as the certificate(s) representing all
tendered Old Notes in proper form for transfer (or a confirmation of book-
entry transfer of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within three New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
84
<PAGE>
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case
of Old Notes transferred by book-entry transfer, the name and number of the
account at the Book-Entry Transfer Facility to be credited), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such
Old Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "-- Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole judgment
of the Company, might materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and
return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of holders to withdraw
such Old Notes (see "-- Withdrawal of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Old Notes which have not been withdrawn.
85
<PAGE>
EXCHANGE AGENT
Harris Trust and Savings Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
HARRIS TRUST AND SAVINGS BANK
c/o Harris Trust Company of New York
By Mail: By Facsimile Transmission:
By Overnight Courier or Hand:
Wall Street Station(for Eligible Institutions Only)
Wall Street Plaza
P.O. Box 1010 (212) 701-7636 88 Pine Street, 19th Floor
New York, NY 10268-1010 (212) 701-7637 New York, NY 10005
Attention: Reorganization Attention: Reorganization Dept.
Dept.
Confirm by Telephone:
(212) 701-7624
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Company's accounting records
on the date of exchange. Accordingly, no gain or loss for accounting purposes
will be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A,
to a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
86
<PAGE>
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who receives Exchange Notes in exchange for Old Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating Broker-
Dealer that receives Exchange Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such Participating Broker-Dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the Exchange Notes are to
be acquired by the holder or the person receiving such Exchange Notes, whether
or not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act, and (v) the holder or any such other person acknowledges
that if such holder or other person participates in the Exchange Offer for the
purpose of distributing the Exchange Notes it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on those no-
action letters. As indicated above, each Participating Broker-Dealer that
receives an Exchange Note for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see "Plan of Distribution."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based on the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service (the "Service") will not
take a contrary view, and no ruling from the Service has been or will be
sought. Legislative, judicial or administrative changes or interpretations may
be forthcoming that could alter or modify the statements and conditions set
forth herein. Any such changes or interpretations may or may not be
retroactive and could affect the tax consequences to holders. Certain holders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules
not discussed below. The Company recommends that each holder consult such
holder's own tax advisor as to the particular tax consequences of exchanging
such holder's Old Notes for Exchange Notes, including the applicability and
effect of any state, local or foreign tax laws.
The Company believes that the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer will not be treated as an "exchange" for
federal income tax purposes because the Exchange Notes will not be considered
to differ materially in kind or extent from the Old Notes. Rather, the
Exchange Notes received by a
87
<PAGE>
holder will be treated as a continuation of the Old Notes in the hands of such
holder. As a result, there will be no federal income tax consequences to
holders exchanging Old Notes for Exchange Notes pursuant to the Exchange
Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Old Notes where such Old Notes were acquired as
a result of market-making activities or other trading activities. The Company
has agreed that for a period of 180 days after the Expiration Date, it will
make the Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale. In
addition, until , 1998 (90 days after the commencement of the
Exchange Offer), all dealers effecting transactions in the Exchange Notes may
be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Exchange Notes. Any Participating
Broker-Dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any Participating Broker-Dealer that requests such
documents in the Letter of Transmittal.
EXPERTS
The consolidated financial statements of National Equipment Services, Inc.
as of December 31, 1997 and 1996 and for the year ended December 31, 1997 and
the period from inception (June 4, 1996) through December 31, 1996 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
The financial statements of Aerial Platforms, Inc. as of January 31, 1997
and February 17, 1997 and for the year ended January 31, 1997 and the
seventeen days ended February 17, 1997 included in this Prospectus have been
so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Lone Star Rentals, Inc. as of December 31, 1995
and 1996 and March 16, 1997 and for each of the two years in the period ended
December 31, 1996 and for the period from January 1, 1997 through March 16,
1997 included in this Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
88
<PAGE>
The financial statements of BAT Rentals, Inc. as of December 31, 1995 and
1996 and March 31, 1997 and for each of the two years in the period ended
December 31, 1996 and for the three months ended March 31, 1997 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
The financial statements of Sprintank and Sprintank Mobile Storage
(divisions of Sprint Industrial Services, Inc.) as of December 31, 1995 and
1996 and June 30, 1997 and for each of the two years in the period ended
December 31, 1996 and for the six months ended June 30, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
The financial statements of MST Enterprises, Inc. d/b/a Equipco Rentals and
Sales as of October 31, 1995 and 1996 and as of July 17, 1997 and for each of
the two years in the period ended October 31, 1996 and for the period from
November 1, 1996 through July 17, 1997 included in this Prospectus have been
so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Work Safe Supply Co., Inc. as of
December 31, 1996 and 1997 and for each of the three years in the period ended
December 31, 1997 included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The financial statements of Genpower Pump & Equipment, Inc. as of December
31, 1997 and for the year then ended included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Albany Ladder Company, Inc. as of December 31,
1997 and for the year then ended included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Dragon Rentals (a wholly owned division of The
Modern Group, Inc.) as of December 31, 1996 and 1997 and for the years then
ended included in this Prospectus have been so included in reliance on the
report of Lawrence, Blackburn Meek Maxey & Co. P.C., independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of Cormier Equipment Corporation as of December 31,
1996 and 1997 and for the three years ended December 31, 1997 included in this
Prospectus have been so included in reliance on the report of Albin, Randall &
Bennett, Certified Public Accountants, given on the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements of Falconite, Inc. and subsidiaries as
of December 31, 1997 and for the year then ended included in this Prospectus
have been so included in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Falconite, Inc. and subsidiaries as
of December 31, 1996 and for each of the years in the two-year period ended
December 31, 1996 included in this Prospectus have been so included in
reliance on the report of KPMG Peat Marwick L.L.P., independent accountants,
given on the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the issuance of the Exchange Notes offered hereby will be
passed upon for the Company by Kirkland & Ellis, Chicago, Illinois.
89
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
Financial Statements -- December 31, 1996, December 31, 1997 and March
31, 1998
Report of Independent Accountants...................................... F-3
Consolidated Balance Sheets............................................ F-4
Consolidated Statements of Operations.................................. F-5
Consolidated Statements of Cash Flows.................................. F-6
Consolidated Statements of Changes in Stockholders' Equity............. F-7
Notes to Consolidated Financial Statements............................. F-8
AERIAL PLATFORMS, INC.
Financial Statements -- January 31, 1997 and February 17, 1997
Report of Independent Accountants...................................... F-17
Balance Sheets......................................................... F-18
Statements of Operations............................................... F-19
Statements of Cash Flows............................................... F-20
Statements of Changes in Stockholder's Equity.......................... F-21
Notes to Financial Statements.......................................... F-22
LONE STAR RENTALS, INC.
Financial Statements -- December 31, 1995 and 1996 and March 16, 1997
Report of Independent Accountants...................................... F-27
Balance Sheets......................................................... F-28
Statements of Operations............................................... F-29
Statements of Cash Flows............................................... F-30
Statements of Changes in Stockholder's Equity.......................... F-31
Notes to Financial Statements.......................................... F-32
BAT RENTALS, INC.
Financial Statements -- December 31, 1995 and 1996 and March 31, 1997
Report of Independent Accountants...................................... F-38
Balance Sheets......................................................... F-39
Statements of Operations............................................... F-40
Statements of Cash Flows............................................... F-41
Statements of Changes in Stockholder's Equity.......................... F-42
Notes to Financial Statements.......................................... F-43
SPRINTANK AND SPRINTANK MOBILE STORAGE (DIVISIONS OF SPRINT INDUSTRIAL
SERVICES, INC.)
Financial Statements -- December 31, 1995 and 1996 and June 30, 1997
Report of Independent Accountants...................................... F-48
Balance Sheets......................................................... F-49
Statements of Operations............................................... F-50
Statements of Cash Flows............................................... F-51
Statements of Changes in Divisional Equity............................. F-52
Notes to Financial Statements.......................................... F-53
MST ENTERPRISES, INC. D/B/A EQUIPCO RENTALS AND SALES
Financial Statements -- October 31, 1995 and 1996 and July 17, 1997
Report of Independent Accountants...................................... F-58
Balance Sheets......................................................... F-59
Statements of Operations............................................... F-60
Statements of Cash Flows............................................... F-61
Statements of Changes in Stockholder's Equity.......................... F-62
Notes to Financial Statements.......................................... F-63
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
WORK SAFE SUPPLY CO., INC.
Consolidated Financial Statements -- December 31, 1995, 1996 and 1997
Report of Independent Accountants...................................... F-68
Consolidated Balance Sheets............................................ F-69
Consolidated Statements of Operations.................................. F-70
Consolidated Statements of Cash Flows.................................. F-71
Consolidated Statements of Changes in Stockholder's Equity............. F-72
Notes to Consolidated Financial Statements............................. F-73
GENPOWER PUMP & EQUIPMENT, INC.
Financial Statements -- December 31, 1997
Report of Independent Accountants...................................... F-77
Balance Sheet.......................................................... F-78
Statement of Operations................................................ F-79
Statement of Changes in Stockholder's Equity........................... F-80
Statement of Cash Flows................................................ F-81
Notes to Financial Statements.......................................... F-82
CORMIER EQUIPMENT CORPORATION
Financial Statements -- December 31, 1995, 1996 and 1997
Independent Auditors' Report........................................... F-87
Balance Sheets......................................................... F-88
Statements of Earnings and Retained Earnings........................... F-89
Statements of Cash Flows............................................... F-90
Notes to Financial Statements.......................................... F-91
DRAGON RENTALS (DIVISION OF THE MODERN GROUP, INC.)
Financial Statements -- December 31, 1996 and 1997
Report of Independent Accountants...................................... F-93
Balance Sheets......................................................... F-94
Statements of Income and Expenses...................................... F-95
Statements of Cash Flows............................................... F-96
Notes to Financial Statements.......................................... F-97
ALBANY LADDER COMPANY, INC.
Financial Statements -- December 31, 1997
Report of Independent Accountants...................................... F-102
Balance Sheet.......................................................... F-103
Statement of Operations................................................ F-104
Statement of Cash Flows................................................ F-105
Statement of Changes in Stockholder's Equity........................... F-106
Notes to Financial Statements.......................................... F-107
FALCONITE, INC. AND SUBSIDIARIES
Consolidated Financial Statements--December 31, 1995, 1996, 1997 and
March 31, 1998
Reports of Independent Accountants..................................... F-112
Consolidated Balance Sheets............................................ F-113
Consolidated Statements of Income...................................... F-114
Consolidated Statements of Shareholders' Equity........................ F-115
Consolidated Statements of Cash Flows.................................. F-116
Notes to Consolidated Financial Statements............................. F-117
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Financial Statements............... F-129
Unaudited Pro Forma Statements of Operations........................... F-130
Unaudited Pro Forma Balance Sheet...................................... F-133
Notes to Unaudited Pro Forma Financial Statements...................... F-134
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of National Equipment Services, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity, present fairly, in all material respects, the financial
position of National Equipment Services, Inc. and subsidiaries at December 31,
1996 and December 31, 1997, and the results of its operations and its cash
flows for the period from inception (June 4, 1996) through December 31, 1996
and the year ended December 31, 1997 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
April 1, 1998
F-3
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, 1998
1996 1997 1998 (NOTE 14)
------------ ------------ ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash
equivalents............. $ 12 $ 35,682 $ 3,773 $ 3,773
Accounts receivable, net
of allowance for
doubtful accounts of $0,
$254, $737 and $737,
respectively............ -- 8,356 24,095 24,095
Inventory, net........... -- 2,239 7,158 7,158
Rental equipment, net.... -- 46,801 104,937 104,937
Property and equipment,
net..................... 17 3,012 6,968 6,968
Intangible assets, net... -- 27,937 86,888 86,888
Loan origination costs,
net..................... -- 6,270 6,139 6,139
Prepaid and other assets,
net..................... 187 840 2,345 2,345
---- -------- -------- --------
Total assets........... $216 $131,137 $242,303 $242,303
==== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Accounts payable......... $ -- $ 2,489 $ 9,647 $ 9,647
Accrued interest......... -- 1,066 3,904 3,904
Accrued expenses and
other liabilities....... 110 2,327 7,938 7,938
Debt..................... -- 98,782 193,954 193,954
---- -------- -------- --------
Total liabilities...... 110 104,664 215,443 215,443
Commitments and
contingencies (Note 10)
STOCKHOLDERS' EQUITY:
Class A Common stock,
$0.01 par, 50,000 shares
authorized, 0, 25,011,
25,221 and 0,
respectively, shares
issued and outstanding... -- 1 1 --
Class B Common stock,
$0.01 par, 150,000 shares
authorized, 30,108,
89,900, 90,100 and 0,
respectively, shares
issued and outstanding... 1 1 1 --
Common stock, $0.01 par
value, 100,000,000 shares
authorized, 16,127,501
shares issued and
outstanding.............. -- -- -- 161
Additional paid-in
capital.................. 301 25,663 25,911 25,752
Retained earnings
(accumulated deficit).... (195) 910 1,049 1,049
Stock subscriptions
receivable............... (1) (102) (102) (102)
---- -------- -------- --------
Total stockholders'
equity................ 106 26,473 26,860 26,860
---- -------- -------- --------
Total liabilities and
stockholders' equity.. $216 $131,137 $242,303 $242,303
==== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
(JUNE 4,
1996) FOR THE FOR THE THREE MONTHS
THROUGH YEAR ENDED ENDED MARCH 31
DECEMBER 31, DECEMBER 31, -----------------------
1996 1997 1997 1998
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Rental revenues............ $ -- $26,398 $1,276 $15,815
Rental equipment sales..... -- 4,186 93 1,742
New equipment sales and
other..................... -- 10,704 950 4,594
------ ------- ------ -------
Total revenues........... -- 41,288 2,319 22,151
------ ------- ------ -------
COST OF REVENUES:
Rental equipment
depreciation.............. -- 5,009 335 2,727
Cost of rental equipment
sales..................... -- 2,935 75 1,037
Cost of new equipment
sales..................... -- 4,872 306 2,187
Other operating expenses... -- 12,899 760 7,549
------ ------- ------ -------
Total cost of revenues... -- 25,715 1,476 13,500
------ ------- ------ -------
Gross profit................ -- 15,573 843 8,651
Selling, general and
administrative expenses.... 333 7,910 783 4,531
Non-rental depreciation and
amortization............... 3 1,476 88 807
------ ------- ------ -------
Operating income (loss)..... (336) 6,187 (28) 3,313
Other income (expense), net. -- 72 -- 77
Interest income (expense),
net........................ 4 (4,336) (262) (3,100)
------ ------- ------ -------
Income (loss) before income
taxes...................... (332) 1,923 (290) 290
Income tax expense
(benefit).................. (137) 818 (135) 151
------ ------- ------ -------
Net income (loss)........... $ (195) $ 1,105 $ (155) $ 139
====== ======= ====== =======
Historical net income per
share (unaudited):
Basic...................... $(0.05) $ 0.09 $(0.02) $ 0.01
Diluted.................... $(0.05) $ 0.08 $(0.01) $ 0.01
Historical weighted average
shares outstanding
(unaudited):
Basic...................... 4,185 12,793 9,699 14,823
Diluted.................... 4,185 14,150 11,228 16,122
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
(JUNE 4, FOR THE
1996 YEAR FOR THE THREE MONTHS
THROUGH ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -----------------------
1996 1997 1997 1998
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........... $(195) $ 1,105 $ (155) $ 139
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization.............. 3 6,892 423 3,809
Gain on sale of equipment.. -- (1,446) (18) (719)
Changes in operating assets
and liabilities:
Accounts receivable....... -- (1,335) 111 (737)
Inventory................. -- 202 (173) (413)
Prepaid and other assets.. (187) 139 (344) (795)
Accounts payable.......... -- 1,620 (604) 3,229
Accrued expenses and other
liabilities.............. 110 201 330 3,148
----- --------- -------- ---------
Net cash provided by (used
in) operating activities... (269) 7,378 (430) 7,661
----- --------- -------- ---------
INVESTING ACTIVITIES:
Net cash paid for
acquisitions............... -- (68,910) (22,305) (110,086)
Purchases of rental
equipment.................. -- (15,336) (853) (12,385)
Proceeds from sale of rental
equipment.................. -- 4,186 93 1,742
Purchases of property and
equipment.................. (20) (1,473) (122) (159)
Proceeds from sale of
property and equipment..... -- 36 -- 16
----- --------- -------- ---------
Net cash used in investing
activities................. (20) (81,497) (23,187) (120,872)
----- --------- -------- ---------
FINANCING ACTIVITIES:
Proceeds from long-term
debt....................... -- 222,307 19,786 81,154
Payments on long-term debt.. -- (131,119) -- --
Net proceeds from sales of
common stock............... 301 25,263 6,479 248
Payments of loan origination
costs...................... -- (6,662) (396) (100)
----- --------- -------- ---------
Net cash provided by
financing activities....... 301 109,789 25,869 81,302
----- --------- -------- ---------
Net increase (decrease) in
cash and cash equivalents.. 12 35,670 2,252 (31,909)
Cash and cash equivalents at
beginning of period........ -- 12 12 35,682
----- --------- -------- ---------
Cash and cash equivalents at
end of period.............. $ 12 $ 35,682 $ 2,264 $ 3,773
===== ========= ======== =========
SUPPLEMENTAL NON-CASH FLOW
INFORMATION:
Cash paid for interest...... $ -- $ 2,707 $ -- $ --
===== ========= ======== =========
Cash paid for income taxes.. $ -- $ 1,113 $ -- $ --
===== ========= ======== =========
Non cash issuance of stock.. $ 1 $ 101 $ -- $ --
===== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
--------------- ADDITIONAL EARNINGS STOCK TOTAL
CLASS A CLASS B PAID-IN (ACCUMULATED SUBSCRIPTIONS STOCKHOLDERS'
SHARES SHARES CAPITAL DEFICIT) RECEIVABLE EQUITY
------- ------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued at
inception
(June 4, 1996)......... $ -- $ 1 $ 301 $ -- $ (1) $ 301
Net loss................ -- -- -- (195) -- (195)
---- --- ------- ------ ----- -------
Balance at December 31,
1996................... -- 1 301 (195) (1) 106
Sale of shares.......... 1 -- 25,362 -- (101) 25,262
Net income.............. -- -- -- 1,105 -- 1,105
---- --- ------- ------ ----- -------
Balance at December 31,
1997................... $ 1 $ 1 $25,663 $ 910 $(102) $26,473
Sale of shares
(unaudited)............ -- -- 248 -- -- 248
Net income (unaudited).. -- -- -- 139 -- 139
---- --- ------- ------ ----- -------
Balance at March 31,
1998 (unaudited)....... $ 1 $ 1 $25,911 $1,049 $(102) $26,860
==== === ======= ====== ===== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
National Equipment Services, Inc. ("NES") was organized on June 4, 1996
under the laws of Delaware for the purpose of owning and operating equipment
rental facilities by means of acquiring existing businesses. NES is primarily
involved in the rental of equipment to construction and industrial users. NES
operates from locations in Alabama, Georgia, Louisiana, Nevada, Texas and
Virginia.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include accounts of NES and its
subsidiaries. All intercompany transactions and balances have been eliminated.
FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL DATA
The interim financial data is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for fair statements of financial position and
results of operations for the interim periods.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
INVENTORY
NES's inventories primarily consist of parts and new equipment held for
sale. Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market.
RENTAL EQUIPMENT
Rental equipment is recorded at invoice cost. Depreciation for rental
equipment acquired is computed using the straight-line method over 5 to 15
year useful lives with no salvage value. Accumulated depreciation on rental
equipment was $4,763,000 at December 31, 1997.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When rental equipment is disposed of, the related cost and
accumulated depreciation are removed from the respective accounts. Proceeds
from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from rental
equipment sales and cost of equipment sales in the statement of operations.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
The estimated useful lives for property and equipment range from 5 to 7
years for machinery and equipment, 5 to 7 years for furniture and fixtures and
3 to 5 years for vehicles.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When property and 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.
F-8
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
Since inception, NES adopted Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and Long-
Lived Assets to be Disposed of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the assets' carrying amounts and related goodwill exceed the
undiscounted cash flows estimated to be generated by those assets. SFAS No.
121 also requires impairment losses to be recorded when the carrying amount of
long-lived assets that are expected to be disposed of exceeds their fair
values, net of disposal costs. SFAS No. 121 did not have a material impact on
NES's financial position or results of operations the period from inception
(June 4, 1996) through December 31, 1996 or year ended December 31, 1997.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 "Earnings per Share." For the company, SFAS No. 128 will be
effective for the year ended December 31, 1997. SFAS No. 128 simplifies the
standards required under current accounting rules for computing earnings per
share and replaces the presentation of primary earnings per share and fully
diluted earnings per share with a presentation of basic earnings per share
("basic EPS") and diluted earnings per share ("diluted EPS"). Basic EPS
excludes dilution and is determined by dividing income available to common
stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution that could
occur if securities and other contracts to issue common stock were exercised
or converted into common stock. Diluted EPS is computed similarly to fully
diluted earnings per share under current accounting rules. The implementation
of SFAS No. 128 is calculated based on the Company's net income (loss) as
presented on its statement of operations and based on share amounts after
giving effect to the Company's planned exchange of Class A and Class B into
newly established Common Stock and the split of such shares described in Note
14 and summarized below:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JUNE 4, 1996) FOR THE FOR THE THREE MONTHS
THROUGH YEAR ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -----------------------
1996 1997 1997 1998
-------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss)........ $ (195) $ 1,105 $ (155) $ 139
====== ======= ======= =======
Weighted average shares
of Class A Common and
Class B Common.......... 30 101 81 115
Basic weighted average
shares:
Total Common Shares
after giving effect to
(i) the exchange of
Class A Common and
Class B Common and
(ii) the split........ 4,185 12,793 9,699 14,823
Effect of dilutive
securities
Unvested stock.......... -- 1,357 1,529 1,299
------ ------- ------- -------
Diluted weighted average
shares.................. 4,185 14,150 11,228 16,122
====== ======= ======= =======
Basic EPS................ $(0.05) $ 0.09 $ (0.02) $ 0.01
====== ======= ======= =======
Diluted EPS.............. $(0.05) $ 0.08 $ (0.01) $ 0.01
====== ======= ======= =======
</TABLE>
Options to purchase 880,000 shares of Common Stock at the initial public
offering price will be granted to certain members of management prior to
consummation of the Company's initial public offering. The options will vest
over five years from the grant date and will expire ten years from the grant
date. The options were not
F-9
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
included in the computation of diluted EPS because the exercise price of the
options equals the market price of the Common Stock on the date of grant.
PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share presented below was computed under SFAS No. 128
"Earnings per Share" based on the weighted average number of common shares
outstanding during the period after giving retroactive effect to the exchange
of the Company's Class A and Class B common stock to the Company's newly
established common stock, the split of the Company's newly established common
stock, the Company's planned initial public offering of common stock and the
conversion of the Falconite 8% convertible subordinated promissory notes
described in Notes 13 and 14. All common shares and stock options issued have
been included as outstanding for the entire period using the treasury stock
method and the estimated public offering price per share.
<TABLE>
<CAPTION>
FOR THE
FOR THE THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
<S> <C> <C>
Pro forma net income per share (unaudited):
Basic....................................... $ 0.35 $ 0.01
Diluted..................................... $ 0.33 $ 0.01
Pro forma weighted average shares outstanding
(unaudited):
Basic....................................... 22,091 22,149
Diluted..................................... 23,448 23,448
</TABLE>
REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. The Statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. The Statement is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements
for earlier periods provided for comparative purposes is required. The Company
intends to adopt SFAS No. 130 in 1998.
INTANGIBLE ASSETS
Intangible assets consist of the excess cost over acquired net assets
("goodwill") which has been capitalized and is being amortized on a straight
line basis over 40 years. Whenever events or changes in circumstances indicate
that the carrying amount of goodwill may not be recoverable, NES reviews the
carrying value of goodwill for impairment based on the undiscounted operating
cash flows of the related business unit. Accumulated amortization on goodwill
was $445,000, at December 31, 1997. Non-compete agreements are stated at cost
and amortized over the lives of the agreements.
LOAN ORIGINATION COSTS
Loan origination costs are stated at cost and amortized to interest expense
using the effective interest method over the life of the loan. Amortization
expense related to loan origination costs aggregated $392,000 for the year
ended December 31, 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash,
trade accounts receivable, accounts payable and other liabilities approximate
fair value due to the immediate to short-term maturity of these
F-10
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
financial instruments. The fair value of the Senior Subordinated Notes is
based on quoted market prices and approximates the carrying value at December
31, 1997. The carrying value of bank debt approximates fair value as the
interest on the bank debt is reset every 30 to 90 days to reflect current
market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject NES to significant
concentrations of credit risk consist primarily of trade accounts receivable
from construction and industrial customers. Concentrations of credit risk with
respect to trade accounts receivable are limited due to the large number of
customers and NES's geographic dispersion. NES performs credit evaluations of
its customers' financial condition and generally does not require collateral
on accounts receivable. NES maintains an allowance for doubtful accounts on
its receivables based upon expected collectibility. Allowance for doubtful
accounts was $0 and $254,000 at December 31, 1996 and December 31, 1997,
respectively.
RENTAL REVENUES
Rental revenues are recognized ratably over the lease term. Sales revenues
are recognized at the point of delivery.
INCOME TAXES
Provisions are made to record deferred income taxes in recognition of items
reported differently for financial reporting purposes than for federal and
state income tax purposes. NES records deferred income taxes using the
liability method in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The Company and its
subsidiaries will file a consolidated tax return for the year ending December
31, 1997.
RELATED PARTY TRANSACTIONS
As disclosed in these financial statements, NES has participated in certain
transactions with related parties.
2. ACQUISITIONS
In 1997, NES purchased the following rental equipment companies:
<TABLE>
<CAPTION>
ACQUISITION DATE COMPANY LOCATION PURCHASE PRICE
- ---------------- -------------------------------------- ---------------- --------------
<S> <C> <C> <C>
January 6, 1997......... Brazos Rental & Tool, Inc., Industrial
Crane Maintenance Systems, Inc.
and Safe Load Work Product, Inc. Brazoria, TX $ 5,000,000
February 18, 1997....... Aerial Platforms, Inc. Atlanta, GA $ 4,150,000
March 17, 1997.......... Lone Star Rentals, Inc. Houston, TX $10,950,000
April 1, 1997........... BAT Rentals, Inc. Las Vegas, NV $15,900,000
July 1, 1997............ Sprintank Houston, TX $25,300,000
July 18, 1997........... MST Enterprises, Inc. Harrisonburg, VA $ 6,000,000
</TABLE>
The purchase prices above are subject to a customary purchase price
adjustment mechanism and assumption of certain seller liabilities.
The following pro forma financial information represents the unaudited pro
forma results of operations as if the aforementioned acquisitions had been
completed on January 1, 1996 and January 1, 1997, after giving effect to
certain adjustments including increased depreciation and amortization of
property and equipment and other
F-11
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
assets and interest expense for acquisition debt. These pro forma results have
been prepared for comparative purposes only and do not purport to be
indicative of the results of operations which would have been achieved had
these acquisitions been completed as of these dates, nor are the results
indicative of NES's future results of operations.
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
(UNAUDITED) (UNAUDITED)
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Revenues....................................... $48,040 $56,858
Operating income............................... 9,012 10,382
Net income..................................... 158 1,143
</TABLE>
3. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
-------------
<S> <C>
New equipment............................................... $1,127
Parts....................................................... 1,200
Contractor supplies......................................... 382
Other....................................................... 20
------
2,729
Less: reserve............................................... (490)
------
$2,239
======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Leasehold improvements.......................... $-- $ 190
Machinery and equipment......................... 20 333
Furniture and fixtures.......................... -- 470
Vehicles........................................ -- 2,641
--- ------
20 3,634
Less: accumulated depreciation.................. (3) (622)
--- ------
$17 $3,012
=== ======
</TABLE>
Property and equipment depreciation expense aggregated $3,000 and $656,000
for the period from inception (June 4, 1996) through December 31, 1996 and the
year ended December 31, 1997, respectively.
5. INTANGIBLE ASSETS
Intangible assets consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Non-compete agreements....................................... $ 2,455
Goodwill..................................................... 26,253
Origination costs............................................ 48
-------
28,756
Less: accumulated amortization............................... (819)
-------
$27,937
=======
</TABLE>
F-12
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Amortization expense aggregated $819,000 for the year ended December 31,
1997.
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Accrued salaries and benefits................... $110 $ 589
Sales tax payable............................... -- 244
Accrued income taxes............................ -- 333
Accrued property taxes.......................... -- 314
Other........................................... -- 847
---- ------
$110 $2,327
==== ======
</TABLE>
7. DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Senior subordinated notes, interest at 10% payable semi-
annually, due November 30, 2004............................ $98,782
Revolving credit facility loans, interest at the federal
funds rate plus 0.5% or prime rate both plus 1.0%, or the
eurodollar rate plus 2.5%, due no later than July 1, 2002.. --
Term loan, interest at the federal funds rate plus 0.5% or
prime rate both plus 1.0%, or the eurodollar rate plus
2.5%, principal payments due quarterly of $625 through June
1, 1998, $875 through June 1, 1999 and $1,125 through June
1, 2001.................................................... --
-------
$98,782
=======
</TABLE>
On November 20, 1997, NES issued $100 million of Senior Subordinated Notes
(the "Notes") at a discount netting proceeds of $98,767,000. NES accretes the
original issue discount over the term of the Notes using the effective
interest method. The Notes mature on November 30, 2004. Interest on the Notes
accrues at a rate of 10% per year and is payable semi-annually in arrears on
May 30 and November 30 commencing on May 30, 1998.
The Notes are redeemable at the option of the Company at any time after
November 30, 2001 at a redemption price of 105% of the principal amount from
November 30, 2001 to November 29, 2002, at 102.5% from November 30, 2002 to
November 29, 2003 and 100% after November 30, 2003, plus accrued and unpaid
interest. The Company may at any time prior to November 30, 2000 on any one or
more occasions redeem up to 33% of the aggregate principal amount of the notes
at a redemption price of 110% or the principal amount plus accrued and unpaid
interest with the net cash proceeds of a public offering of common stock of
NES within 45 days of the closing of such public offering. In addition, at any
time prior to November 30, 2001, the Notes may be redeemed as a whole, at the
option of NES, upon the occurrence of or in connection with a change of
control. Upon certain changes in control, the noteholders will have the right
to require redemption at a cash price of 101% of the principal amount plus
accrued and unpaid interest.
All of the Company's wholly-owned subsidiaries make full, unconditional,
joint and several guarantees of the Notes. The separate financial statements
of each of these wholly-owned subsidiaries are not presented as management
believes they are not individually meaningful for presentation. The Company's
holding company has no operations separate from its investments in these
subsidiaries.
F-13
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On July 1, 1997, NES entered into a credit facility agreement with First
Union Commercial Corporation (the "Credit Agreement"). The Credit Agreement
provides for a secured revolving line of credit of $100 million and a term
loan of $15 million. Interest accrues at rates of the greater of the annual
Federal Funds Rateplus 0.5% or the prime rate both plus 0.5% to 1.25% based on
NES's leverage ratio or at a rate ofLIBOR/(1 - eurodollar reserve percentage).
Principal payments for credit facility loans (to be applied first to the term
loan and if necessary to revolving loans) are due annually at the lesser of
25% of excess cash flow or $1 million. Principal payments for the term loan
are due quarterly at $625,000 for the first four quarters, $875,000 for the
next four quarters and $1,125,000 for the next eight quarters. Substantially
all assets and stock of NES are pledged as collateral for the credit facility.
NES pays commitment fees of 0.375% to 0.5% on the unused portion of the
outstanding line of credit balance on NES's leverage ratio. The term loan was
repaid as of December 31, 1997.
The Indenture for the Notes and the Credit Agreement contain a number of
covenants that, among other things, require NES to maintain certain financial
ratios and set certain limitations on the granting of liens, asset sales,
additional indebtedness, transactions with affiliates, restricted payments,
investments and issuances of stock. NES is in compliance with all covenants.
The average interest rate for the year ended December 31, 1997 was 9.8%. NES
incurred interest expense of $76,000 on borrowings from related parties for
the year ended December 31, 1997.
8. INCOME TAXES
The income tax provision is comprised of current federal and state income
tax expense (benefit) of $(137,100) and $818,000 for the period from inception
(June 4, 1996) through December 31, 1996 and year ended December 31, 1997,
respectively. Deferred tax expense (benefit) for such periods has been
immaterial.
The provision for income taxes differs from the amount of income tax
determined by applying the U.S. statutory federal income tax rate of 34% to
income before income taxes as a result of the following (in thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JUNE 4, 1996) FOR THE
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
-------------- -------------
<S> <C> <C>
Federal income taxes......................... $(113) $654
State income taxes, net of federal benefit... (16) 94
Other........................................ (8) 70
----- ----
$(137) $818
===== ====
</TABLE>
Deferred income tax assets and liabilities are computed based on temporary
differences between the financial statement and income tax bases of assets and
liabilities using the enacted marginal income tax rate in effect for the year
in which the differences are expected to reverse. Deferred income tax expenses
or credits are based on the changes in the deferred income tax assets or
liabilities from period to period.
Deferred taxes have been provided for the temporary differences between the
financial reporting bases and the tax bases of NES's assets and liabilities as
follows (in thousands):
<TABLE>
<S> <C>
Allowances for doubtful accounts.................................. $ 78
Inventory......................................................... 167
Non-compete agreements............................................ 83
Minimum tax credits............................................... 90
Installment sale income........................................... (23)
Property, plant and equipment..................................... (314)
Goodwill.......................................................... (153)
-----
$ (72)
=====
</TABLE>
F-14
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. COMMON STOCK
On June 4, 1996, in connection with the formation of NES, NES authorized
25,000 shares of Class A Common Stock (24,250 of which were reserved for
issuance to NES's majority stockholder), par value $0.01, and 150,000 shares
of Class B Common Stock (75,000 of which were reserved for issuance to NES's
majority stockholder), par value $0.01. On October 28, 1997, the authorized
shares of Class A Common Stock were increased to 50,000.
Each calendar quarter, each share of Class A Common is entitled to a yield
in the amount of 10% per year of the sum of such share's unreturned original
cost plus the unpaid yield for all prior quarters. As of December 31, 1997,
the unpaid yield on the Class A Common aggregated $1,608,000. Class A Common
stockholders, as a class, are entitled to a number of votes equal to 10% of
the number of votes allocable to all Common Stock. Upon any distribution,
Class A Common stockholders are entitled to (i) the unpaid yield, (ii) any
unreturned original cost of the shares and (iii) 10% of any remaining
distribution. Class B Common stockholders are entitled to 90% of any remaining
distribution after payment to the Class A Common stockholders of all payments
under clause (i) and (ii) set forth in the preceding sentence. Additionally,
only in the event of a successful initial public offering can the Class A
Common stockholders require a mandatory redemption of any or all of the shares
attributable to the unpaid yield and original cost of the shares.
NES may not declare additional distributions or dividends other than the
amounts described above for Class A Common shares, issue any debt securities
containing equity features, sell or dispose of more than 5% of the
consolidated assets of the Company in any transaction or series of related
transactions, acquire an interest in a business, acquire a business outside of
the rental equipment industry, or enter into certain related party
transactions, without the consent of a majority of the Class A Common and
Class B Common stockholders.
Class B Common stock sold to executives of NES vests over a 5 year period.
Unpaid notes receivable of $1,000 and $102,000 as of December 31, 1996 and
December 31, 1997, respectively, from executives of NES for shares of Class B
Common stock are classified as stock subscriptions receivable.
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
NES leases certain facilities, office equipment and vehicles under operating
leases some of which contain renewal options. Rental expense was $660 for the
year ended December 31, 1997.
Future minimum rental commitments as of December 31, 1997 under
noncancelable operating leases are (in thousands):
<TABLE>
<S> <C>
1998............................................................... $ 842
1999............................................................... 567
2000............................................................... 507
2001............................................................... 483
2002............................................................... 181
Thereafter......................................................... 213
------
$2,793
======
</TABLE>
LEGAL MATTERS
NES is party to legal proceedings and potential claims arising in the
ordinary course of its business. In the opinion of management, the ultimate
resolution of these matters will have no material adverse effect on NES's
financial position, results of operations or cash flows.
11. EMPLOYEE BENEFIT PLANS
The Company sponsors a profit sharing and 401(k) plan (the "Plan") in which
employees over 21 years of age with greater than one-half year of service are
eligible. Under the Plan, NES contributes a discretionary
F-15
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
percentage (2.5% for the year ended December 31, 1997) of each eligible
employee's base annual wages to a trust out of its net profits. In addition,
eligible employees can defer up to 15% of their salary with a partially
matching contribution by NES of 50% of the first 5% of the employee
contribution. The employer contributions vest over a five year period.
Contributions by NES to the Plan were $165,000 for year ended December 31,
1997.
12. RELATED PARTY TRANSACTIONS
Pursuant to a Professional Services Agreement dated January 6, 1997, NES
pays management fees of $200,000 per year and investment fees of 1% of all
debt and equity financings of NES to an affiliate of NES's majority
stockholder, who owns 95.0% of the Class A Common stock and 83% of the Class B
Common stock. Total fees paid during the year ended December 31, 1997 were
$417,000 and fees owed at December 31, 1997 were $630,000.
In connection with several of the acquisitions, NES entered into lease
agreements for certain facilities with employees of NES who were prior owners
of the acquired companies. Amounts due under these leases are included in the
future minimum rental commitments under noncancelable operating leases
schedule in Note 10 above.
Stock subscriptions receivable of $1,000 and $102,000 as of December 31,
1996 and 1997, respectively, relate to notes due from officers of NES related
to purchases of Class B Common Stock and are secured by the purchased Class B
Common shares. Interest on the notes accrues at the federal funds rate and is
payable in full at maturity on June 4, 2006 or upon termination of employment.
Accrued interest on these notes was $0 and $8,000 for the period from
inception (June 4, 1996) through December 31, 1996 and the year ended December
31, 1997, respectively.
13. SUBSEQUENT EVENTS
Subsequent to year end, NES purchased the following rental equipment
companies:
<TABLE>
<CAPTION>
PURCHASE
ACQUISITION DATE COMPANY LOCATION PRICE
---------------- ------- -------- -----------
<C> <S> <C> <C>
Genpower Pump and Equipment
January 12, 1998 Co............................. Deer Park, TX $ 8,000,000
January 16, 1998 Eagle Scaffolding and Equipment
Co............................. Las Vegas, NV $ 3,290,000
January 23, 1998 Grand Hi-Reach, Inc............ Byron Center, MI $ 8,120,000
February 4, 1998 Work Safe Supply Company, Inc.. Grandville, MI $ 7,845,000
March 2, 1998 Dragon Rentals (division of The
Modern Group, Inc.)............ Beaumont, TX $23,000,000
March 4, 1998 Cormier Equipment Corporation.. Oakland, ME $27,500,000
March 30, 1998 Albany Ladder.................. Albany, NY $43,454,000
</TABLE>
The purchase prices above are subject to a customary purchase price
adjustment mechanism and assumption of certain seller liabilities. These
acquisitions will be accounted for under the purchase method based on the
purchase prices. Under the purchase method of accounting NES will allocate the
costs of these acquisitions, as of the respective closing dates, to the assets
acquired and liabilities assumed based on their respective fair values.
The operating results of these acquisitions will be included in NES's
consolidated results of operations from the date of acquisition. The following
pro forma financial information represents the unaudited pro forma results of
operations as if the aforementioned acquisitions had been completed on January
1, 1996 and January 1, 1997, after giving effect to certain adjustments
including increased depreciation and amortization of property and equipment
and intangible assets and interest expense for acquisition debt. These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations which
F-16
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
would have been achieved had these acquisitions been completed as of these
dates, nor are the results indicative of NES's future results of operations.
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
(UNAUDITED) (UNAUDITED)
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Revenues........................................ $120,475 $146,000
Operating income................................ 19,234 26,821
Net income...................................... 751 5,439
</TABLE>
Additionally, subsequent to year end, NES entered into a definitive purchase
agreement to acquire Falconite, Inc., a rental equipment company with
operations in nine southern and midwestern states for $171.25 million and
$3.75 million of 8% convertible subordinated promissory notes. This pending
acquisition is planned to close in 1998 in connection with an initial public
offering of the Company's stock.
14. PRO FORMA BALANCE SHEET (UNAUDITED)
In connection with its initial public offering of common stock, the Company
announced its plan to exchange all of its Class A and Class B common stock for
newly established common stock. The Class A and Class B stock will be
converted into 115,321 shares of newly established common stock. Each share of
newly established common stock will then be split into 139 shares of common
stock. The effect of this exchange and split has been reflected in the
unaudited pro forma balance sheet.
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of Aerial
Platforms, Inc. and the Board of Directors
of National Equipment Services, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of cash flows and of changes in stockholder's equity, present
fairly, in all material respects, the financial position of Aerial Platforms,
Inc. at January 31, 1997 and February 17, 1997, and the results of its
operations and its cash flows for the year ended January 31, 1997 and the
seventeen days ended February 17, 1997 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
November 4, 1997
F-18
<PAGE>
AERIAL PLATFORMS, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 17,
1997 1997
----------- ------------
<S> <C> <C>
ASSETS:
Cash................................................. $ 213 $ 265
Accounts receivable, net............................. 666 654
Inventory............................................ 72 71
Prepaid and other assets............................. 31 57
Rental equipment, net................................ 1,758 1,752
Property and equipment, net.......................... 149 134
------ ------
Total assets....................................... $2,889 $2,933
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accounts payable..................................... $ 75 $ 137
Accrued expenses and other liabilities............... 108 133
Income taxes......................................... 148 142
Debt................................................. 1,243 1,214
------ ------
Total liabilities.................................. 1,574 1,626
Commitments and contingencies (Note 7)
Common stock, $0.01 par, 10,000 shares authorized, 500
shares issued and outstanding........................ 1 1
Paid-in capital....................................... -- --
Retained earnings..................................... 1,314 1,306
------ ------
Total stockholder's equity......................... 1,315 1,307
------ ------
Total liabilities and stockholder's equity......... $2,889 $2,933
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
AERIAL PLATFORMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVENTEEN
YEAR ENDED DAYS ENDED
JANUARY 31, FEBRUARY 17,
1997 1997
----------- ------------
<S> <C> <C>
REVENUES:
Rental revenues....................................... $3,385 $127
Rental equipment sales................................ 496 24
New equipment sales................................... 693 66
Other................................................. 172 16
------ ----
Total revenues...................................... 4,746 233
------ ----
COST OF REVENUES:
Rental equipment expenses............................. 697 41
Rental equipment depreciation......................... 257 15
Cost of rental equipment sales........................ 184 19
Cost of new equipment sales........................... 569 59
Direct operating expenses............................. 665 35
------ ----
Total cost of revenues.............................. 2,372 169
------ ----
Gross profit........................................... 2,374 64
Selling, general and administrative expenses........... 1,302 64
Non-rental depreciation and amortization............... 74 8
------ ----
Operating (loss) income................................ 998 (8)
Interest income (expense), net......................... (124) (6)
------ ----
Income (loss) before income taxes...................... 874 (14)
Income tax expense (benefit)........................... 353 (6)
------ ----
Net (loss) income...................................... $ 521 $ (8)
====== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
AERIAL PLATFORMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVENTEEN
YEAR ENDED DAYS ENDED
JANUARY 31, FEBRUARY 17,
1997 1997
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................... $ 521 $ (8)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................ 331 23
Loss (gain) on sale of equipment.................... (304) 2
Deferred income taxes............................... (118) --
Changes in operating assets and liabilities:
Accounts receivable................................ (231) 12
Inventories........................................ (17) 1
Prepaid and other assets........................... (21) (26)
Accounts payable................................... 22 62
Accrued expenses and other liabilities............. (18) 19
----- ----
Net cash provided by operating activities............ 165 85
----- ----
INVESTING ACTIVITIES:
Purchases of rental equipment........................ (803) (28)
Proceeds from sale of rental equipment............... 496 24
Purchases of property and equipment.................. (12) --
Proceeds from sale of property and equipment......... -- --
----- ----
Net cash used in investing activities................ (319) (4)
----- ----
FINANCING ACTIVITIES:
Proceeds from long-term debt......................... 468 --
Payments on long-term debt........................... (441) (29)
----- ----
Net cash provided by (used in) financing activities.. 27 (29)
----- ----
Net increase (decrease) in cash...................... (127) 52
Cash at beginning of period.......................... 340 213
----- ----
Cash at end of period................................ $ 213 $265
===== ====
SUPPLEMENTAL NON-CASH FLOW INFORMATION:
Cash paid for interest............................... $ 122 $ 12
===== ====
Cash paid for income taxes........................... $ 398 $ --
===== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
AERIAL PLATFORMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------- TOTAL
STATED PAID-IN RETAINED STOCKHOLDER'S
SHARES VALUE CAPITAL EARNINGS EQUITY
------ ------ ------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1996........ 500 $ 1 $-- $ 793 $ 794
Net income......................... -- -- -- 521 521
--- --- --- ------ ------
Balance at January 31, 1997........ 500 1 -- 1,314 1,315
Net income (loss).................. -- -- -- (8) (8)
--- --- --- ------ ------
Balance at February 17, 1997....... 500 $ 1 $-- $1,306 $1,307
=== === === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
AERIAL PLATFORMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Aerial Platforms, Inc. ("Aerial") is a C corporation primarily involved in
the short-term rental of platform aerial lifts, and to a lesser extent,
selling related new and used equipment. Aerial's principal customers are
construction contractors located in the Atlanta, Georgia area. Aerial operates
from one leased facility located in Norcross (Atlanta), Georgia.
FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting periods. Actual results could differ from those estimates.
RENTAL REVENUE
Rental revenue is recognized ratably over the expected lease term.
RENTAL EQUIPMENT
Rental equipment consists of platform aerial lifts and is recorded at cost.
Depreciation for rental equipment acquired is computed using the straight-line
method over an estimated five to seven year useful life with no salvage value.
Accumulated depreciation on rental equipment was approximately $1,960,000 and
$1,947,000 at January 31, 1997 and February 17, 1997, respectively.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When rental equipment is disposed of, the related cost and
accumulated depreciation are removed from the respective accounts. Proceeds
from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from rental
equipment sales and cost of equipment sales in the statement of operations.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets. The
estimated useful lives for property and equipment range from three to five
years for vehicles and delivery equipment, and five to seven years for tools,
yard equipment and furniture and fixtures.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When property 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 the statement of operations.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
On February 1, 1996, Aerial adopted Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of, which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the assets' carrying amounts exceed the
undiscounted cash flows estimated to be generated by those assets. SFAS No.
121 also requires impairment losses to be recorded when the carrying amount of
long-lived assets that are expected to be disposed of exceed their fair
values, net of disposal costs. Adoption of SFAS No. 121 did not have a
material impact on Aerial's financial position at January 31, 1997 or results
of operations for the year then ended.
F-23
<PAGE>
AERIAL PLATFORMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
INVENTORIES
Aerial's inventories of $72,000 and $71,000 at January 31, 1997 and February
17, 1997, respectively, consist primarily of spare parts held for use in
servicing and repairing platform aerial lifts. Inventories are stated at the
lower of cost, determined by the first-in, first-out method, or market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for trade accounts
receivable, accounts payable and accrued expenses and other liabilities
approximate fair value due to the short-term nature of these financial
instruments. The fair value of notes receivable and notes payable is
determined using current interest rates for similar instruments as of February
17, 1997 and approximates the carrying value of these notes.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Aerial to significant
concentrations of credit risk consist primarily of trade accounts receivable
from construction customers located in one geographical location. Aerial
generally does not require collateral on accounts receivable. Aerial maintains
an allowance for doubtful accounts on its receivables based upon expected
collectibility. Allowance for doubtful accounts was $24,000 and $24,250 at
January 31, 1997 and February 17, 1997, respectively.
ADVERTISING COSTS
Aerial advertises primarily through trade journals and the media.
Advertising costs are expensed as incurred.
INCOME TAXES
Deferred income tax assets and liabilities are computed based on temporary
differences between the financial statement and income tax bases of assets and
liabilities using the enacted marginal income tax rate in effect for the year
in which the differences are expected to reverse. Deferred income tax expenses
or benefits are based on the changes in the deferred income tax assets or
liabilities from period to period.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 17,
1997 1997
----------- ------------
<S> <C> <C>
Vehicles and delivery equipment.................. $122 $ 122
Tools and yard equipment......................... 212 196
Furniture and fixtures........................... 33 33
---- -----
367 351
Less: accumulated depreciation................... (218) (217)
---- -----
$149 $ 134
==== =====
</TABLE>
3. PREPAID AND OTHER ASSETS
Prepaid and other assets consists of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 17,
1997 1997
----------- ------------
<S> <C> <C>
Officer and employee advances.................... $22 $36
Other............................................ 9 21
--- ---
$31 $57
=== ===
</TABLE>
F-24
<PAGE>
AERIAL PLATFORMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following (in
thousands):
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 17,
1997 1997
----------- ------------
<S> <C> <C>
Sales taxes payable.............................. $ 48 $ 56
Accrued benefit plan contributions............... 53 52
Accrued salaries................................. -- 12
Other............................................ 7 13
---- ----
$108 $133
==== ====
</TABLE>
5. DEBT
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 17,
1997 1997
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Note payable in monthly installments of $16,850 plus
interest at the prime rate plus 1.5% (prime rate at
January 31, 1997 and February 17, 1997 was 8.25%)
with the final payment due in February 1999. (See
Note 9)............................................. $ 421 $ 404
Notes payable in monthly installments of
approximately $12,062 including interest at the
prime rate plus 1.5% with the final payments due at
varying dates through November 2000. (See Note 9)... 219 214
Note payable in monthly installments of approximately
$6,828 including interest at the prime rate plus
1.5% with final payment due July 1999. (See Note 9). 190 190
Note payable in monthly installments of approximately
$7,780 including interest at the prime rate plus
1.5% with final payment due in September 1999. (See
Note 9)............................................. 219 213
Note payable in monthly installments of approximately
$1,993 including interest at the prime rate plus
1.5% with final payment due in September 2001. (See
Note 9)............................................. 59 58
Note payable in monthly installments of approximately
$4,420 including interest at the prime rate plus 2%
with the final payment due in May 1998. (See Note
9).................................................. 65 65
Notes payable in monthly installments of $4,994
including interest of 10%, 9% and 11%, with the
final payments due in February 1997, July 1999 and
February 1999, respectively. (See Note 9)........... 70 70
------ ------
Total debt......................................... $1,243 $1,214
====== ======
</TABLE>
6. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEVENTEEN DAYS ENDED
JANUARY 31, 1997 FEBRUARY 17, 1997
---------------- --------------------
<S> <C> <C>
CURRENT:
Federal............................ $191 $(5)
State.............................. 34 (1)
DEFERRED:
Federal............................ 109 --
State.............................. 19 --
---- ---
$353 $(6)
==== ===
</TABLE>
F-25
<PAGE>
AERIAL PLATFORMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes differs from the amount of income tax
determined by applying the U.S. statutory federal income tax rate of 34% to
income before income taxes as a result of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEVENTEEN DAYS ENDED
JANUARY 31, 1997 FEBRUARY 17, 1997
---------------- --------------------
<S> <C> <C>
(Loss) income at statutory rate.... $297 $ (5)
Effect of state taxes, net......... 51 (1)
Other.............................. 5 --
---- -----
$353 $ (6)
==== =====
</TABLE>
Deferred tax assets (liabilities) are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 17,
1997 1997
----------- ------------
<S> <C> <C>
Depreciation..................................... $(153) $(153)
Allowance for doubtful accounts.................. 10 10
----- -----
Net deferred tax liability....................... $(143) $(143)
===== =====
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Aerial conducts its operations in leased facilities under an operating lease
which expires in May 1998. Aerial also leases vehicles and certain rental
equipment under cancelable and noncancelable lease agreements which expire at
varying dates through July 2000. Rental expense was $658,000 and $45,000 for
the year ended January 31, 1997 and seventeen days ended February 17, 1997,
respectively.
Future minimum rental commitments as of February 17, 1997 under
noncancelable operating leases are (in thousands):
<TABLE>
<S> <C>
1998................................................................. $118
1999................................................................. 95
2000................................................................. 77
2001................................................................. 20
2002................................................................. --
----
$310
====
</TABLE>
LEGAL MATTERS
Aerial is party to legal proceedings and claims arising in the ordinary
course of its business. In the opinion of management, the ultimate resolution
of these matters will have no material adverse effect on Aerial's financial
position, results of operations or cash flows.
8. EMPLOYEE BENEFIT PLAN
During the year ended January 31, 1995, Aerial established a simplified
employee pension plan covering substantially all employees. Employees meeting
certain age and length of service requirements are eligible to participate.
Employee contributions are permitted up to a maximum of 10% of covered
compensation. There are no required matching contributions by Aerial since
Aerial's contributions are at the discretion of the Board of Directors.
Aerial's contributions were $43,000 and $0 for the year ended January 31, 1997
and the seventeen days ended February 17, 1997, respectively.
F-26
<PAGE>
AERIAL PLATFORMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. SUBSEQUENT EVENTS
On February 17, 1997, Aerial's sole shareholder sold all of the outstanding
common stock of Aerial to National Equipment Services, Inc. ("NES") in
exchange for a $3,750,000 cash payment (subject to a customary purchase price
adjustment mechanism), a $500,000 promissory note ($350,000 of which is in
consideration for the common stock of Aerial and $150,000 of which is in
consideration for certain non-compete covenants given by the sole shareholder
of Aerial's common stock) and the assumption of certain liabilities and
obligations. Aerial's results of operations are included with NES subsequent
to February 17, 1997.
At such closing, NES paid the remaining principal and accrued interest on
the notes payable to Fidelity National Bank in the amount of $1,219,600.
Additionally, NES purchased all of the leased rental equipment at February 17,
1997 for approximately $1,889,000.
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of Lone Star
Rentals, Inc. and the Board of Directors of
National Equipment Services, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of cash flows and of changes in stockholder's equity, present
fairly, in all material respects, the financial position of Lone Star Rentals,
Inc. at December 31, 1995 and 1996 and March 16, 1997, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1996 and for the period ended March 16, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Houston, Texas
November 4, 1997
F-28
<PAGE>
LONE STAR RENTALS, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 16,
1995 1996 1997
------------ ------------ ---------
<S> <C> <C> <C>
ASSETS:
Cash...................................... $ 88 $ 89 $ --
Accounts receivable, net.................. 1,338 1,187 1,193
Inventory................................. 338 622 708
Rental equipment, net..................... 7,622 6,952 6,688
Property and equipment, net............... 262 178 165
Prepaid and other assets.................. 446 377 382
------- ------ ------
Total assets............................ $10,094 $9,405 $9,136
======= ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accounts payable.......................... $ 236 $ 408 $ 660
Accrued expenses and other liabilities.... 257 293 274
Debt...................................... 5,481 4,529 4,348
Obligations under capital leases.......... 640 454 410
------- ------ ------
Total liabilities....................... 6,614 5,684 5,692
------- ------ ------
Commitments and contingencies (Note 9)
Stockholder's equity....................... 3,480 3,721 3,444
------- ------ ------
Total liabilities and stockholder's
equity................................. $10,094 $9,405 $9,136
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
LONE STAR RENTALS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD ENDED
-------------- MARCH 16,
1995 1996 1997
------ ------ ------------
<S> <C> <C> <C>
REVENUES:
Rental revenue.................................... $8,324 $8,168 $1,455
Sales of equipment and supplies................... 1,379 1,181 188
------ ------ ------
Total revenues.................................. 9,703 9,349 1,643
------ ------ ------
COST OF REVENUES:
Rental equipment expense.......................... 2,398 2,485 594
Rental equipment depreciation..................... 1,356 1,440 242
Cost of equipment and supplies.................... 1,079 888 119
Direct operating expenses......................... 1,679 1,739 416
------ ------ ------
Total cost of revenues.......................... 6,512 6,552 1,371
------ ------ ------
Gross profit (loss)................................ 3,191 2,797 272
Selling, general and administrative expense........ 1,918 1,988 475
Non-rental depreciation and amortization........... 170 169 26
------ ------ ------
Operating (loss) income............................ 1,103 640 (229)
Other income....................................... 231 271 139
Interest income (expense) net...................... (608) (530) (164)
------ ------ ------
Net income (loss).................................. $ 726 $ 381 $ (254)
====== ====== ======
Pro forma tax provision (benefit) (unaudited):
Income (loss) before income taxes................. $ 726 $ 381 $ (254)
Pro forma provision (benefit) for income taxes.... 254 133 (89)
------ ------ ------
Pro forma net income (loss)....................... $ 472 $ 248 $ (165)
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
LONE STAR RENTALS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD ENDED
---------------- MARCH 16,
1995 1996 1997
------- ------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income..................................... $ 726 $ 381 $(254)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................. 1,526 1,609 268
Gain on sale of equipment..................... (184) (175) --
Changes in operating assets and liabilities:
Accounts receivable.......................... (192) 151 (6)
Inventory.................................... 318 (284) (86)
Prepaid and other assets..................... 20 69 (5)
Accounts payable............................. (71) 172 252
Accrued expenses and other liabilities....... 30 36 (19)
------- ------- -----
Net cash provided by operating activities...... 2,173 1,959 150
------- ------- -----
INVESTING ACTIVITIES:
Purchases of rental equipment.................. (3,019) (1,595) 9
Proceeds from sale of rental equipment......... 1,013 733 --
Purchases of property and equipment............ (51) (6) --
Proceeds from sale of property and equipment... 76 2 --
------- ------- -----
Net cash provided by (used in) investing
activities.................................... (1,981) (866) 9
------- ------- -----
FINANCING ACTIVITIES:
Proceeds from debt............................. 2,871 1,640 --
Payments on debt............................... (2,881) (2,592) (225)
Dividends paid................................. (231) (140) (23)
------- ------- -----
Net cash used in financing activities.......... (241) (1,092) (248)
------- ------- -----
Net increase (decrease) in cash................ (49) 1 (89)
Cash at beginning of period.................... 137 88 89
------- ------- -----
Cash at end of period.......................... $ 88 $ 89 $ --
======= ======= =====
SUPPLEMENTAL NON-CASH FLOW INFORMATION:
Cash paid for interest......................... $ 607 $ 529 $ 164
======= ======= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
LONE STAR RENTALS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
STOCKHOLDER'S
EQUITY
-------------
<S> <C>
Balance at December 31, 1994...................................... $2,985
Net income........................................................ 726
Dividends......................................................... (231)
------
Balance at December 31, 1995...................................... 3,480
Net income........................................................ 381
Dividends......................................................... (140)
------
Balance at December 31, 1996...................................... 3,721
Net income........................................................ (254)
Dividends......................................................... (23)
------
Balance at March 16, 1997......................................... $3,444
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
LONE STAR RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Lone Star Rentals, Inc. ("Lone Star") is an S Corporation primarily involved
in the short-term rental of general purpose construction equipment, and to a
lesser extent, selling complementary parts, merchandise and new and used
equipment to commercial and residential construction companies, industrial
enterprises, homeowners and other customers. Lone Star operates from five
separate locations, four of which are in the Houston, Texas metropolitan area
and one of which is in Corpus Christi, Texas. Lone Star's executive offices
are located in Houston, Texas.
RENTAL REVENUES
Rental revenues are recognized upon the earliest occurrence of either the
return of the equipment or the end of one month's rental term. For rental
contracts greater than one month, rental revenues are recognized notably over
the contract period.
INVENTORY
Lone Star's inventories primarily consist of items such as equipment, hand
tools and accessories held for resale. Inventories are stated at the lower of
cost, determined by the first-in, first-out method and replacement value, or
market.
RENTAL EQUIPMENT
Rental equipment is recorded at cost. Depreciation for rental equipment
acquired is computed using the straight line method over an estimated average
7-year useful life with no salvage value.
Ordinary maintenance and repairs costs are charged to operations as
incurred. When rental equipment is disposed of, the related cost and
accumulated depreciation are removed from the respective accounts. Proceeds
from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from rental
equipment sales and cost of equipment sales in the statement of operations.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using
the straight line method over the estimated useful lives of the assets.
The estimated useful lives for property and equipment range from 7 to 25
years for buildings, 3 to 7 years for vehicles, delivery and yard equipment,
and 1 to 7 years for fixtures and leasehold improvements.
Ordinary maintenance and repairs costs are charged to operations as
incurred. When property and 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for trade accounts
receivable, accounts payable and other liabilities approximate fair value due
to the immediate to short-term maturity of these financial instruments. The
fair value of notes receivable and notes payable using current interest rates
for similar instruments as of December 31, 1995 and 1996 and March 16, 1997
approximates their carrying value as the underlying instruments include
provisions to adjust interest rates to approximate fair market value.
F-33
<PAGE>
LONE STAR RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Lone Star to significant
concentrations of credit risk consist primarily of trade accounts receivable
from construction and industrial customers. Concentrations of credit risk with
respect to trade accounts receivable are limited due to the large number of
customers and Lone Star's geographic dispersion. Lone Star performs credit
evaluations of its customers' financial condition and generally does not
require collateral on accounts receivable.
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 certain assets and
liabilities, and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the related reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
ADVERTISING COSTS
Lone Star advertises primarily through trade journals and the media.
Advertising costs are expensed as incurred.
INCOME TAXES
Lone Star's parent is a subchapter S corporation, taxes are the
responsibility of the individual shareholders of the parent. The pro forma
provision for income taxes approximate what Lone Star's tax provision would be
if subject to income taxes as a C corporation.
RELATED PARTY TRANSACTIONS
As disclosed in these financial statements, Lone Star has participated in
certain transactions with related parties.
2. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER
31,
--------- MARCH 16,
1995 1996 1997
---- ---- ---------
<S> <C> <C> <C>
Equipment............................................. $142 $411 $490
Parts and supplies.................................... 196 211 218
---- ---- ----
$338 $622 $708
==== ==== ====
</TABLE>
F-34
<PAGE>
LONE STAR RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. RENTAL EQUIPMENT
Rental equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 16,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Air compressors and tools..................... $ 1,479 $ 1,590 $ 1,584
Compaction and concrete....................... 985 919 866
Earth moving equipment........................ 3,913 4,023 3,954
Forklifts, highreach and scaffolding.......... 1,581 1,574 1,365
Generators and lighting....................... 693 620 607
Plumbing and painting......................... 287 273 276
Trenchers and trailers........................ 232 457 455
Pumps......................................... 527 507 510
Welders....................................... 644 570 569
Other......................................... 731 717 719
------- ------- -------
11,072 11,250 10,905
Less: accumulated depreciation................ (3,450) (4,298) (4,217)
------- ------- -------
$ 7,622 $ 6,952 $ 6,688
======= ======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER
31,
------------ MARCH 16,
1995 1996 1997
----- ----- ---------
<S> <C> <C> <C>
Vehicles and delivery equipment................... $ 303 $ 300 $ 300
Furniture and fixtures............................ 254 268 268
Leasehold improvements............................ 43 43 43
Building improvements............................. 127 127 127
----- ----- -----
727 738 738
Less: accumulated depreciation.................... (465) (560) (573)
----- ----- -----
$ 262 $ 178 $ 165
===== ===== =====
</TABLE>
5. PREPAID AND OTHER ASSETS
Prepaid and other assets consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER
31,
--------- MARCH 16,
1995 1996 1997
---- ---- ---------
<S> <C> <C> <C>
Non-compete agreement................................. $438 $363 $350
Other................................................. 8 14 32
---- ---- ----
$446 $377 $382
==== ==== ====
</TABLE>
Lone Star has entered into a non-compete agreement with a former owner which
expires on December 1, 2002. The original cost of $750,000 is being amortized
over a ten year life using the straight line method.
F-35
<PAGE>
LONE STAR RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER
31,
--------- MARCH 16,
1995 1996 1997
---- ---- ---------
<S> <C> <C> <C>
Customer deposits..................................... $ 21 $ 25 $ 30
Sales tax payable..................................... 49 44 24
Payroll tax payable................................... 1 7 --
Accrued property tax payable.......................... 172 173 203
Other................................................. 14 44 17
---- ---- ----
$257 $293 $274
==== ==== ====
</TABLE>
7. DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 16,
1995 1996 1997
------ ------ ---------
<S> <C> <C> <C>
CURRENT PORTION OF DEBT:
Floor plan payable Homelite...................... $ 78 $ 14 $ --
Floor plan payable Kubota........................ 11 171 245
Floor plan payable Nations....................... -- 131 123
Floor plan payable Mitsui........................ 19 -- --
Current notes payable Pinemont................... 400 649 649
Current notes payable Texas Commerce............. -- -- --
Current portion of long-term debt................ 2,290 1,725 1,517
------ ------ ------
Total current debt............................. 2,798 2,690 2,534
------ ------ ------
LONG-TERM PORTION OF DEBT:
Notes payable Pinemont Bank...................... 267 133 133
Merchants Park Bank vehicles..................... 22 11 11
Merchants Park Bank building and land............ 6 1 1
Notes payable Case Credit........................ 515 685 685
Notes payable Chicago Pneumatic.................. 56 18 18
Notes payable Ingersoll Rand..................... 115 25 14
Notes payable John Deere......................... 374 252 252
Notes payable Kubota Credit...................... 203 46 46
Notes payable Mitsui............................. 254 177 163
Notes payable Miller Services.................... 121 19 19
Notes payable Orix............................... 214 28 28
Notes payable Jack Fulton........................ 532 444 444
Notes payable Navistar........................... 4 -- --
------ ------ ------
Total long-term debt........................... 2,683 1,839 1,814
------ ------ ------
Total debt..................................... $5,481 $4,529 $4,348
====== ====== ======
</TABLE>
Interest and principal is payable monthly or quarterly at rates ranging from
5.7% to 12%. The note agreements include restrictions as to limitations upon
certain ratios of liabilities to net worth and upon the minimum net worth of
Lone Star. Lone Star is in compliance with covenants in all agreements.
Substantially all rental equipment, property and equipment, and accounts
receivable of Lone Star are pledged as collateral for the bank line of credit
demand notes, and notes related to purchases of certain businesses.
F-36
<PAGE>
LONE STAR RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
On bank notes payable, Lone Star incurred interest expense of $605,000,
$778,000 and $66,000 for the periods ended December 31, 1995 and December 31,
1996 and March 16, 1997, respectively.
Maturities of debt are as follows at March 16, 1997 (in thousands):
<TABLE>
<S> <C>
1997............................................................... $2,534
1998............................................................... 878
1999............................................................... 523
2000............................................................... 287
2001............................................................... 126
------
$4,348
======
</TABLE>
8. OBLIGATIONS UNDER CAPITAL LEASES
Capitalized leases recorded as assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER
31,
------------ MARCH 16,
1995 1996 1997
----- ----- ---------
<S> <C> <C> <C>
Compaction and concrete........................... $ 180 $ 180 $ 180
Forklifts, highreach and scaffolding.............. 81 81 81
Trenchers and trailers............................ 254 254 254
Pumps............................................. 245 245 245
Other............................................. 46 46 46
----- ----- -----
806 806 806
Less: accumulated depreciation.................... (127) (249) (270)
----- ----- -----
$ 679 $ 557 $ 536
===== ===== =====
</TABLE>
Obligations under capital leases consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER
31,
--------- MARCH 16,
1995 1996 1997
---- ---- ---------
<S> <C> <C> <C>
Leases payable AEL/Reli............................... $466 $244 $ 55
Leases payable Associated............................. 73 156 338
Leases payable Bankers Leasing........................ 28 6 --
Leases payable Clark Financials....................... 50 34 14
Leases payable Manifest Group......................... 23 14 3
---- ---- ----
640 454 410
==== ==== ====
Current portion....................................... 267 284 223
---- ---- ----
Long-term portion..................................... $373 $170 $187
==== ==== ====
</TABLE>
Future minimum lease payments as of March 16, 1997 are (in thousands):
<TABLE>
<S> <C>
1997................................................................. $267
1998................................................................. 117
1999................................................................. 51
2000................................................................. 18
Thereafter........................................................... --
----
$453
====
</TABLE>
F-37
<PAGE>
LONE STAR RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Lone Star leases certain facilities under operating leases which contain
renewal options and provide for periodic cost of living adjustments. Rental
expense was $241,000 and $236,000 for the years ended December 31, 1995 and
1996 respectively, and $49,000 for the period ended March 16, 1997.
Future minimum rental commitments as of March 16, 1997 under non-cancelable
operating leases are (in thousands):
<TABLE>
<S> <C>
1997............................................................... $ 192
1998............................................................... 242
1999............................................................... 242
2000............................................................... 242
2001............................................................... 242
Thereafter......................................................... 51
------
$1,211
======
</TABLE>
LEGAL MATTERS
Lone Star is party to legal proceedings and potential claims arising in the
ordinary course of its business. Management believes that the ultimate
resolution of these matters will have no material adverse effect on Lone
Star's financial position, results of operations or cash flows.
10. SUBSEQUENT EVENTS
On March 17, 1997, Lone Star's owner sold substantially all of Lone Star's
assets to NES Acquisition Corp., a wholly owned subsidiary of National
Equipment Services, Inc. for a $10,579,711 cash payment (subject to a
customary purchase price adjustment mechanism), a promissory note in the
principal amount of $500,000 ($350,000 of which is in partial consideration
for such assets and $150,000 of which is in consideration for certain non-
compete covenants by Lone Star's former owner) and the assumption of certain
liabilities and obligations.
F-38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder
of BAT Rentals, Inc. and the Board of Directors
of National Equipment Services, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholder's equity and of cash flows, present
fairly, in all material respects, the financial position of BAT Rentals, Inc.
at December 31, 1995 and 1996 and March 31, 1997, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1996 and for the three months ended March 31, 1997, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
November 4, 1997
F-39
<PAGE>
BAT RENTALS, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1997
------------ ------------ ---------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents................. $ 1,879 $ 1,750 $ 1,609
Accounts receivable, net.................. 1,107 1,322 1,574
Inventory, net............................ 672 645 530
Rental equipment, net..................... 4,434 5,779 5,945
Property and equipment, net............... 1,976 1,855 1,808
Prepaid and other assets.................. 43 153 30
------- ------- -------
Total assets............................ $10,111 $11,504 $11,496
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable.......................... $ 126 $ 36 $ 84
Accrued expenses and other liabilities.... 200 121 216
Debt...................................... 3,191 3,302 2,891
------- ------- -------
Total liabilities....................... 3,517 3,459 3,191
Common stock, $10 par, 1,000 shares
authorized, 700 shares issued and
outstanding.............................. 7 7 7
Other paid-in capital..................... 2 2 2
Retained earnings......................... 7,514 8,965 9,225
Treasury stock............................ (929) (929) (929)
------- ------- -------
Total stockholders' equity.............. 6,594 8,045 8,305
------- ------- -------
Total liabilities and stockholders'
equity................................. $10,111 $11,504 $11,496
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
BAT RENTALS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE
------------------------- MONTHS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1997
------------ ------------ ------------- ---
<S> <C> <C> <C> <C>
REVENUES:
Rental revenues................... $ 4,856 $ 6,328 $1,457
Rental equipment sales............ 2,486 2,879 995
New equipment sales............... 4,733 3,547 1,250
Other............................. 378 386 100
------- ------- ------
Total revenues.................. 12,453 13,140 3,802
------- ------- ------
COST OF REVENUES:
Rental equipment expenses......... 80 184 12
Rental equipment depreciation..... 2,059 2,576 707
Cost of rental equipment sales.... 968 1,411 352
Cost of new equipment sales....... 4,052 2,961 1,010
Direct operating expense.......... 1,653 1,623 450
------- ------- ------
Total cost of revenues.......... 8,812 8,755 2,531
------- ------- ------
Gross profit....................... 3,641 4,385 1,271
Selling, general and administrative
expenses.......................... 1,552 1,399 489
Non-rental depreciation and
amortization...................... 116 109 25
------- ------- ------
Operating income................... 1,973 2,877 757
Other income (expense), net........ 29 120 (1)
Interest income (expense), net..... (103) (196) (46)
------- ------- ------
Net income......................... $ 1,899 $ 2,801 $ 710
======= ======= ======
PRO FORMA TAX PROVISION
(UNAUDITED):
Income before income taxes......... $ 1,899 $ 2,801 $ 710
Pro forma provision for income
taxes.............................. 646 952 241
------- ------- ------
Pro forma net income............... $ 1,253 $ 1,849 $ 469
======= ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
BAT RENTALS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE
------------------------- MONTHS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................ $ 1,899 $ 2,801 $ 710
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation......................... 2,175 2,685 732
Gain on sale of equipment............ (1,527) (1,468) (657)
Changes in operating assets and
liabilities:
Accounts receivable................. (27) (215) (252)
Inventories......................... (42) 26 115
Prepaid and other assets............ 45 (110) 123
Accounts payable.................... 76 (90) 48
Accrued expenses and other
liabilities........................ 110 (79) 95
------- ------- ------
Net cash provided by operating
activities............................ 2,709 3,550 914
------- ------- ------
INVESTING ACTIVITIES:
Purchases of rental equipment......... (3,953) (5,332) (1,211)
Proceeds from sale of rental
equipment............................ 2,486 2,879 995
Purchases of property and equipment... (52) (2) --
Proceeds from sale of property and
equipment............................ -- 14 23
------- ------- ------
Net cash used in investing activities.. (1,519) (2,441) (193)
------- ------- ------
FINANCING ACTIVITIES:
Proceeds from long-term debt.......... 1,303 1,465 --
Payments on long-term debt............ (771) (1,353) (412)
Dividends paid........................ (1,500) (1,350) (450)
------- ------- ------
Net cash used in financing activities.. (968) (1,238) (862)
------- ------- ------
Net increase (decrease) in cash and
cash equivalents...................... 222 (129) (141)
Cash and cash equivalents at beginning
of period............................. 1,657 1,879 1,750
------- ------- ------
Cash and cash equivalents at end of
period................................ $ 1,879 $ 1,750 $1,609
======= ======= ======
SUPPLEMENTAL NON-CASH FLOW INFORMATION:
Cash paid for interest................ $ 227 $ 244 $ 56
======= ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
BAT RENTALS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------- PAID-IN TREASURY RETAINED STOCKHOLDERS'
SHARES STATED VALUE CAPITAL STOCK EARNINGS EQUITY
------ ------------ ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 700 $ 7 $ 2 $(929) $ 7,115 $ 6,195
Net income.............. -- -- -- -- 1,899 1,899
Dividends............... -- -- -- -- (1,500) (1,500)
--- --- --- ----- ------- -------
Balance at December 31,
1995................... 700 7 2 (929) 7,514 6,594
Net income.............. -- -- -- -- 2,801 2,801
Dividends............... -- -- -- -- (1,350) (1,350)
--- --- --- ----- ------- -------
Balance at December 31,
1996................... 700 7 2 (929) 8,965 8,045
Net income.............. -- -- -- -- 710 710
Dividends............... -- -- -- -- (450) (450)
--- --- --- ----- ------- -------
Balance at March 31,
1997................... 700 $ 7 $ 2 $(929) $ 9,225 $ 8,305
=== === === ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
BAT RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
BAT Rentals, Inc. ("BAT") is an S corporation primarily involved in the
sale, financing and rental of construction equipment to construction
contractors and industrial companies. BAT operates from one facility in Las
Vegas, Nevada.
FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
RENTAL REVENUES
Rental revenues are recognized ratably over the lease term. Sales revenues
are recognized at the point of delivery.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are short-term highly liquid investments with
original maturities of three months or less.
INVENTORY
BAT's inventories primarily consist of parts and new equipment held for
sale. Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market.
RENTAL EQUIPMENT
Rental equipment is recorded at cost. Depreciation for rental equipment
acquired is computed using the straight-line and accelerated methods over an
estimated 5 to 7 year useful life with no salvage value.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When rental equipment is disposed of, the related cost and
accumulated depreciation are removed from the respective accounts. Proceeds
from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from rental
equipment sales and cost of equipment sales in the statement of operations.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line and accelerated methods over the estimated useful lives of
the assets.
The estimated useful lives for property and equipment range from 31.5 years
for buildings, 5 to 7 years for machinery and equipment, 5 to 7 years for
furniture and fixtures and 3 to 5 years for vehicles.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When property and 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.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
On January 1, 1996, BAT adopted Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and Long-
Lived Assets to be Disposed of, which requires
F-44
<PAGE>
BAT RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the assets' carrying amounts exceed
the undiscounted cash flows estimated to be generated by those assets. SFAS
No. 121 also requires impairment losses to be recorded when the carrying
amount of long-lived assets that are expected to be disposed of, exceed their
fair values, net of disposal costs. Adoption of SFAS No. 121 did not have a
material impact on BAT's financial position at March 31, 1997 or results of
operations for the period then ended.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for trade accounts
receivable, accounts payable and accrued expenses and other liabilities
approximate fair value due to the immediate to short-term maturity of these
financial instruments. The fair value of long-term debt is determined using
current interest rates for similar instruments as of March 31, 1997 and
approximates the carrying value of the debt due to the fact that the
underlying instruments include provisions to adjust note balances and interest
rates to approximate fair market value.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject BAT to significant
concentrations of credit risk consist primarily of trade accounts receivable
from construction and industrial customers. Concentrations of credit risk with
respect to trade accounts receivable are limited due to the large number of
customers and BAT's geographic dispersion. BAT performs credit evaluations of
its customers' financial condition and generally does not require collateral
on accounts receivable. BAT maintains an allowance for doubtful accounts on
its receivables based upon expected collectibility. Allowance for doubtful
accounts was $116,200, $116,200 and $96,300 at March 31, 1997, December 31,
1996 and 1995, respectively.
INCOME TAXES
BAT has elected S corporation status under the U.S. Internal Revenue Code.
Pursuant to this election, BAT's income, deductions and credits are reported
on the income tax returns of BAT's stockholders for federal purposes and,
accordingly, no provision for federal income taxes has been made. Pro forma
income taxes are calculated at a statutory tax rate of 34%.
RELATED PARTY TRANSACTIONS
As disclosed in these financial statements, BAT has participated in certain
transactions with related parties.
2. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER
31,
---------- MARCH 31,
1995 1996 1997
---- ---- ---------
<S> <C> <C> <C>
New equipment....................................... $342 $365 $300
Parts............................................... 418 438 381
Contractor supplies................................. 77 75 76
Other............................................... 7 8 14
---- ---- ----
844 886 771
Less: reserve....................................... (172) (241) (241)
---- ---- ----
Total inventory, net................................ $672 $645 $530
==== ==== ====
</TABLE>
F-45
<PAGE>
BAT RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. RENTAL EQUIPMENT
Rental equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1995 1996 1997
------ ------- ---------
<S> <C> <C> <C>
Rental equipment............................... $9,387 $11,397 $11,545
Less: accumulated depreciation................. (4,953) (5,618) (5,600)
------ ------- -------
Rental equipment, net.......................... $4,434 $ 5,779 $ 5,945
====== ======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- MARCH 31,
1995 1996 1997
------ ------ ---------
<S> <C> <C> <C>
Land and land improvements...................... $ 807 $ 807 $ 807
Building........................................ 1,336 1,336 1,336
Machinery and shop equipment.................... 60 63 68
Furniture and fixtures.......................... 424 440 442
Vehicles........................................ 910 889 838
------ ------ ------
Total property and equipment, at cost........... 3,537 3,535 3,491
Less: accumulated depreciation.................. (1,561) (1,680) (1,683)
------ ------ ------
Property and equipment, net..................... $1,976 $1,855 $1,808
====== ====== ======
</TABLE>
5. PREPAID AND OTHER ASSETS
Prepaid and other assets consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 31,
1995 1996 1997
------ ------ ---------
<S> <C> <C> <C>
Receivable from EPA............................... $ -- $ 108 $--
Prepaid insurance................................. 29 31 5
Prepaid advertising............................... 7 7 3
Other............................................. 7 7 22
----- ------ ---
$ 43 $ 153 $30
===== ====== ===
</TABLE>
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER
31,
--------- MARCH 31,
1995 1996 1997
---- ---- ---------
<S> <C> <C> <C>
Accrued expenses...................................... $ 72 $ 21 $ 68
Sales tax payable..................................... 52 54 78
Accrued profit sharing................................ -- 46 70
Accrued equipment sales payable....................... 76 -- --
---- ---- ----
$200 $121 $216
==== ==== ====
</TABLE>
F-46
<PAGE>
BAT RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 31,
1995 1996 1997
------ ------ ---------
<S> <C> <C> <C>
Notes payable, secured by rental equipment,
payable through various dates ending February
2000, interest rates ranging from 7.9% to prime
plus 1%........................................ $1,295 $1,630 $1,428
Notes payable, related party, secured by rental
equipment, with interest ranging from 7.5% to
prime plus 1%.................................. 177 223 188
Notes payable, secured by trust deed on property
and buildings, with interest at prime plus 1%
maturing May 1997.............................. 167 -- --
Notes payable, shareholder, secured by rental
equipment with interest at prime plus 1%,
minimum rate of 9.75%.......................... 328 288 245
Revolving credit line, secured by rental
equipment and inventory, with a limit of
$1,250,000. Interest payable monthly at Bank of
America's reference rate plus 0.65%............ 1,009 814 871
Other contracts payable, secured by rental
equipment and inventory, due upon sale of
collateral or within one year of the date of
purchase if not sold........................... 215 347 159
------ ------ ------
Total debt...................................... $3,191 $3,302 $2,891
====== ====== ======
</TABLE>
BAT's agreement with the bank provides for a secured revolving line of
credit of $1,250,000 maturing no later than May 31, 1997. The bank and senior
note agreements include restrictions as to limitations upon certain ratios of
liabilities to net worth and upon the minimum net worth of BAT. BAT is in
compliance with covenants in all agreements. Substantially all of BAT's assets
are pledged as collateral for the long-term debt.
Maturities of debt are as follows at March 31, 1997 (in thousands):
<TABLE>
<S> <C>
1997............................................................... $1,685
1998............................................................... 800
1999............................................................... 397
2000............................................................... 9
2001............................................................... --
Thereafter......................................................... --
------
$2,891
======
</TABLE>
LEGAL MATTERS
BAT is party to legal proceedings and claims arising in the ordinary course
of its business. Management believes that the ultimate resolution of these
matters will have no material adverse effect on BAT's financial position,
results of operations or cash flows.
F-47
<PAGE>
BAT RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. EMPLOYEE BENEFIT PLANS
BAT sponsors a profit sharing plan (the "Plan") in which employees with
greater than one year of service are eligible. Under the Plan, BAT contributes
15% of each eligible employee's base annual wages to a trust out of its net
profits. Effective January 1, 1997, five percent of the eligible employee's
wages are deposited into a 401(k) plan and the remaining 10% portion is
contributed to a separate profit sharing plan. In addition, eligible employees
can defer up to 10% of their salary with a partially matching contribution by
BAT. The employer contributions vest over a seven year period. Contributions
by BAT to the Plan were $195,100, $198,500 and $0 for the years ended December
31, 1995 and 1996 and the period ended March 31, 1997, respectively.
9. RELATED PARTY TRANSACTIONS
Paul Bronken, President and beneficial owner of a majority of the shares of
BAT, and H. L. Butler, an employee and officer of BAT, loaned the Company
approximately $110,700 and $325,200 during the years ended December 31, 1995
and 1996, respectively, to finance rental equipment purchases. Interest
expense related to these loans was $46,000, $48,200 and $11,200 for the years
ended December 31, 1995 and 1996 and the three months ended March 31, 1997,
respectively.
10. SUBSEQUENT EVENTS
On April 1, 1997, BAT's owner sold substantially all of BAT's assets to BAT
Acquisition Corp., a wholly owned subsidiary of National Equipment Services,
Inc., for a $15.4 million cash payment.
F-48
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Sprint Industrial Services, Inc. and
the Board of Directors of
National Equipment Services, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in divisional equity and of cash flows, present
fairly, in all material respects, the financial position of Sprintank and
Sprintank Mobile Storage (divisions of Sprint Industrial Services, Inc.) at
December 31, 1995, December 31, 1996, and June 30, 1997 and the results of its
operations and its cash flows for the years ended December 31, 1995 and 1996
and the six months ended June 30, 1997 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Houston, Texas
November 4, 1997
F-49
<PAGE>
SPRINTANK AND SPRINTANK MOBILE STORAGE
(DIVISIONS OF SPRINT INDUSTRIAL SERVICES, INC.)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE
DECEMBER 31, DECEMBER 31, 30,
1995 1996 1997
------------ ------------ -------
<S> <C> <C> <C>
ASSETS:
Cash......................................... $ 14 $ 238 $ 373
Accounts receivable, net..................... 1,922 1,829 2,089
Inventory.................................... -- -- 261
Rental equipment, net........................ 8,118 9,741 10,477
Property and equipment, net.................. 584 607 757
Prepaid expenses and other assets............ 89 131 105
------- ------- -------
Total assets............................... $10,727 $12,546 $14,062
======= ======= =======
LIABILITIES AND DIVISIONAL EQUITY:
Accounts payable............................. $ 201 $ 24 $ 282
Accrued expenses and other liabilities....... 182 263 381
Debt......................................... 7,370 8,987 8,624
------- ------- -------
Total liabilities.......................... 7,753 9,274 9,287
------- ------- -------
Intercompany.................................. 1,382 1,054 837
Commitments and contingencies (Note 8)
Divisional equity............................. 1,592 2,218 3,938
------- ------- -------
Total liabilities and divisional equity.... $10,727 $12,546 $14,062
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
SPRINTANK AND SPRINTANK MOBILE STORAGE
(DIVISIONS OF SPRINT INDUSTRIAL SERVICES, INC.)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------- SIX MONTHS
DECEMBER 31, DECEMBER 31, ENDED JUNE
1995 1996 30, 1997
------------ ------------ ----------
<S> <C> <C> <C>
REVENUES:
Rental revenues.......................... $7,475 $ 9,172 $5,715
Other income............................. 404 426 327
------ ------- ------
Total revenues......................... 7,879 9,598 6,042
------ ------- ------
COST OF REVENUES:
Rental equipment expenses................ 1,648 1,395 470
Rental equipment depreciation............ 1,376 2,025 1,109
Direct operating expenses................ 257 197 173
------ ------- ------
Total cost of revenues................. 3,281 3,617 1,752
------ ------- ------
Gross profit.............................. 4,598 5,981 4,290
Selling, general and administrative
expenses................................. 2,977 4,333 2,028
Non-rental depreciation and amortization.. 99 145 83
------ ------- ------
Operating income.......................... 1,522 1,503 2,179
Other income (expense), net............... 1 14 (10)
Interest income (expense), net............ (868) (1,037) (553)
------ ------- ------
Net income................................ $ 655 $ 480 $1,616
====== ======= ======
PRO FORMA TAX PROVISION (UNAUDITED):
Income before income taxes............... $ 655 $ 480 $1,616
Pro forma provision for income taxes..... 229 168 566
------ ------- ------
Pro forma net income..................... $ 426 $ 312 $1,050
====== ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
SPRINTANK AND SPRINTANK MOBILE STORAGE
(DIVISIONS OF SPRINT INDUSTRIAL SERVICES, INC.)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------- SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income......................... $ 655 $ 480 $ 1,616
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation...................... 1,475 2,170 1,192
Changes in operating assets and
liabilities:
Accounts receivable.............. (779) 93 (260)
Inventory........................ -- -- (261)
Prepaid expenses and other
assets.......................... 206 (42) 26
Accounts payable................. 166 (177) 258
Accrued expenses and other
liabilities..................... 335 (247) (99)
------- ------- -------
Net cash provided by operating
activities......................... 2,058 2,277 2,472
------- ------- -------
INVESTING ACTIVITIES:
Purchases of rental equipment...... (4,725) (3,716) (1,879)
Purchases of property and
equipment......................... (100) (100) (198)
------- ------- -------
Net cash used in investing
activities.......................... (4,825) (3,816) (2,077)
------- ------- -------
FINANCING ACTIVITIES:
Proceeds from long-term debt....... 2,682 2,768 19
Payments on long-term debt......... -- (631) (883)
Capital contribution............... 161 146 114
Net proceeds from (payments on)
line of credit.................... (80) (520) 500
Dividends paid..................... -- -- (10)
------- ------- -------
Net cash provided by (used in)
financing activities............... 2,763 1,763 (260)
------- ------- -------
Net increase (decrease) in cash..... (4) 224 135
Cash at beginning of period......... 18 14 238
------- ------- -------
Cash at end of period............... $ 14 $ 238 $ 373
======= ======= =======
SUPPLEMENTAL NON-CASH FLOW
INFORMATION:
Cash paid for interest............. $ 658 $ 901 $ 460
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
SPRINTANK AND SPRINTANK MOBILE STORAGE
(DIVISIONS OF SPRINT INDUSTRIAL SERVICES, INC.)
STATEMENTS OF CHANGES IN DIVISIONAL EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
DIVISIONAL EQUITY
-----------------
<S> <C>
Balance at December 31, 1994.................................. $ 776
Net income.................................................... 655
Capital Contribution.......................................... 161
------
Balance at December 31, 1995.................................. 1,592
Net income.................................................... 480
Capital Contribution.......................................... 146
------
Balance at December 31, 1996.................................. 2,218
Net Income.................................................... 1,616
Capital Contribution.......................................... 114
Dividends..................................................... (10)
------
Balance at June 30, 1997...................................... $3,938
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
SPRINTANK AND SPRINTANK MOBILE STORAGE
(DIVISIONS OF SPRINT INDUSTRIAL SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Sprintank and Sprintank Mobile Storage (divisions of Sprint Industrial
Services, Inc.) ("Sprintank") are primarily involved in the short-term rental
of industrial storage equipment to chemical manufacturing, and refining
industries. At June 30, 1997, Sprintank had seven equipment rental locations
in Texas, Louisiana, and Alabama.
FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
RENTAL REVENUES
Rental revenues are recognized upon the earliest occurrence of either the
return of the equipment or the end of one month's rental term. For rental
contracts greater than one month, rental revenues are recognized ratably over
the contract period.
RENTAL EQUIPMENT
Rental equipment is recorded at cost. Depreciation for rental equipment
acquired is computed using the straight-line method over an estimated useful
life with no salvage value. Estimated useful lives of rental equipment ranged
from three to ten years. Accumulated depreciation on rental equipment was
$3,209,000, $4,963,000 and $5,901,000 at December 31, 1995 and 1996 and June
30, 1997, respectively.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When rental equipment is disposed of, the related cost and
accumulated depreciation are removed from the respective accounts. Proceeds
from the disposal and the related net book value of the equipment are
recognized in the period of disposal.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using
the straight line method over the estimated useful lives of the assets.
The estimated useful lives for property and equipment range from five to
seven years for vehicles, delivery and shop equipment, and three to ten years
for office furniture and leasehold improvements.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When property and 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.
INVENTORY
Sprintank's inventories primarily consist of items such as tires for
replacement on delivery vehicles and are not for sale or rental. Inventories
are stated at the lower of average cost or market.
F-54
<PAGE>
SPRINTANK AND SPRINTANK MOBILE STORAGE
(DIVISIONS OF SPRINT INDUSTRIAL SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for trade accounts
receivable, accounts payable and other liabilities approximate fair value due
to the immediate to short-term maturity of these financial instruments. The
fair value of notes payable and is determined using current interest rates for
similar instruments as of the years ended December 31, 1995 and 1996 and the
period ended June 30, 1997 and approximates the carrying value of these notes
due to the fact that the underlying instruments include provisions to adjust
note balances and interest rates to approximate fair market value.
ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of certain assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the related reported amounts of
revenue and expenses during the reporting period. Such estimates and
assumptions include those made regarding the estimated useful lives of
depreciable assets. Actual results could differ from those estimates.
Management believes that its estimates are reasonable.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Sprintank to significant
concentrations of credit risk consist primarily of trade accounts receivable
from industrial customers. Concentrations of credit risk with respect to trade
accounts receivable are limited due to the number of large customers with
recurring rentals. Sprintank performs credit evaluations of its customers'
financial condition and does not require collateral on accounts receivable.
Sprintank maintains an allowance for doubtful accounts on its receivables
based upon expected collectibility. Allowance for doubtful accounts was $0,
$20,000 and $0 at December 31, 1995 and 1996 and June 30, 1997, respectively.
RELATED PARTY TRANSACTIONS
As disclosed in these financial statements, Sprintank has participated in
certain transactions with related parties during the current and previous
years until acquisition of substantially all of the assets of Sprintank by a
wholly owned subsidiary of National Equipment Services, Inc. (see Note 8). In
the opinion of management, all transactions with related parties have been
conducted at arm's-length.
INCOME TAXES
Sprintank's parent is a subchapter S corporation. Taxes are the
responsibility of the individual shareholders of the parent. The pro forma
provision for divisional income taxes approximates Sprintank's tax provision
on a stand alone basis.
F-55
<PAGE>
SPRINTANK AND SPRINTANK MOBILE STORAGE
(DIVISIONS OF SPRINT INDUSTRIAL SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. RENTAL EQUIPMENT
Rental equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE
---------------- 30,
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Trailers....................................... $ 4,774 $ 5,921 $ 6,890
Frac tanks..................................... 4,420 5,669 6,068
Tanks.......................................... 1,097 1,332 1,373
Dewatering boxes............................... 261 448 452
Vacuum boxes................................... 210 442 550
Phase separator................................ 273 274 276
Rolloff boxes.................................. 208 201 253
Other.......................................... 84 417 516
------- ------- -------
11,327 14,704 16,378
Less: accumulated depreciation................. (3,209) (4,963) (5,901)
------- ------- -------
$ 8,118 $ 9,741 $10,477
======= ======= =======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment, net, consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
----- ------ --------
<S> <C> <C> <C>
Vehicles and delivery equipment................... $ 732 $ 881 $1,057
Shop equipment.................................... 55 135 156
Office equipment.................................. 175 46 47
----- ------ ------
962 1,062 1,260
Less: accumulated depreciation.................... (378) (455) (503)
----- ------ ------
$ 584 $ 607 $ 757
===== ====== ======
</TABLE>
4. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ --------
<S> <C> <C> <C>
Prepaid insurance.................................. $ 56 $ 118 $ 73
Other.............................................. 33 13 32
----- ------ ----
$ 89 $ 131 $105
===== ====== ====
</TABLE>
F-56
<PAGE>
SPRINTANK AND SPRINTANK MOBILE STORAGE
(DIVISIONS OF SPRINT INDUSTRIAL SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER
31,
--------- JUNE 30,
1995 1996 1997
---- ---- --------
<S> <C> <C> <C>
Payroll accruals....................................... $ 10 $ 85 $ 79
Deferred franchise taxes............................... 52 75 187
Taxes payable.......................................... 43 47 59
Accrued interest....................................... 49 42 21
Other.................................................. 28 14 35
---- ---- ----
$182 $263 $381
==== ==== ====
</TABLE>
6. INTERCOMPANY
Interest on intercompany advances between Sprint Industrial Services, Inc.
and Sprintank were imputed at a rate of 12% and is included in interest
expense and treated as contributed capital.
7. DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ --------
<S> <C> <C> <C>
Intercompany note payable to a related party,
interest 12% for the year ended December 31,
1995............................................. $ 100 $ -- $ --
Notes payable to stockholders, interest at various
rates ranging from 9% to 12%..................... 462 3,230 3,250
Revolving line of credit of $700,000, $1,000,000
and $1,000,000 for December 31, 1995, December
31, 1996 and June 30, 1997, respectively. In
1995, interest is payable monthly at prime plus
2%. For the periods ending December 31, 1996 and
June 30, 1997, interest is payable quarterly at
the bank's prime rate............................ 520 -- 500
Notes payable to a bank, interest and principal
payable monthly or quarterly at rates ranging
from 5.7% to 12% for the periods ending December
31, 1995, December 31, 1996 and June 30, 1997.... 6,192 5,682 4,840
Notes payable--insurance, interest and principal
payable monthly at rates ranging from 7.43% to
8.50% for the periods ending December 31, 1995,
December 31, 1996 and June 30, 1997,
respectively..................................... 96 75 34
------ ------ -------
$7,370 $8,987 $ 8,624
====== ====== =======
</TABLE>
Sprintank's agreement with the bank provided for a secured line of credit of
$700 in 1995, maturing no later than April 30, 1996. At December 31, 1995,
$520 was borrowed against the line of credit. At December 31, 1996, Sprintank
had a secured line of credit for $1,000, maturing no later than April 30,
1997. At December 31, 1996, nothing was borrowed against the line. During
1997, the $1,000 line of credit was amended, extending the maturity date to no
later than April 30, 1998. At June 30, 1997, $500 was borrowed against the
line of credit.
F-57
<PAGE>
SPRINTANK AND SPRINTANK MOBILE STORAGE
(DIVISIONS OF SPRINT INDUSTRIAL SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The bank note agreements include restrictions as to limitations upon certain
ratios of liabilities to net worth and upon the minimum net worth of
Sprintank. Sprintank is in compliance with covenants in all agreements.
Substantially all rental equipment, property and equipment, and accounts
receivable of Sprintank are pledged as collateral for the bank line of credit,
demand notes, and notes related to purchases of certain businesses.
Sprintank incurred interest expense of $64, $357 and $192 on borrowings from
related parties in the periods ended December 31, 1995, December 31, 1996 and
June 30, 1997, respectively.
On bank notes payable, Sprintank incurred interest expense of $643, $536 and
$247 for the periods ended December 31, 1995, December 31, 1996 and June 30,
1997, respectively.
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Sprintank leases certain facilities under operating leases which contain
renewal options and provide for periodic cost of living adjustments. Rental
expense was $96, $87, and $53, for the years ended December 31, 1995 and 1996
and for the period ended June 30, 1997, respectively.
Future minimum rental commitments as of June 30, 1997 under noncancelable
operating leases are (in thousands):
<TABLE>
<S> <C>
1997................................................................. $ 29
1998................................................................. 96
1999................................................................. 82
2000................................................................. 77
2001................................................................. 74
Thereafter........................................................... 287
----
$645
====
</TABLE>
LEGAL MATTERS
Sprintank is not a party to any legal proceedings or claims as of June 30,
1997.
9. SUBSEQUENT EVENTS
On June 30, 1997, Sprintank's owner sold substantially all of Sprintank's
assets to NES Acquisition Corp., a wholly owned subsidiary of National
Equipment Services, Inc., for a $25,256,431 cash payment (subject to a
customary purchase price adjustment mechanism) and the assumption of certain
liabilities and obligations.
F-58
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
of MST Enterprises, Inc. (d/b/a
Equipco Rentals & Sales) and the Board of Directors
of National Equipment Services, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of cash flows and of changes in stockholder's equity, present
fairly, in all material respects, the financial position of MST Enterprises,
Inc. (d/b/a Equipco Rentals & Sales) at October 31, 1995 and 1996, and at July
17, 1997 and the results of its operations and its cash flows for each of the
two years in the period ended October 31, 1996, and for the period from
November 1, 1996 through July 17, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audits 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
November 4, 1997
F-59
<PAGE>
MST ENTERPRISES, INC.
D/B/A EQUIPCO RENTALS & SALES
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY
OCTOBER 31, OCTOBER 31, 17,
1995 1996 1997
----------- ----------- ------
<S> <C> <C> <C>
ASSETS:
Cash........................................... $ 95 $ 207 $ 84
Accounts receivable, net....................... 523 580 642
Inventory...................................... 186 206 352
Rental equipment net........................... 2,047 2,553 3,007
Property and equipment, net.................... 333 337 221
Prepaid and other assets....................... 153 219 276
------ ------ ------
Total assets................................. $3,337 $4,102 $4,582
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable............................... $ 470 $ 513 $ 384
Accrued expenses and other liabilities......... 241 281 387
Debt........................................... 1,846 2,393 2,396
------ ------ ------
Total liabilities............................ 2,557 3,187 3,167
------ ------ ------
Commitments and contingencies (Note 9)
Common stock, $10 par, 2,500 shares authorized,
1,000 shares issued and outstanding........... 10 10 10
Retained earnings.............................. 770 905 1,405
------ ------ ------
Total stockholders' equity................... 780 915 1,415
------ ------ ------
Total liabilities and stockholders' equity... $3,337 $4,102 $4,582
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
MST ENTERPRISES, INC.
D/B/A EQUIPCO RENTALS & SALES
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------- PERIOD ENDED
OCTOBER 31, OCTOBER 31, JULY 17,
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
REVENUES:
Rental revenues.......................... $3,213 $3,605 $2,835
Rental equipment sales................... 552 391 447
New equipment sales...................... 1,581 1,805 1,055
Other.................................... 44 31 32
------ ------ ------
Total revenues......................... 5,390 5,832 4,369
------ ------ ------
COST OF REVENUES:
Rental equipment expenses................ 264 355 141
Rental equipment depreciation............ 934 1,163 890
Cost of rental equipment sales........... 118 181 125
Cost of new equipment sales.............. 1,461 1,232 691
Other direct operating expenses.......... 885 852 712
------ ------ ------
Total cost of revenues................. 3,662 3,783 2,559
------ ------ ------
Gross profit.............................. 1,728 2,049 1,810
Selling, general and administrative
expenses................................. 1,339 1,519 823
Non-rental depreciation and amortization.. 84 123 76
------ ------ ------
Operating income.......................... 305 407 911
Other income (expense), net............... -- (37) 20
Interest income (expense), net............ (160) (143) (94)
------ ------ ------
Income before income taxes................ 145 227 837
Income tax expense........................ 63 92 337
------ ------ ------
Net income................................ $ 82 $ 135 $ 500
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
MST ENTERPRISES, INC.
D/B/A EQUIPCO RENTALS & SALES
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------- PERIOD ENDED
OCTOBER 31, OCTOBER 31, JULY 17,
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................... $ 82 $ 135 $ 500
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation............................ 1,034 1,294 967
Gain on sale of equipment............... (434) (144) (325)
Changes in operating assets and
liabilities:
Accounts receivable.................... (84) (57) (62)
Inventory.............................. 7 (20) (146)
Prepaid and other assets............... 6 (66) (57)
Accounts payable....................... 13 43 (129)
Accrued expenses and other liabilities. 116 40 106
------ ------ ------
Net cash provided by operating
activities.............................. 740 1,225 854
------ ------ ------
INVESTING ACTIVITIES:
Purchases of rental equipment............ (1,568) (1,820) (1,443)
Proceeds from sale of rental equipment... 609 295 424
Purchases of property and equipment...... (203) (239) --
Proceeds from sale of property and
equipment............................... -- 105 39
------ ------ ------
Net cash used in investing activities.... (1,162) (1,659) (980)
------ ------ ------
FINANCING ACTIVITIES:
Proceeds from long-term debt............. 875 1,465 700
Payments on long-term debt............... (499) (919) (697)
------ ------ ------
Net cash provided by financing
activities.............................. 376 546 3
------ ------ ------
Net increase (decrease) in cash.......... (46) 112 (123)
Cash at beginning of period.............. 141 95 207
------ ------ ------
Cash at end of period.................... $ 95 $ 207 $ 84
====== ====== ======
SUPPLEMENTAL NON-CASH FLOW INFORMATION:
Cash paid for interest................... $ 172 $ 152 $ 108
====== ====== ======
Cash paid for income taxes............... $ 23 $ 215 $ 300
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
MST ENTERPRISES, INC.
D/B/A EQUIPCO RENTALS & SALES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------- TOTAL
STATED PAID-IN RETAINED STOCKHOLDERS'
SHARES VALUE CAPITAL EARNINGS EQUITY
------ ------ ------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1994........ 1,000 $10 $-- $ 688 $ 698
Net income......................... -- -- -- 82 82
----- --- --- ------ ------
Balance at October 31, 1995........ 1,000 10 -- 770 780
Net income......................... -- -- -- 135 135
----- --- --- ------ ------
Balance at October 31, 1996........ 1,000 10 -- 905 915
Net income......................... -- -- -- 500 500
----- --- --- ------ ------
Balance at July 17, 1997........... 1,000 $10 $-- $1,405 $1,415
===== === === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
MST ENTERPRISES, INC.
D/B/A EQUIPCO RENTALS & SALES
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
MST Enterprises, Inc. (d/b/a Equipco Rentals & Sales) ("Equipco") is a C
corporation primarily involved in the short-term rental and sales of general
purpose construction equipment to industrial and construction companies. The
Company operates from one facility in Harrisonburg, Virginia.
FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
RENTAL REVENUES
Rental revenues are recognized as earned over the lease term. Sales revenues
are recognized at the point of delivery.
RENTAL EQUIPMENT
Rental equipment is recorded at cost. Depreciation for rental equipment
acquired is computed using accelerated methods over periods approximating five
years.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When rental equipment is disposed of, the related cost and
accumulated depreciation are removed from the respective accounts. Proceeds
from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from rental
equipment sales and cost of equipment sales in the statement of operations.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using
accelerated methods ranging from three to five years.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When property and 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.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
On January 1, 1996, Equipco adopted Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of, which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the assets' carrying amounts exceed the
undiscounted cash flows estimated to be generated by those assets. SFAS No.
121 also requires impairment losses to be recorded when the carrying amount of
long-lived assets that are expected to be disposed of, exceed their fair
values, net of disposal costs. Adoption of SFAS No. 121 did not have a
material impact on Equipco's financial position at July 17, 1997 or results of
operations for the period then ended.
F-64
<PAGE>
MST ENTERPRISES, INC.
D/B/A EQUIPCO RENTALS & SALES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
INVENTORY
Equipco's inventories are valued at average costs and consist primarily of
items such as hand tools and accessories held for resale.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for trade accounts
receivable, accounts payable and other liabilities approximate fair value due
to the immediate to short-term maturity of these financial instruments. The
fair value of notes receivable and notes payable is determined using current
interest rates for similar instruments as of July 17, 1997 and approximates
the carrying value of these notes due to the fact that the underlying
instruments include provisions to adjust note balances and interest rates to
approximate fair market value.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Equipco to significant
concentrations of credit risk consist primarily of trade accounts receivable
from construction and industrial customers. Concentrations of credit risk with
respect to trade accounts receivable are limited due to the large number of
customers and Equipco's geographic dispersion. Equipco performs credit
evaluations of its customers' financial condition and generally does not
require collateral on accounts receivable. Equipco maintains an allowance for
doubtful accounts on its receivables based upon expected collectibility.
Allowance for doubtful accounts was $40,000, $20,000 and $30,000 at October
31, 1995 and 1996 and July 17, 1997, respectively.
INCOME TAXES
Deferred income tax assets and liabilities are computed based on temporary
differences between the financial statement and income tax bases of assets and
liabilities using the enacted marginal income tax rate in effect for the year
in which the differences are expected to reverse. Deferred income tax expenses
or benefits are based on the changes in the deferred income tax assets or
liabilities from period to period.
RELATED PARTY TRANSACTIONS
As disclosed in these financial statements, Equipco has participated in
certain transactions with related parties.
2. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER
31,
---------- JULY 17,
1995 1996 1997
---- ---- --------
<S> <C> <C> <C>
Merchandise.......................................... $199 $224 $382
Less: reserve........................................ (13) (18) (30)
---- ---- ----
Total inventory, net............................... $186 $206 $352
==== ==== ====
</TABLE>
F-65
<PAGE>
MST ENTERPRISES, INC.
D/B/A EQUIPCO RENTALS & SALES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. RENTAL EQUIPMENT
Rental equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, JULY
---------------- 17,
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Gross rental equipment......................... $ 4,669 $ 6,098 $ 6,992
Less: accumulated depreciation................. (2,622) (3,545) (3,985)
------- ------- -------
$ 2,047 $ 2,553 $ 3,007
======= ======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
------------ JULY 17,
1995 1996 1997
----- ----- --------
<S> <C> <C> <C>
Vehicles........................................... $ 474 $ 625 $ 509
Computer hardware.................................. 80 52 53
Furniture and fixtures............................. 49 30 28
Leaseholds......................................... 35 34 27
Farm assets........................................ 241 13 --
----- ----- -----
879 754 617
Less: accumulated depreciation..................... (546) (417) (396)
----- ----- -----
$ 333 $ 337 $ 221
===== ===== =====
</TABLE>
5. PREPAID AND OTHER ASSETS
Prepaid and other assets consists of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER
31,
--------- JULY 17,
1995 1996 1997
---- ---- --------
<S> <C> <C> <C>
Notes receivable....................................... $ 71 $155 $246
Investments............................................ 44 44 --
Prepaid expenses....................................... 38 20 30
---- ---- ----
$153 $219 $276
==== ==== ====
</TABLE>
Notes receivable consists of $95,000 at July 17, 1997 due from a third party
for the sale of non-business assets. Interest on the note accrues at 8%
annually and payment of principal and interest is due quarterly through
September 2003.
Also included in notes receivable is a related party receivable of $55,700
at July 17, 1997. Interest on the note receivable accrues at the IRS blended
rate (5.85% at July 17, 1997). Annual principal installments of $1,899 plus
accrued interest are due through March 1999.
F-66
<PAGE>
MST ENTERPRISES, INC.
D/B/A EQUIPCO RENTALS & SALES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following (in
thousands):
<TABLE>
<CAPTION>
OCTOBER
31,
--------- JULY 17,
1995 1996 1997
---- ---- --------
<S> <C> <C> <C>
Accrued salaries and wages............................. $168 $ 85 $ 55
Other accrued expenses and liabilities................. 73 196 332
---- ---- ----
$241 $281 $387
==== ==== ====
</TABLE>
7. DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, JULY
------------- 17,
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Notes payable to related parties, due 12/01/96,
interest payable monthly at the Crestar Bank rate
plus 2.0%........................................ $ 490 $ -- $ --
Revolving line of credit, interest payable monthly
at the lessor of prime or 30 day libor plus 1.5%. 1,356 2,393 2,396
------ ------ ------
$1,846 $2,393 $2,396
====== ====== ======
</TABLE>
Equipco's line of credit provides $2,500,000 of available credit at October
31, 1995, October 31, 1996 and July 17, 1997. The line of credit is secured by
substantially all of Equipco's assets.
Maturities of debt are as follows at July 17, 1997 (in thousands):
<TABLE>
<S> <C>
1997............................................................... $ 147
1998............................................................... 502
1999............................................................... 390
2000............................................................... 303
2001............................................................... 235
Thereafter......................................................... 819
------
$2,396
======
</TABLE>
8. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
OCTOBER
31,
---------- JULY 17,
1995 1996 1997
---- ---- --------
<S> <C> <C> <C>
CURRENT:
Federal.............................................. $ 71 $73 $294
State................................................ 13 13 52
DEFERRED:
Federal.............................................. (18) 5 (7)
State................................................ (3) 1 (2)
---- --- ----
$ 63 $92 $337
==== === ====
</TABLE>
F-67
<PAGE>
MST ENTERPRISES, INC.
D/B/A EQUIPCO RENTALS & SALES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes differs from the amount of income tax
determined by applying the U.S. statutory federal income tax rate of 34% to
income before income taxes as a result of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER
31,
--------- JULY 17,
1995 1996 1997
---- ---- --------
<S> <C> <C> <C>
(Loss) income at statutory rate........................ $49 $77 $285
Effect of state taxes, net............................. 9 14 51
Other.................................................. 5 1 1
--- --- ----
$63 $92 $337
=== === ====
</TABLE>
Deferred tax liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER
31,
--------- JULY 17,
1995 1996 1997
---- ---- --------
<S> <C> <C> <C>
Inventory reserves..................................... $ 5 $ 7 $12
Allowance for doubtful accounts........................ 16 8 12
--- --- ---
Net deferred tax liability............................. $21 $15 $24
=== === ===
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Equipco leases certain facilities under operating leases on a month-to-month
basis. Rent expense totaled $189,600, $189,600 and $118,500 for the years
ended October 31, 1995 and 1996 and for the period ended July 17, 1997,
respectively.
LEGAL MATTERS
Equipco is party to legal proceedings and claims arising in the ordinary
course of its business. Management believes that the ultimate resolution of
these matters will have no material adverse effect on Equipco's financial
position, results of operations or cash flows.
10. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution pension plan (the "Plan").
Employees meeting eligibility requirements are automatically enrolled in the
Plan. The Plan does not permit employee contributions and Equipco's
contributions are discretionary as determined by the Board of Directors.
Equipco's contributions to the plan totaled $10,000, $20,000 and $0 for each
of the years ended October 31, 1995 and 1996 and for the period ended July 17,
1997, respectively.
11. SUBSEQUENT EVENTS
On July 18, 1997 Equipco's owner sold all of the outstanding common stock of
Equipco to National Equipment Services, Inc. in exchange for a $5,980,000 cash
payment (subject to a customary purchase price adjustment mechanism).
F-68
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Work Safe Supply Company, Inc. and the Board of Directors
of National Equipment Services, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity, present fairly, in all material respects, the financial
position of Work Safe Supply Company, Inc. and subsidiaries at December 31,
1997 and 1996, and the results of their operations and their cash flows for
each of the three years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
March 4, 1998
F-69
<PAGE>
WORK SAFE SUPPLY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
------ ------
<S> <C> <C>
ASSETS:
Cash and cash equivalents........................................ $ 666 $ 383
Accounts receivable, net......................................... 2,647 3,279
Inventory, net................................................... 107 345
Rental equipment, net............................................ 1,425 1,983
Property and equipment, net...................................... 324 269
Prepaid and other assets......................................... 27 191
------ ------
Total assets................................................. $5,196 $6,450
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable................................................. $ 288 $ 444
Accrued expenses and other liabilities........................... 157 207
Note payable--shareholder........................................ 798 579
------ ------
Total liabilities............................................ 1,243 1,230
------ ------
Commitments and contingencies (Note 8)
Common stock, $1 par, 50,000 shares authorized, 13,500 shares
issued and outstanding.......................................... 13 13
Retained earnings................................................ 3,940 5,207
------ ------
Total stockholders' equity................................... 3,953 5,220
------ ------
Total liabilities and stockholders' equity................... $5,196 $6,450
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-70
<PAGE>
WORK SAFE SUPPLY COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
REVENUES:
Rental revenues........................................ $5,068 $5,258 $6,385
Rental equipment sales................................. 627 774 891
Other.................................................. 521 538 88
------ ------ ------
Total revenues...................................... 6,216 6,570 7,364
------ ------ ------
COST OF REVENUES:
Rental equipment expenses.............................. 685 753 867
Rental equipment depreciation.......................... 601 683 835
Cost of rental equipment sales......................... 376 464 588
Direct operating expense............................... 1,921 1,915 1,650
------ ------ ------
Total cost of revenues.............................. 3,583 3,815 3,940
------ ------ ------
Gross profit............................................ 2,633 2,755 3,424
Selling, general and administrative expenses............ 2,485 1,084 1,237
Non-rental depreciation................................. 78 115 80
------ ------ ------
Operating income........................................ 70 1,556 2,107
Other income (expense), net............................. (47) (57) 8
Interest income (expense), net.......................... (28) (47) (22)
------ ------ ------
Net income (loss)....................................... $ (5) $1,452 $2,093
====== ====== ======
PRO FORMA TAX PROVISION (UNAUDITED):
Income (loss) before income taxes...................... $ (5) $1,452 $2,093
Pro forma provision (benefit) for income taxes......... (2) 494 712
------ ------ ------
Pro forma net income (loss)............................ $ (3) $ 958 $1,381
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-71
<PAGE>
WORK SAFE SUPPLY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
--------------------
1995 1996 1997
---- ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)....................................... $ (5) $1,452 $2,093
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 679 798 915
Gain on sale of equipment.............................. -- -- (51)
Changes in operating assets and liabilities:
Accounts receivable................................... (2) (327) (632)
Inventories........................................... (15) (10) (238)
Prepaid and other assets.............................. (5) 8 (164)
Accounts payable...................................... 69 (21) 156
Accrued expenses and other liabilities................ 106 (763) 50
---- ------ ------
Net cash provided by operating activities................ 827 1,137 2,129
---- ------ ------
INVESTING ACTIVITIES:
Purchases of rental equipment........................... (783) (1,082) (1,277)
Purchases of property and equipment..................... (127) (116) (90)
---- ------ ------
Net cash (used) in investing activities.................. (910) (1,198) (1,367)
---- ------ ------
FINANCING ACTIVITIES:
Proceeds from shareholder loan.......................... 584 43 34
Payments on shareholder loan............................ (296) (98) (253)
Dividends paid.......................................... -- -- (826)
---- ------ ------
Net cash (used) provided in financing activities......... 288 (55) (1,045)
---- ------ ------
Net increase (decrease) in cash and cash equivalents..... 205 (116) (283)
Cash and cash equivalents at beginning of period......... 577 782 666
---- ------ ------
Cash and cash equivalents at end of period............... $782 $ 666 $ 383
==== ====== ======
DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................. $ 1 $ 10 $ 3
==== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-72
<PAGE>
WORK SAFE SUPPLY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------- TOTAL
STATED RETAINED STOCKHOLDERS'
SHARES VALUE EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994............... 13,500 $13 $2,493 $2,506
Net loss................................... -- -- (5) (5)
------ --- ------ ------
Balance at December 31, 1995............... 13,500 13 2,488 2,501
Net income................................. -- -- 1,452 1,452
------ --- ------ ------
Balance at December 31, 1996............... 13,500 13 3,940 3,953
Net income................................. -- -- 2,093 2,093
Dividends.................................. -- -- (826) (826)
------ --- ------ ------
Balance at December 31, 1997............... 13,500 $13 $5,207 $5,220
====== === ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-73
<PAGE>
WORK SAFE SUPPLY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Work Safe Supply Company, Inc. (the "Company") is an S corporation involved
in the rental and sale of traffic safety equipment primarily in the State of
Michigan. Operations of the Company are conducted from the corporate
headquarters in Grand Rapids, Michigan and three additional facilities also
located in Michigan.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include accounts of the Company and
its subsidiaries. All intercompany transactions and balances have been
eliminated.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
INVENTORY
Inventory consist primarily of supplies used in the Company's operations.
Inventory are stated at the lower of cost, determined by the first-in, first-
out method, or market.
RENTAL EQUIPMENT
Rental equipment is recorded at invoice cost. Depreciation for rental
equipment acquired is computed using straight-line and accelerated methods
over 3 to 5 year useful lives with no salvage value.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When rental equipment is disposed of, the related cost and
accumulated depreciation are removed from the respective accounts. Proceeds
from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from rental
equipment sales and cost of equipment sales in the statement of operations.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at invoice cost. Depreciation is computed
using straight-line and accelerated methods over the estimated useful lives of
the assets.
The estimated useful lives for property and equipment are 31.5 years for
buildings, 5 to 7 years for machinery and equipment, 5 to 7 years for
furniture and fixtures and 3 to 5 years for vehicles.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When property and 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.
F-74
<PAGE>
WORK SAFE SUPPLY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash, trade accounts
receivable, accounts payable and accrued expenses and other liabilities
approximate fair value due to the immediate to short-term maturity of these
financial instruments. The fair value of long-term debt is determined using
current interest rates for similar type instruments and approximates the
carrying value of the debt as of December 31, 1997.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of trade accounts receivable
from construction customers. Concentrations of credit risk with respect to
trade accounts receivable are limited due to the large number of customers and
the Company's geographic dispersion. The Company performs credit evaluations
of its customers' financial condition and generally does not require
collateral on accounts receivable. The Company maintains an allowance for
doubtful accounts on its receivables based upon expected collectibility. The
allowance for doubtful accounts was $174,000 and $198,000 at December 31, 1996
and 1997, respectively.
RENTAL REVENUES
Rental revenues are recognized ratably over the lease term. Sales revenues
are recognized at the point of delivery.
INCOME TAXES
The Company has elected S corporation status under the U.S. Internal Revenue
Code. Pursuant to this election, the Company's income, deductions and credits
are reported on the income tax returns of its stockholders for federal
purposes and, accordingly, no provision for federal income taxes has been
made. Pro forma income taxes reflected on the statement of operations have
been calculated at the federal statutory rate of 34%.
RELATED PARTY TRANSACTIONS
The Company has participated in certain transactions with related parties as
disclosed in the notes to these consolidated financial statements.
2. RENTAL EQUIPMENT
Rental equipment consists of the following at December 31, (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Rental equipment.......................................... $3,415 $4,767
Less: accumulated depreciation............................ (1,990) (2,784)
------ ------
Rental equipment, net..................................... $1,425 $1,983
====== ======
</TABLE>
Depreciation expense on rental equipment totaled $601,000, $683,000 and
$835,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
F-75
<PAGE>
WORK SAFE SUPPLY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following at December 31, (in
thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Land.......................................................... $ 7 $ 7
Building...................................................... 110 110
Shop equipment................................................ 160 166
Office equipment.............................................. 77 91
Vehicles...................................................... 450 336
---- ----
Total property and equipment, at cost......................... 804 710
Less: accumulated depreciation................................ (480) (441)
---- ----
Property and equipment, net................................... $324 $269
==== ====
</TABLE>
Depreciation expense on property and equipment totaled $78,000, $115,000 and
$80,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
4. PREPAID AND OTHER ASSETS
Prepaid and other assets consists of the following December 31, (in
thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Notes receivable, related party................................ $-- $120
Other assets................................................... 27 71
--- ----
$27 $191
=== ====
</TABLE>
Notes receivable consists of a non-interest bearing related party receivable
with annual payments of $24,000 due on June 1 of each year, commencing on June
1, 1998.
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following at December
31, (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Accrued expenses............................................... $ 26 $ 41
Accrued salaries and benefits.................................. 49 57
Accrued state taxes............................................ 61 96
Other liabilities.............................................. 21 13
---- ----
$157 $207
==== ====
</TABLE>
6. EMPLOYEE BENEFIT PLANS
The Company sponsors a profit sharing and 401(k) plan (the "Plan") in which
employees meeting eligibility requirements may elect to participate. Company
contributions to the Plan are discretionary and employee vesting in Company
contributions occur ratably over a six year period. Company contributions
totaled $34,000, $49,000 and $42,000 for the years ended December 31, 1995,
1996 and 1997, respectively.
F-76
<PAGE>
WORK SAFE SUPPLY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. RELATED PARTY TRANSACTIONS
The Company has unsecured notes payable due to shareholders totaling
$798,000 and $579,000 at December 31, 1996 and 1997, respectively. The notes
payable are non-interest bearing and payable upon demand. Imputed interest on
the notes payable is calculated using published Applicable Federal Rates (AFR)
in effect during the periods. Imputed interest totaled $34,000, $43,000 and
$34,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
Effective March 1997, the Company entered into a lease agreement for office
space with its shareholders on a month-to-month basis for $3,000 per month.
Rent expense under this obligation totaled $36,000 for the year ended December
31, 1997.
8. COMMITMENTS AND CONTINGENCIES
The Company has entered various vehicle and equipment operating leases with
third parties which expire at various dates through January 2001. The Company
has also entered into operating leases with related and third parties for
office space which expire at various dates through December 2000. Rental
expense incurred by the Company related to these leases totaled $69,000,
$97,000 and $111,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
Future minimum rental commitments as of December 31, 1997 under
noncancelable operating leases are (in thousands):
<TABLE>
<S> <C>
1998............................................................... $115
1999............................................................... 73
2000............................................................... 29
2001............................................................... 2
-----
$219
=====
</TABLE>
9. SUBSEQUENT EVENTS
On February 15, 1998, the Company's shareholders sold substantially all of
the assets of the Company to National Equipment Services, Inc., for
approximately $7.6 million.
F-77
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Genpower Pump & Equipment, Inc. and the
Board of Directors of
National Equipment Services, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of cash flows and of changes in stockholders' equity present
fairly, in all material respects, the financial position of Genpower Pump &
Equipment, Inc. at December 31, 1997, and the results of its operations and
its cash flows for the year ended December 31, 1997, in conformity with
generally accepted accounting principles. 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 audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Houston, Texas
March 3, 1998
F-78
<PAGE>
GENPOWER PUMP & EQUIPMENT, INC.
BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents............................................. $ 20
Accounts receivable, net.............................................. 2,073
Inventory............................................................. 561
Rental equipment, net................................................. 1,920
Property and equipment, net........................................... 192
Deferred tax asset.................................................... 44
------
Total assets........................................................ $4,810
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable...................................................... $ 699
Accrued expenses and other liabilities................................ 799
Debt.................................................................. 833
Notes payable--related parties........................................ 176
------
Total liabilities................................................... 2,507
------
Commitments and contingencies (Note 9)
Common stock, $1.00 par value; 1,000,000 shares authorized; 10,000
shares issued and outstanding......................................... 10
Retained earnings...................................................... 3,233
Treasury stock (Note 1)................................................ (940)
------
Total stockholders' equity.......................................... 2,303
------
Total liabilities and stockholders' equity.......................... $4,810
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-79
<PAGE>
GENPOWER PUMP & EQUIPMENT, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES:
Rental revenues....................................................... $ 7,110
Rental equipment sales................................................ 161
New equipment sales................................................... 4,393
Other................................................................. 437
-------
Total revenues...................................................... 12,101
-------
COST OF REVENUES:
Rental equipment expenses............................................. 1,344
Rental equipment depreciation......................................... 560
Cost of rental equipment sales........................................ 111
Cost of new equipment sales........................................... 3,108
Direct operating expenses............................................. 1,519
-------
Total cost of revenues.............................................. 6,642
-------
Gross profit........................................................... 5,459
Selling, general and administrative expenses........................... 2,797
Nonrental depreciation and amortization................................ 37
-------
Operating income....................................................... 2,625
Other income, net...................................................... 13
Interest expense, net.................................................. (103)
-------
Income before income taxes............................................. 2,535
Income tax expense..................................................... 859
-------
Net income............................................................. $ 1,676
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE>
GENPOWER PUMP & EQUIPMENT, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TREASURY
COMMON STOCK STOCK
------------- --------------
STATED STATED RETAINED
VALUE SHARES VALUE EARNINGS TOTAL
SHARES ------ ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996........ 10 $ 10 (3) $(940) $1,557 $ 627
Net income.......................... 1,676 1,676
--- ---- ----- ----- ------ ------
Balance at December 31, 1997........ 10 $ 10 (3) $(940) $3,233 $2,303
=== ==== ===== ===== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-81
<PAGE>
GENPOWER PUMP & EQUIPMENT, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net income............................................................ $1,676
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 597
Gain on sale of equipment............................................ (37)
Changes in operating assets and liabilities:
Accounts receivable................................................. (1,250)
Inventory........................................................... (329)
Prepaid and other assets............................................ (3)
Accounts payable.................................................... 237
Accrued expenses and other liabilities.............................. 389
------
Net cash provided by operating activities.............................. 1,280
------
INVESTING ACTIVITIES:
Purchases of rental equipment......................................... (1,317)
Proceeds from sale of rental equipment................................ 205
Purchases of property and equipment................................... (9)
Proceeds from sale of property and equipment.......................... 8
------
Net cash used in investing activities.................................. (1,113)
------
FINANCING ACTIVITIES:
Proceeds from debt.................................................... 845
Payments on debt...................................................... (1,532)
------
Net cash used in financing activities.................................. (687)
------
Net decrease in cash and cash equivalents.............................. (520)
Cash at beginning of period............................................ 540
------
Cash at end of period.................................................. $ 20
======
SUPPLEMENTAL NONCASH FLOW INFORMATION:
Cash paid for federal income taxes.................................... $ 139
======
Cash paid for interest................................................ $ 123
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE>
GENPOWER PUMP & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Genpower Pump & Equipment, Inc. ("Genpower") is a C Corporation primarily
involved in the short-term rental and sales of pumps, generators, hoses,
fittings and other related equipment to the petrochemical and construction
industries. Genpower operates from nine separate locations along the Texas
Gulf Coast. Genpower's executive offices are located in Deer Park, Texas.
RENTAL REVENUES
Rental revenues are recognized upon the return of the equipment for daily
rentals, after 3 days for weekly rentals or after 17 days for monthly rentals.
For rental contracts greater than one month, rental revenues are recognized
notably over the contract period.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
INVENTORY
Genpower's inventories primarily consist of items such as pumps and
generators held for resale and hoses, fittings and other maintenance parts.
Inventories are stated at the lower of cost, determined by the first-in,
first-out method and replacement value or market.
RENTAL EQUIPMENT
Rental equipment is recorded at cost. Depreciation for rental equipment
acquired is computed using the double-declining balance and straight-line
methods over an estimated average seven-year useful life.
Ordinary maintenance and repairs costs are charged to operations as
incurred. When rental equipment is disposed of, the related cost and
accumulated depreciation are removed from the respective accounts. Proceeds
from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from rental
equipment sales and cost of equipment sales in the statement of operations.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using
the double-declining balance and straight-line methods over the estimated
useful lives of the assets.
The estimated useful lives for property and equipment is seven years for
machinery, five years for vehicles and five to seven years for furniture and
fixtures.
Ordinary maintenance and repairs costs are charged to operations as
incurred. When property and 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.
F-83
<PAGE>
GENPOWER PUMP & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the combined balance sheets for trade
accounts receivable, accounts payable and other liabilities approximate fair
value due to the immediate to short-term maturity of these financial
instruments. The fair value of notes receivable and notes payable using
current interest rates for similar instruments at December 31, 1997
approximates their carrying value as the underlying instruments include
provisions to adjust interest rates to approximate fair market value.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Genpower to significant
concentrations of credit risk consist primarily of trade accounts receivable
from construction and industrial customers. Concentrations of credit risk with
respect to trade accounts receivable are limited due to the large number of
customers and Genpower's geographic dispersion. Genpower performs credit
evaluations of its customers' financial condition and generally does not
require collateral on accounts receivable. The allowance for doubtful accounts
was $129,132 at December 31, 1997.
TREASURY STOCK
Genpower records its treasury stock using the cost method.
ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of certain assets and
liabilities, and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the related reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
ADVERTISING COSTS
Genpower advertises primarily through trade journals. Advertising costs are
expensed as incurred.
INCOME TAXES
Deferred income tax assets and liabilities are computed based on temporary
differences between the financial statement and income tax bases of assets and
liabilities using the enacted marginal income tax rate in effect for the year
in which the differences are expected to reverse. Deferred income tax expenses
or benefits are based on the changes in the deferred income tax assets or
liabilities from period to period.
RELATED PARTY TRANSACTIONS
As disclosed in these financial statements, Genpower has participated in
certain transactions with related parties.
2. INVENTORY
Inventory consists of the following at December 31, 1997 (in thousands):
<TABLE>
<S> <C>
Equipment............................................................ $309
Parts and supplies................................................... 252
----
$561
====
</TABLE>
F-84
<PAGE>
GENPOWER PUMP & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. RENTAL EQUIPMENT
Rental equipment consists of the following at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
Pumps............................................................ $ 2,053
Air compressors.................................................. 478
Generators....................................................... 259
Engines.......................................................... 159
Lite towers...................................................... 80
Hoses............................................................ 75
Compaction equipment............................................. 64
Pipe plugs....................................................... 34
Forklifts........................................................ 23
Trailers......................................................... 10
-------
3,235
Less--accumulated depreciation................................... (1,315)
-------
$ 1,920
=======
</TABLE>
Depreciation expense for the year ended December 31, 1997 is $560,000.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
Vehicles and delivery equipment.................................... $ 368
Furniture and equipment............................................ 33
-----
401
Less--accumulated depreciation..................................... (209)
-----
$ 192
=====
</TABLE>
Depreciation expense for the year ended December 31, 1997 is $6,000.
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following at December
31, 1997 (in thousands):
<TABLE>
<S> <C>
Sales tax payable................................................... $ 18
Payroll tax payable................................................. 27
Federal income tax payable.......................................... 754
----
$799
====
</TABLE>
F-85
<PAGE>
GENPOWER PUMP & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. DEBT
<TABLE>
<S> <C>
Debt consists of the following at December 31, 1997 (in
thousands):
Floor plan payable to Honda, secured by rental equipment, finance
charges ranging from 12% to 18%................................. $ 62
Notes payable to Ingersol Rand, secured by rental equipment,
payable through various dates ending December 2000, interest
rate at prime plus 1% payable monthly........................... 176
Notes payable to Gorman-Rupp, secured by rental equipment,
payable through various dates ending March 2000, interest rates
ranging from 8.25% to 9.5% payable monthly...................... 335
Term note payable to a bank, principal payable monthly plus
interest at 9% payable monthly with the final payment due in
February 1999................................................... 208
Revolving line of credit of $500, interest payable monthly plus
interest at 8.5% payable monthly................................ 52
-----
Total debt..................................................... 833
Less--current maturities......................................... (611)
-----
Total long-term debt........................................... $ 222
=====
</TABLE>
The Company also has a revolving line of credit of $1,000,000 with no draws
outstanding at December 31, 1997.
On January 12, 1998, pursuant to the Purchase Agreement, all of the
outstanding debt of the Company was paid off by NES.
Maturities of long-term debt are as follows at December 31, 1997:
<TABLE>
<S> <C>
1998................................................................. $611
1999................................................................. 179
2000................................................................. 43
----
$833
====
</TABLE>
7. INCOME TAXES
The provision for income taxes is comprised of the following at December 31,
1997 (in thousands):
<TABLE>
<S> <C>
Current provision................................................... $892
Deferred credit..................................................... (33)
----
$859
====
</TABLE>
The provision for income taxes differs from the amount of income tax
determined by applying the U.S. statutory federal income tax return of 34% to
income before taxes as a result of nondeductible entertainment expenses.
The deferred income tax assets consists of the increase in allowance for
doubtful accounts, which is not deductible for tax purposes until the accounts
are written off the books.
F-86
<PAGE>
GENPOWER PUMP & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Genpower leases certain facilities and vehicles under operating leases which
contain renewal options and provide for periodic cost-of-living adjustments.
Rental expense was $65,083 for the year ended December 31, 1997.
Future minimum rental commitments at December 31, 1997 under noncancelable
operating leases are (in thousands):
<TABLE>
<S> <C>
1998................................................................. $198
1999................................................................. 32
----
$230
====
</TABLE>
LEGAL MATTERS
Genpower is party to legal proceedings and potential claims in the ordinary
course of its business. Management believes that the ultimate resolution of
these matters will have no material adverse effect on Genpower's financial
position, results of operations or cash flows.
9. RELATED PARTY TRANSACTIONS
Genpower entered into an agreement in February 1996 with two of its
stockholders for the acquisition of approximately one-third of its common
stock. Consideration for the stock and a covenant not to compete was $800,000
in cash and subordinated notes payable for $200,000 due and paid in February
1997.
Genpower's stockholders advanced the company $284,603 at June 1997. The
amount payable at December 31, 1997 was $175,996.
Genpower leases its Texas City location from a related party for $1,600 per
month. The Company also provides the services of two employees to the related
party at no charge. Salaries of the employees as of December 31, 1997 were
approximately $66,401.
10. SUBSEQUENT EVENT
On January 12, 1998, Genpower's owners sold all of the outstanding common
stock to NES Acquisition Corp., a wholly-owned subsidiary of National
Equipment Services, Inc. for a $7,614,500 cash payment (subject to a customary
purchase price adjustment mechanism), a promissory note in the principal
amount of $235,500 and the assumption of certain liabilities and obligations.
F-87
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Cormier Equipment Corporation:
We have audited the accompanying balance sheets of Cormier Equipment
Corporation as of December 31, 1997 and 1996, and the related statements of
earnings and retained earnings and cash flows for the years ended December 31,
1997, 1996 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cormier Equipment
Corporation as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years ended December 31, 1997, 1996 and
1995 in conformity with generally accepted accounting principles.
/s/ Albin, Randall & Bennett, Certified Public Accountants
Lewiston, Maine
February 3, 1998
(Except for Note 8, as to which the date is March 4, 1998)
F-88
<PAGE>
CORMIER EQUIPMENT CORPORATION
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash.................................................. $ 4,500 $ 4,703
Trade receivables, net of allowance for doubtful
accounts of $82,670 in 1997 and $151,368 in 1996..... 2,208,216 2,152,042
Notes receivable--current portion..................... -0- 39,453
Merchandise inventories............................... 723,366 1,838,379
Prepaid expenses and deposits......................... 32,813 29,814
----------- -----------
Total current assets................................ 2,968,895 4,064,391
----------- -----------
Small tools, net of amortization....................... 1,518 9,548
----------- -----------
Equipment held for rental:
Construction equipment................................ 14,664,968 14,971,691
Less accumulated depreciation......................... 9,519,326 10,106,937
----------- -----------
Net equipment held for rental....................... 5,145,642 4,864,754
----------- -----------
Property and equipment:
Land.................................................. 63,500 63,500
Buildings............................................. 244,818 244,818
Leasehold improvements................................ 321,337 414,641
Transportation equipment.............................. 920,154 958,197
Shop equipment........................................ 109,032 107,104
Office equipment and furniture........................ 306,301 318,118
----------- -----------
1,965,142 2,106,378
Less accumulated depreciation......................... 896,180 1,109,089
----------- -----------
Net property and equipment.......................... 1,068,962 997,289
----------- -----------
Other assets:
Notes receivable, less current portion................ -0- 164,072
Cash surrender value of life insurance................ 2,940 2,440
----------- -----------
Total other assets.................................. 2,940 166,512
----------- -----------
$ 9,187,957 $10,102,494
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable--line of credit.......................... 1,510,616 $3,179,734
Current portion of long-term debt..................... 968,518 434,531
Current portion of capital lease obligations.......... 19,215 39,972
Accounts payable...................................... 606,982 397,809
State income taxes payable............................ 64,684 41,815
Accrued payroll and other expenses.................... 502,551 638,473
----------- -----------
Total current liabilities........................... 3,672,566 4,732,334
----------- -----------
Long-term liabilities:
Long-term debt, less current portion.................. 85,200 635,864
Capital lease obligations, less current portion....... 19,471 7,213
----------- -----------
Total long-term liabilities......................... 104,671 643,077
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock $.10 par value, authorized 2,000,000
shares; 784,000 shares issued; 588,000 and 783,000
shares outstanding in 1997 and 1996.................. 78,400 78,400
Additional paid-in capital............................ 24,416 24,416
Retained earnings..................................... 5,310,414 6,111,355
----------- -----------
5,413,230 6,214,171
Less treasury stock at cost, 196,000 shares in 1997
and 1,000 shares in 1996............................. 2,510 1,487,088
----------- -----------
Total stockholders' equity.......................... 5,410,720 4,727,083
----------- -----------
$ 9,187,957 $10,102,494
=========== ===========
</TABLE>
F-89
<PAGE>
CORMIER EQUIPMENT CORPORATION
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental income........................... $11,816,864 $12,092,502 $12,107,635
Sales of equipment and supplies......... 3,822,109 3,915,875 3,519,304
----------- ----------- -----------
15,638,973 16,008,377 15,626,939
----------- ----------- -----------
COST OF REVENUES:
Equipment rental........................ 1,780,180 1,472,319 1,515,490
Depreciation and amortization........... 2,041,570 2,530,942 2,749,382
Equipment and supplies.................. 2,565,979 2,613,244 2,157,968
Other costs and expenses................ 3,852,981 3,968,434 4,066,539
----------- ----------- -----------
10,240,710 10,584,939 10,489,379
----------- ----------- -----------
Gross profit............................. 5,398,263 5,423,438 5,137,560
Operating expenses....................... 2,975,747 3,324,143 3,287,112
----------- ----------- -----------
Operating income......................... 2,422,516 2,099,295 1,850,448
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net................... (165,623) (123,341) (302,271)
Gain on sale of fixed assets............ 25,615 20,560 13,404
----------- ----------- -----------
Total other income (expense).......... (140,008) (102,781) (288,867)
----------- ----------- -----------
Earnings before state income taxes....... 2,282,508 1,996,514 1,561,581
State income taxes....................... 41,100 37,620 8,000
----------- ----------- -----------
Net earnings............................. 2,241,408 1,958,894 1,553,581
Retained earnings at beginning of year... 3,568,732 4,549,510 5,310,414
Distributions paid....................... (1,260,630) (1,197,990) (752,640)
----------- ----------- -----------
Retained earnings at end of year......... $ 4,549,510 $ 5,310,414 $ 6,111,355
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-90
<PAGE>
CORMIER EQUIPMENT CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings............................ 2,241,408 1,958,894 $ 1,553,581
Adjustments to reconcile net earnings to
net cash
provided by operating activities:
Depreciation and amortization.......... 2,056,487 2,587,300 2,826,937
(Decrease) increase in allowance for
doubtful accounts..................... (380) 39,248 (68,699)
Gain on sale of fixed assets........... (251,805) (437,914) (620,941)
Decrease in cash surrender value of
life insurance........................ 1,334 -0- 500
Decrease (increase) in operating
assets:
Trade receivables..................... (300,242) (18,154) 124,873
Merchandise inventories............... 262,263 395,007 (1,115,013)
Small tools........................... -0- -0- (8,031)
Prepaid expenses and deposits......... (15,283) (18) 2,999
Increase (decrease) in operating
liabilities:
Accounts payable...................... 401,313 3,690 (209,173)
State income taxes payable............ 12,857 (37) (22,869)
Accrued payroll and other expenses.... 163,865 (143,603) 135,922
---------- ----------- -----------
Net cash provided by operating
activities........................ 4,571,817 4,384,413 2,600,086
---------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of small tools................ (190,525) -0- -0-
Purchase of equipment held for rental... (1,775,301) (1,789,805) (1,450,912)
Purchase of property and equipment...... (323,996) (609,914) (212,440)
Proceeds from sale of fixed assets...... 353,272 539,651 851,632
Loans made.............................. -0- -0- (203,525)
---------- ----------- -----------
Net cash used for investing
activities........................ (1,936,550) (1,860,068) (1,015,245)
---------- ----------- -----------
FINANCING ACTIVITIES:
New borrowings (repayments) on line of
credit................................. (470,000) (189,384) 1,669,118
Principal payments on long-term
liabilities............................ (900,219) (1,148,302) (1,016,538)
Purchase of treasury stock.............. -0- -0- (1,484,578)
Distributions paid...................... (1,260,630) (1,197,990) (752,640)
---------- ----------- -----------
Net cash used for financing
activities........................ (2,630,849) (2,535,676) (1,584,638)
---------- ----------- -----------
Increase (decrease) in cash........ 4,418 (11,331) 203
Cash at beginning of year............... 11,413 15,831 4,500
---------- ----------- -----------
Cash at end of year...................... 15,831 4,500 $ 4,703
========== =========== ===========
SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Purchase of equipment held for rental... 2,645,458 3,529,079 $2,492,626
Less proceeds from long-term debt....... (927,621) (1,739,274) (1,041,714)
---------- ----------- -----------
Net cash paid for purchase of
equipment held for rental......... 1,717,837 1,789,805 $ 1,450,912
========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.................. 168,767 127,121 $ 273,342
Cash paid for state income taxes........ 28,244 37,657 30,868
</TABLE>
See accompanying notes to financial statements.
F-91
<PAGE>
CORMIER EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Cormier Equipment Corporation (the Company) rents and sells equipment and
supplies to paper and construction industries located primarily in the eastern
United States.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
MERCHANDISE INVENTORIES
Equipment and supplies held for sale are stated at the lower of cost (first-
in, first-out) or market (net realizable value). Certain equipment in
inventory which is rented on an interim basis is stated at cost reduced by a
percentage of rental receipts.
SMALL TOOLS
The Company expensed small tools as purchased in 1997 and 1996. Prior to
1996 small tools were recorded at cost and amortized on a straight-line basis
over twenty-four months. The effect of the new treatment of small tools was to
increase cost of revenues and decrease net earnings by approximately $115,000
in 1996.
EQUIPMENT HELD FOR RENTAL
Construction equipment is stated at cost. Depreciation is computed using
accelerated methods over the estimated lives of the assets.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
estimated service lives of the respective assets using both straight-line and
accelerated methods.
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company does not pay
federal corporate income taxes on its taxable income. Instead, the
stockholders are liable for individual income taxes on their respective share
of the Company's taxable income.
ADVERTISING COSTS
Advertising costs are generally charged to operations in the year incurred
and totaled approximately $29,500, $34,000 and $35,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
2. NOTES RECEIVABLE
Notes receivable are due from partnerships whose partners are also company
shareholders. The notes, totaling $203,525 at December 31, 1997, provide for
monthly payments, including interest at 8.75%, over a period of five years.
3. INDEBTEDNESS
The Company has a $6,000,000 revolving equipment line of credit of which
$2,820,266 was unused at December 31, 1997. Advances on the credit line are
payable on demand and bear interest at the Wall Street Journal base rate, 8.5%
at December 31, 1997. The credit line is secured by inventory, trade
receivables, machinery and equipment, and furniture and fixtures.
F-92
<PAGE>
CORMIER EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
Installment notes payable with monthly installments
of varying amounts, including interest, secured by
specific equipment and vehicles, certain notes are
with 0% interest, others are with interest ranging
from 6.0% to 8.25%................................. 1,053,718 $1,070,395
Less current portion of long-term debt.............. 968,518 434,531
--------- ----------
85,200 $ 635,864
========= ==========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998............................................................. $434,531
1999............................................................. 356,712
2000............................................................. 279,152
</TABLE>
4. CAPITAL LEASE OBLIGATIONS
Included in property and equipment are office equipment at a cost of $57,464
and construction equipment at a cost of $43,610 which were acquired under
capital lease agreements. Future minimum lease payments under the capital
leases are as follow:
<TABLE>
<S> <C>
1998............................................................. $39,972
1999............................................................. 7,213
-------
Total minimum lease payments................................... $47,185
=======
</TABLE>
5. LEASE COMMITMENTS
The Company presently leases four of its operating locations under operating
lease agreements with partnerships whose partners are also company
shareholders. These four operating leases and other real estate rental
obligations currently require monthly rental payments of $25,000 with various
provisions for increases and renewals. Rent expense was $274,000, $298,500,
and $318,175, for the years ended December 31, 1995, 1996, and 1997,
respectively.
Minimum future lease obligations are as follows:
<TABLE>
<S> <C>
1998............................................................ $300,015
1999............................................................ 25,885
2000............................................................ 8,325
--------
Total minimum future lease obligations........................ $334,225
========
</TABLE>
6. BENEFIT PLAN
The Company sponsors a 401(k) savings and profit-sharing plan covering
substantially all employees as eligibility requirements are met. The Company
makes payments to the plan, in proportion to voluntary employee contributions.
Employer contributions were $14,442 for 1995, $18,103 for 1996 and $21,215 for
1997.
7. RELATED PARTY TRANSACTIONS
During the normal course of business, the Company rents equipment from the
Walton Company, which has certain common shareholders. Equipment rentals from
Walton Company totaled approximately $356,000 in 1995, $355,000 in 1996 and
$373,000 in 1997.
8. SUBSEQUENT EVENTS
On March 4, 1998, the Company's stockholders sold substantially all of the
assets of the Company for an amount in excess of book value.
F-93
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
The Modern Group, Inc.
Beaumont, Texas
We have audited the accompanying balance sheets of Dragon Rentals (a wholly
owned division of The Modern Group, Inc.--a Texas Corporation) as of December
31, 1996 and 1997, and the related statements of income and expenses, and cash
flows for the years then ended. These financial statements are the
responsibility of the Division's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dragon Rentals as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ LAWRENCE, BLACKBURN MEEK MAXEY & CO. P.C.
Beaumont, Texas
March 3, 1998
F-94
<PAGE>
DRAGON RENTALS
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents.............................. $ 38,477 $ 46,065
Accounts receivable, net of allowance for doubtful
accounts of $268,000 and $152,000, respectively....... 1,534,297 3,105,747
Accounts receivable-related party...................... 19,000 144,651
Inventory.............................................. 86,150
Merchandise for resale................................. 691,203
Rental equipment, net.................................. 2,286,286 11,718,619
Property and equipment, net............................ 418,221 853,151
Prepaid and other assets............................... 52,709 66,851
---------- -----------
Total assets......................................... $5,040,193 $16,021,234
========== ===========
LIABILITIES:
Accounts payable....................................... $ 219,340 $ 268,489
Revolving line of credit............................... 1,793,774
Accrued interest....................................... 5,215 118,432
Accrued expenses and other liabilities................. 989,693 716,788
Accrued expense-related party.......................... 308,969 25,107
Capital leases payable................................. 86,185
Income tax payable..................................... 36,759
Deferred income taxes.................................. 423,400 635,000
Debt................................................... 1,509,368 9,898,312
---------- -----------
Total liabilities.................................... 3,492,744 13,542,087
---------- -----------
Divisional Equity...................................... 1,547,449 2,479,147
---------- -----------
Total liabilities and divisional equity.............. $5,040,193 $16,021,234
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-95
<PAGE>
DRAGON RENTALS
STATEMENTS OF INCOME AND EXPENSES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1996 1997
---------- -----------
<S> <C> <C>
REVENUES:
Rental revenues....................................... $4,978,701 $ 8,907,284
Other................................................. 1,199,807 1,656,880
---------- -----------
Total revenues...................................... 6,178,508 10,564,164
---------- -----------
COST OF REVENUES:
Rental equipment expenses............................. 3,674,471 4,061,952
Rental equipment depreciation......................... 353,224 844,581
Direct operating expenses............................. 708,751 1,159,865
---------- -----------
Total cost of revenues.............................. 4,736,446 6,066,398
---------- -----------
Gross profit........................................... 1,442,062 4,497,766
Selling, general and administrative expenses........... 869,878 2,165,785
Non-rental depreciation and amortization............... 46,526 59,000
---------- -----------
Operating income....................................... 525,658 2,272,981
Other income (expense), net............................ (102,501) (669,922)
Interest income (expense), net......................... (161,537) (674,811)
---------- -----------
Income before income taxes............................. 261,620 928,248
Income tax expense..................................... 90,641 211,600
---------- -----------
Net income............................................. $ 170,979 $ 716,648
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-96
<PAGE>
DRAGON RENTALS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1997
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income......................................... $ 170,979 $ 716,648
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 399,920 903,578
Gain on sale of equipment......................... (46,986) (10,878)
Provision for doubtful accounts................... (19,912) 257,562
Changes in operating assets and liabilities:
Accounts receivable............................... (572,619) (1,829,012)
Accounts receivable--related party................ 0 (125,651)
Inventory......................................... (232,490) (86,150)
Merchandise for resale............................ 0 691,203
Prepaid and other assets.......................... (13,181) (14,142)
Accounts payable.................................. 492,074 49,149
Accrued interest.................................. 0 113,217
Accrued expenses and other liabilities............ 289,407 (259,092)
Accrued expenses--related party................... 0 (283,862)
Income tax payable................................ 0 (36,759)
Deferred income taxes............................. (71,337) 211,600
----------- ------------
Net cash provided by operating activities........... 395,855 297,411
----------- ------------
INVESTING ACTIVITIES:
Purchases of rental equipment...................... (749,748) (10,140,812)
Purchases of property and equipment................ (49,000) (689,280)
Proceeds from sale of property and equipment....... 65,221 70,129
----------- ------------
Net cash used in investing activities............... (733,527) (10,759,963)
----------- ------------
FINANCING ACTIVITIES:
Net advances on line of credit..................... 0 1,793,774
Capital contributions.............................. 5,768 0
Proceeds from long-term debt....................... 1,894,367 11,550,621
Payments on long-term debt......................... (1,529,650) (2,960,440)
Proceeds from capital leases....................... 0 120,947
Payments of capital lease obligations.............. 0 (34,762)
----------- ------------
Net cash provided by financing activities........... 370,485 10,470,140
----------- ------------
Net increase in cash and cash equivalents........... 32,813 7,588
Cash and cash equivalents at beginning of period.... 5,664 38,477
----------- ------------
Cash and cash equivalents at end of period.......... $ 38,477 $ 46,065
=========== ============
SUPPLEMENTAL NON-CASH FLOW INFORMATION:
Cash paid for interest............................. $ 166,034 $ 675,057
=========== ============
Cash paid for income taxes......................... $ 161,978 $ 36,759
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE>
DRAGON RENTALS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Dragon Rentals (a wholly owned division of The Modern Group, Inc.) engages
primarily in the rental of storage containers to the waste disposal industry
in southeast Texas and southern Louisiana.
ACCOUNTING BASIS
The Division utilizes the accrual method of accounting for financial
statement reporting and the cash method for federal income tax purposes. Under
the accrual method, revenue is recognized when earned instead of when received
and expenses are recognized when incurred instead of when actually paid.
PROPERTY AND DEPRECIATION
Property and equipment are carried at cost. Depreciation is computed on the
straight-line method for financial reporting purposes and accelerated methods
for income tax purposes. Financial statement depreciation expense was $399,920
and $903,578 for the periods ended December 31, 1996 and 1997, respectively.
INCOME TAX
Deferred income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Deferred taxes
provided for accumulated temporary differences due to basis differences for
assets and liabilities for financial reporting and income tax purposes. The
Division's temporary differences are due to accelerated depreciation for tax
purposes over financial reporting purposes and the use of the cash method for
federal income tax reporting.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Division establishes an allowance for uncollectible trade accounts
receivable based on historical collection experience and management's
evaluation of collectibility of outstanding accounts receivable. The allowance
for doubtful accounts was $152,600 and $268,000 as of December 31, 1996 and
1997, respectively.
CASH
For purpose of the cash flow statements, cash includes operating funds on
deposit at the bank.
CONCENTRATION OF RISK
The division has deposits in financial institutions that may, from time to
time, exceed the $100,000 federally insured limits.
CONCENTRATIONS OF CREDIT
The Division's services are primarily provided to customers throughout the
Southeast Texas region; mainly within the petro-chemical industry and are
subject to the economic sensitive industry cycles as such.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 financial statements to
conform with the 1997 financial statement presentation. Such reclassifications
have had no effect on net earnings as previously reported.
F-98
<PAGE>
DRAGON RENTALS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ADVERTISING
The Division has elected to expense advertising costs as incurred.
Advertising expense was $90,944 and $81,264 for the periods ended December 31,
1996 and 1997, respectively.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost or market with costs charged to
jobs determined by the weighted average cost method.
NOTE 2--LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Initial term loan with Wells Fargo Bank, secured
by accounts receivable, general intangibles,
inventory, and equipment and fixtures. The note
is payable in monthly installments of $141,047,
including interest of 1.00% above bank prime,
with a due date of July 19, 2000. $ $9,872,572
Equipment acquisition note with Wells Fargo Bank,
secured by accounts receivable, general
intangibles, inventory, and equipment and
fixtures. The note is payable in monthly
installments of $15,285, including interest of
1.00% above bank prime, with a due date of July
19, 2000. 1,710,852
Note payable for general insurance, secured by
contractor equipment. The note is payable in
monthly installments of $1,063, including
interest, maturing in January, 1999. 13,812
Notes payable to individuals, collateralized by
equipment. The notes are payable in various
installments, including interest from 11.25% to
14.68%, maturing in of before December, 1999. 358,670 97,267
Note payable to Community Bank, collateralized by
equipment. The note is payable in monthly
installments of $38,812, including interest at
10.75%, maturing in April, 1997. 1,125,548
Notes payable to Ford Motor Credit, secured by a
vehicle, payable in monthly installments of
$1,104, including interest at 9.00%, maturing in
November, 1997. 23,222
Note payable to GMAC, secured by a vehicle,
payable in monthly installments of $668,
including interest at 11.75%, maturing in March,
1997............................................ 1,928
---------- ----------
1,509,368 11,694,503
Less amount allocated to manufacturing division.. 1,796,191
---------- ----------
$1,509,368 $9,898,312
========== ==========
</TABLE>
F-99
<PAGE>
DRAGON RENTALS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A schedule of maturities of long-term debt is as follows for the year ended
December 31, 1997:
<TABLE>
<S> <C>
1998.......................................................... $ 1,957,936
1999.......................................................... 1,904,866
2000.......................................................... 7,831,701
2001 and thereafter........................................... 0
-----------
$11,694,503
===========
</TABLE>
NOTE 3--NOTE PAYABLE--ACCOUNTS RECEIVABLE FINANCING:
In accordance with the asset-based financing arrangement, Wells Fargo
(lender) advances funds to the Division upon receipt of the customer account
and reduces the accumulated advances upon collection of the account. Interest
is payable monthly at the prime rate plus 1/2%. The agreement expires on July
19, 2000. The note payable is secured by a general business security agreement
on all assets of the Division. The amount outstanding on this note was
$1,793,774 at December 31, 1997.
NOTE 4--RELATED PARTY TRANSACTIONS:
The Division has identified the following related party transactions with
management and companies in which management has full ownership:
(1) The Division provides personnel and administrative services and
shares certain building expenses with a related company, Modern, Inc. Prior
to August 1, 1997 all personnel and management services cost were borne by
Modern, Inc.
As of December 31, 1997, Modern, Inc. owned Dragon Rentals $125,651.
As of December 31, 1996, Dragon Rentals owed Modern, Inc. $308,969.
(2) At December, 31, 1997 and 1996, Dragon Rentals had a $19,000 note
receivable from Will Crenshaw, the sole shareholder of Modern, Inc., a
related party.
(3) The Division has a lease agreement with Will Crenshaw, sole
shareholder of Modern, Inc., for the rental of yard space to hold
containers when they are not out on rent. At December 31, 1997 the Division
owed accrued rent of $25,000 to Mr. Crenshaw.
NOTE 5--ECONOMIC DEPENDENCE:
Historically, the Division purchased 100% of the waste containers used in
its business from Modern, Inc., a related party. For the years ended December
31, 1996 and 1997, the Division had purchases of $657,500 and $1,864,486,
respectively. However, on July 19, 1997, the Division purchased the
manufacturing facility from Modern, Inc., and from that point forward began
manufacturing the container boxes. This restructuring enabled the Division to
become more efficient by building container boxes at a lessor cost.
NOTE 6--INCOME TAXES:
In accordance with the provisions of Statement of Financial Accounting
Standards No. 109, " Accounting for Income Taxes", the Division has reflected
the tax consequences on future years differences between the tax basis of
assets and liabilities and their financial reporting amounts.
The sources of deferred income taxes and the tax effect of each follows:
<TABLE>
<CAPTION>
1996 1997
-------- -----------
<S> <C> <C>
Accumulated depreciation temporary differences..... $407,287 $ 998,157
Effect of cash method of accounting................ 16,113 699,273
Net operating loss carryforward.................... (1,062,430)
-------- -----------
$423,400 $ 635,000
======== ===========
</TABLE>
F-100
<PAGE>
DRAGON RENTALS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of corporate income tax expense are as follows for the year
ended December 31:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Current tax expense...................................... $36,759 $
Deferred tax expense..................................... 53,882 211,600
------- --------
$90,641 $211,600
======= ========
</TABLE>
NOTE 7--PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
Land improvements.................................. $ 21,668 $ 21,668
Building........................................... 13,458
Machinery and equipment............................ 64,851 155,998
Furniture and fixtures............................. 18,842 31,388
Autos and trucks................................... 587,922 1,053,315
Capital jobs in progress........................... 41,031
--------- ----------
693,283 1,316,858
Accumulated depreciation........................... (275,062) (463,707)
--------- ----------
$ 418,221 $ 853,151
========= ==========
</TABLE>
NOTE 8--RENTAL EQUIPMENT:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Rental Equipment................................. $2,875,021 $12,977,642
Accumulated depreciation......................... (588,735) (1,259,023)
---------- -----------
$2,286,286 $11,718,619
========== ===========
</TABLE>
NOTE 9--OPERATING LEASE OBLIGATIONS:
The Division conducts its operations in southeast Texas and southern
Louisiana from leased facilities with varying terms ranging from one year to
five years. The leases provide for renewal options ranging from four years to
nine years. The Division also has incurred a certain operating lease for
equipment used in its operations. The lease has a term of five years. Future
minimum obligations at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.......................................................... $ 231,900
1999.......................................................... 229,600
2000.......................................................... 181,500
2001.......................................................... 660,000
2002 and thereafter........................................... 30,000
----------
Total minimum lease payments required....................... $1,333,000
==========
</TABLE>
NOTE 10--CAPITAL LEASE OBLIGATIONS:
During 1997, the Division acquired equipment under the provisions of long-
term leases. For financial reporting purposes, minimum lease payments relating
to the equipment have been capitalized. The leases expire in or before
February, 2000. The leased property under the capital leases as of December
31, 1997 has a cost of $120,947 accumulated amortization of $9,664 and a net
book value of $111,283. Amortization of the leased property is included in
depreciation expense.
F-101
<PAGE>
DRAGON RENTALS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The future minimum lease payments under the capital leases and the net
present value of the future lease payments at December 31, 1997 are as
follows:
<TABLE>
<S> <C>
Total minimum lease payments..................................... $95,952
Less amount representing interest................................ 9,767
-------
Present value of net minimum lease payments...................... $86,185
=======
</TABLE>
NOTE 11--PREPAID AND OTHER ASSETS:
Prepaid and other assets consists of the following at December 31,
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Prepaid insurance........................................ $ 4,699 $21,353
Prepaid real estate taxes................................ 8,482
Deferred charges......................................... 15,970
Other receivable......................................... 9,528 9,528
Rental lease deposits.................................... 30,000 20,000
------- -------
$52,709 $66,851
======= =======
</TABLE>
NOTE 12--ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued expenses and other liabilities consists of the following at December
31,
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Payable to investors.................................... $721,052 $
Customer deposits....................................... 76,136
Accrued expenses........................................ 77,859 346,814
Accrued franchise tax................................... 8,721
Accrued payroll......................................... 102,458
Accrued sales tax....................................... 105,925 267,517
-------- --------
$989,693 $716,789
======== ========
</TABLE>
NOTE 13--INVENTORY:
Inventory consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Steel............................................................. $18,916
Purchased parts................................................... 56,794
Work in process................................................... 10,440
-------
$86,150
=======
</TABLE>
NOTE 14--SUBSEQUENT EVENTS:
On March 2, 1998 Dragon Rentals was sold to National Equipment Services,
Inc. National Equipment Services Inc. is primarily involved in the rental of
equipment to construction and industrial users from locations in Alabama,
Georgia, Louisiana, Nevada, Texas and Virginia.
F-102
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Albany Ladder Company, Inc. and the Board of Directors
of National Equipment Services, Inc.
In our opinion, the accompanying balance sheet and the related statement of
operations, of cash flows and of changes in stockholder's equity, present
fairly, in all material respects, the financial position of Albany Ladder
Company, Inc. at December 31, 1997, and the results of its operations and its
cash flows in the period then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
March 31, 1998
F-103
<PAGE>
ALBANY LADDER COMPANY, INC.
BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS:
Cash and cash equivalents............................................. $ 87
Marketable securities................................................. 104
Accounts receivable, net.............................................. 5,951
Inventory............................................................. 2,878
Rental equipment, net................................................. 15,116
Property and equipment, net........................................... 2,139
Prepaid and other assets.............................................. 927
-------
Total assets....................................................... $27,202
=======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable...................................................... $ 980
Accrued expenses and other liabilities................................ 1,020
Notes payable--shareholder............................................ 370
Notes payable......................................................... 11,900
-------
Total liabilities.................................................. 14,270
Commitments and contingencies (Note 9)
Common stock:
Class A shares, $100 par, 1,200 shares authorized, 246 shares issued
and outstanding ..................................................... 25
Class B shares, $100 par, 2,000 shares authorized, 941 shares issued
and outstanding ..................................................... 94
Additional paid-in capital............................................. 333
Retained earnings...................................................... 12,391
Unrealized gain on marketable securities available for sale............ 89
-------
Total stockholders' equity......................................... 12,932
-------
Total liabilities and stockholders' equity......................... $27,202
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-104
<PAGE>
ALBANY LADDER COMPANY, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES:
Rental revenues....................................................... $18,410
Rental equipment sales................................................ 1,885
New equipment sales................................................... 8,931
Other................................................................. 4,978
-------
Total revenues..................................................... 34,204
-------
COST OF REVENUES:
Rental equipment expenses............................................. 4,800
Rental equipment depreciation......................................... 3,445
Cost of rental equipment sales........................................ 721
Cost of new equipment sales........................................... 7,725
Direct operating expense.............................................. 5,938
-------
Total cost of revenues............................................. 22,629
-------
Gross profit........................................................... 11,575
Selling, general and administrative expenses........................... 7,796
Non-rental depreciation................................................ 640
-------
Operating income....................................................... 3,139
Other income, net...................................................... 117
Interest expense, net.................................................. (846)
-------
Net income............................................................. $ 2,410
=======
PRO FORMA TAX PROVISION (UNAUDITED):
Income before income taxes............................................ $ 2,410
Pro forma provision for income taxes.................................. (964)
Pro forma net income.................................................. $ 1,446
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-105
<PAGE>
ALBANY LADDER COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net income.......................................................... $ 2,410
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation....................................................... 4,085
Gain on sale of equipment.......................................... (987)
Changes in operating assets and liabilities:
Accounts receivable............................................... (1,172)
Inventories....................................................... (92)
Prepaid and other assets.......................................... (483)
Accounts payable.................................................. 262
Accrued expenses and other liabilities............................ 239
--------
Net cash provided by operating activities............................ 4,262
--------
INVESTING ACTIVITIES:
Purchases of rental equipment....................................... (6,516)
Proceeds from sale of rental equipment.............................. 1,885
Purchases of property and equipment................................. (284)
Proceeds from sale of property and equipment........................ 13
--------
Net cash used in investing activities................................ (4,902)
--------
FINANCING ACTIVITIES:
Proceeds from long-term debt........................................ 12,104
Payments on long-term debt.......................................... (10,630)
Dividends paid...................................................... (859)
--------
Net cash provided by financing activities........................... 615
--------
Net increase (decrease) in cash..................................... (25)
Cash at beginning of period......................................... 112
--------
Cash at end of period............................................... $ 87
========
SUPPLEMENTAL NON-CASH FLOW INFORMATION:
Cash paid for interest.............................................. $ 811
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE>
ALBANY LADDER COMPANY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- TOTAL
CLASS A CLASS B STATED PAID-IN UNREALIZED RETAINED STOCKHOLDERS'
SHARES SHARES VALUE CAPITAL GAIN EARNINGS EQUITY
------- ------- ------ ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 246 941 $119 $333 $59 $10,840 $11,351
Net income.............. -- -- -- -- -- 2,410 2,410
Increase in unrealized
gain................... -- -- -- -- 30 -- 30
Dividends............... -- -- -- -- -- (859) (859)
--- --- ---- ---- --- ------- -------
Balance at December 31,
1997................... 246 941 $119 $333 $89 $12,391 $12,932
=== === ==== ==== === ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-107
<PAGE>
ALBANY LADDER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Albany Ladder Company, Inc. (the Company) is primarily engaged in the sale
and rental of lifts, scaffolding, and contractor equipment and operates from
seven locations located in New York, Pennsylvania, and Vermont.
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 the
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Rental revenues are recognized ratably over the lease term. Sales revenues
are recognized at the point of delivery.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are short-term highly liquid investments with
original maturities of three months or less.
INVENTORY
The Company's inventories primarily consist of parts and new equipment held
for sale. Inventories are stated at the lower of cost, determined by the
average cost or specific identification method, or market.
RENTAL EQUIPMENT
Rental equipment is recorded at cost. Depreciation for rental equipment
acquired is computed using the straight-line and accelerated methods over an
estimated 5 to 8 year useful life.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When rental equipment is disposed of, the related cost and
accumulated depreciation are removed from the respective accounts. Proceeds
from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from rental
equipment sales and cost of equipment sales in the statement of operations.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
The estimated useful lives for property and equipment range from 5 years for
machinery, equipment and automobiles, to 10 years for leasehold improvements.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When property and 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.
F-108
<PAGE>
ALBANY LADDER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for marketable
securities, trade accounts receivable, accounts payable and accrued expenses
and other liabilities approximate fair value due to the immediate to short-
term maturity of these financial instruments. The fair value of long-term debt
is determined using current interest rates for similar instruments and
approximates the carrying value of the debt as of December 31, 1997.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of trade accounts receivable
from construction and industrial customers. Concentrations of credit risk with
respect to trade accounts receivable are limited due to the large number of
customers and the Company's geographic dispersion. The Company performs credit
evaluations of its customers' financial condition and generally does not
require collateral on accounts receivable. The Company maintains an allowance
for doubtful accounts on its receivables based upon expected collectibility.
Allowance for doubtful accounts was $372 at December 31, 1997.
INCOME TAXES
The Company has elected S corporation status under the U.S. Internal Revenue
Code. Pursuant to this election, the Company's income, deductions and credits
are reported on the income tax returns of the Company's stockholders for
federal purposes and, accordingly, no provision for federal income taxes has
been made. Pro forma income taxes are calculated at a statutory tax rate of
40%.
2. INVENTORY
Inventory consists of the following at December 31, 1997 (in thousands):
<TABLE>
<S> <C>
New equipment..................................................... $ 693
Parts and supplies................................................ 1,541
Scaffolding and ladders........................................... 525
Other............................................................. 119
------
Total inventory................................................... $2,878
======
</TABLE>
3. RENTAL EQUIPMENT
Rental equipment consists of the following at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
Rental equipment................................................. $30,990
Less: accumulated depreciation................................... (15,874)
-------
Rental equipment, net............................................ $15,116
=======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
Leasehold improvements............................................ $ 617
Vehicles.......................................................... 3,370
Machinery and shop equipment...................................... 471
Computer equipment................................................ 847
------
Total property and equipment, at cost............................. 5,305
Less: accumulated depreciation.................................... (3,166)
------
Property and equipment, net....................................... $2,139
======
</TABLE>
F-109
<PAGE>
ALBANY LADDER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. PREPAID AND OTHER ASSETS
Prepaid and other assets consist of the following at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
Prepaid expenses.................................................... $225
Employee and other receivables...................................... 702
----
$927
====
</TABLE>
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following at December
31, 1997 (in thousands):
<TABLE>
<S> <C>
Accrued salaries and benefits.................................... $ 388
Sales tax payable................................................ 163
Accrued insurance................................................ 232
Accrued professional fees........................................ 107
Other............................................................ 130
------
$1,020
======
</TABLE>
7. NOTES PAYABLE
Notes payable consist of a secured revolving line of credit of $13,350,000
maturing no later than August 31, 1999. The Company has the right to elect
various interest rate options under the agreement. These options include
floating rates fluctuating with the bank's prime rate and fixed rates for
varying periods fluctuating with published LIBOR or treasury rates. Interest
payments are due monthly. Interest rates in effect at December 31, 1997 were
as follows (dollar amounts in thousands):
<TABLE>
<S> <C>
Interest at 7.31%................................................. $10,025
Interest at 8.25%................................................. 1,875
-------
Total notes payable............................................... $11,900
=======
</TABLE>
The bank agreement includes restrictions as to limitations upon certain
ratios of liabilities to net worth and upon the minimum net worth of the
Company. The Company is in compliance with these covenants. Substantially all
of the Company's assets are pledged as collateral for the long-term debt.
Maturities of debt are as follows at December 31, 1997 (in thousands):
<TABLE>
<S> <C>
1998.............................................................. $ --
1999.............................................................. 11,900
Thereafter........................................................ --
-------
$11,900
=======
</TABLE>
Interest expense on long-term debt for the year ended December 31, 1997 was
$795.
F-110
<PAGE>
ALBANY LADDER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. NOTES PAYABLE--SHAREHOLDER
Notes payable--shareholder consists of the following at December 31, 1997
(in thousands):
<TABLE>
<S> <C>
Note payable, shareholder, unsecured, due on demand with interest
payable monthly at prime plus 3%.................................. $170
Note payable, shareholder, unsecured, due on demand with interest
payable monthly at prime plus 1%.................................. 200
----
Total notes payable--shareholder............................... $370
====
</TABLE>
Interest expense on shareholder debt for the year ended December 31, 1997
was $39.
9. COMMITMENTS AND CONTINGENCIES
The Company leases office and warehouse space at eight locations. The leases
have varying expiration dates through April 2001, with certain leases
containing extension options. In addition to the monthly rental payments,
these leases also require payment of the related utilities, maintenance, and
real estate taxes for the respective properties.
The Company also leases various vehicles and equipment. The leases have
varying expiration dates through October 2002.
Rental expense totaled $570 for the year ended December 31, 1997.
Future minimum lease obligations are as follows at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
1998................................................................ $ 404
1999................................................................ 312
2000................................................................ 181
2001................................................................ 67
2002................................................................ 12
-----
$976
=====
</TABLE>
10. EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) profit sharing plan (the "Plan"). Employees
meeting certain age and length of service requirements are eligible to
participate in the Plan. The Company makes contributions varying with the
level of employee participation, up to certain limits. The Company contributed
$157,000 to the plan during the year ended December 31, 1997.
11. SUBSEQUENT EVENTS
On March 30, 1998, the Company's owners sold all of the outstanding Class A
and B shares of common stock to National Equipment Services, Inc. in exchange
for a $28,811,000 cash payment (less a $2,000,000 million reserve).
F-111
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Falconite, Inc.:
We have audited the accompanying consolidated balance sheet of Falconite,
Inc. and subsidiaries (the Company) as of December 31, 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for the years ended December 31, 1995 and 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Falconite, Inc. and subsidiaries as of December 31, 1996 and the results of
their operations and their cash flows for the years ended December 31, 1995
and 1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick L.L.P.
St. Louis, Missouri
February 20, 1997
F-112
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Falconite, Inc.
We have audited the accompanying consolidated balance sheet of Falconite,
Inc. and Subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Falconite,
Inc. and Subsidiaries as of December 31, 1997, and the consolidated results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Louisville, Kentucky
February 6, 1998, except for the information in Note 6
as to which the date is March 23, 1998 and the information in
Note 12 as to which the date is April 1, 1998
F-113
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------- -----------------
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........ $ 416,000 $ 820,000 $1,642,000
Trade accounts receivable, less
allowance for doubtful accounts
of $522,000, $431,000 and
$410,000, respectively.......... 7,294,000 9,281,000 8,862,000
Due from affiliated companies and
related parties................. 453,000 -- --
Income taxes receivable.......... 136,000 382,000 374,000
Inventories...................... 1,615,000 1,596,000 2,658,000
Rental equipment, principally
machinery, at cost less
accumulated depreciation of
$12,989,000, $21,489,000 and
$24,104,000, respectively....... 81,583,000 107,721,000 112,937,000
Operating property and equipment,
net............................. 7,018,000 10,542,000 11,547,000
Excess of cost over net assets of
purchased businesses, less
accumulated amortization........ 17,059,000 16,279,000 17,069,000
Prepaid and other assets, at cost
less accumulated amortization... 1,884,000 1,447,000 1,137,000
------------ ------------ ------------
$117,458,000 $148,068,000 $156,226,000
============ ============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Trade accounts payable........... $ 13,587,000 $ 2,184,000 $ 1,715,000
Accrued expenses................. 657,000 2,196,000 1,883,000
Accrued interest payable......... 140,000 666,000 715,000
Revolving lines of credit........ 27,152,000 91,416,000 100,762,000
Obligations under capital lease.. 1,600,000 4,093,000 3,886,000
Term debt........................ 31,867,000 4,691,000 3,782,000
Deferred income taxes............ 7,801,000 9,645,000 9,645,000
Due to affiliated companies and
related parties................. 121,000 39,000 35,000
Other liabilities................ 377,000 742,000 571,000
------------ ------------ ------------
Total liabilities.............. 83,302,000 115,672,000 122,994,000
------------ ------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, Falconite, Inc.,
$0.01 par value; authorized,
1,000,000 shares; issued and
outstanding, zero shares........ -- -- --
Common stock, $0.01 par value;
authorized, 50,000,000 shares;
issued and outstanding,
8,330,000 shares................ 83,000 83,000 83,000
Additional paid-in capital....... 20,250,000 20,250,000 20,250,000
Due from affiliated companies and
related parties................. -- (2,144,000) (1,089,000)
Retained earnings................ 13,823,000 14,207,000 13,988,000
------------ ------------ ------------
Total shareholders' equity..... 34,156,000 32,396,000 33,232,000
------------ ------------ ------------
$117,458,000 $148,068,000 $156,226,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-114
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... $23,395,000 $32,883,000 $44,911,000 $ 8,989,000 $12,033,000
New equipment sales.... 4,393,000 4,058,000 4,659,000 868,000 1,474,000
Rental equipment sales. 5,448,000 7,674,000 9,222,000 3,276,000 1,364,000
Sales of parts,
supplies, and
equipment............. 979,000 1,391,000 1,680,000 537,000 736,000
Service revenues and
other income.......... 1,446,000 2,080,000 3,174,000 704,000 1,026,000
----------- ----------- ----------- ----------- -----------
Total revenues....... 35,661,000 48,086,000 63,646,000 14,374,000 16,633,000
----------- ----------- ----------- ----------- -----------
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 4,651,000 7,332,000 10,284,000 2,259,000 3,238,000
Equipment rental
depreciation.......... 4,437,000 6,823,000 11,114,000 2,373,000 3,367,000
Cost of new equipment
sales................. 3,651,000 3,104,000 4,103,000 755,000 1,251,000
Cost of rental
equipment sales....... 4,332,000 6,697,000 7,582,000 2,516,000 1,097,000
Cost of sales of parts,
supplies, equipment,
and other services.... 1,014,000 1,306,000 1,111,000 285,000 549,000
----------- ----------- ----------- ----------- -----------
Total cost of
revenues............ 18,085,000 25,262,000 34,194,000 8,188,000 9,502,000
----------- ----------- ----------- ----------- -----------
Gross profit........ 17,576,000 22,824,000 29,452,000 6,186,000 7,131,000
Selling, general, and
administrative
expenses............... 5,858,000 9,985,000 15,065,000 2,938,000 4,482,000
Depreciation and
amortization, excluding
equipment rental
depreciation........... 412,000 764,000 2,428,000 576,000 680,000
----------- ----------- ----------- ----------- -----------
Operating income..... 11,306,000 12,075,000 11,959,000 2,672,000 1,969,000
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income........ 41,000 32,000 55,000 14,000 21,000
Interest expense....... (3,213,000) (4,330,000) (7,382,000) (1,347,000) (2,201,000)
Non-capitalized
offering costs........ -- -- (1,000,000) -- --
Other, net............. (40,000) 182,000 185,000 4,000 (8,000)
----------- ----------- ----------- ----------- -----------
(3,212,000) (4,116,000) (8,142,000) (1,329,000) (2,188,000)
----------- ----------- ----------- ----------- -----------
Income before income
taxes and minority
interests........... 8,094,000 7,959,000 3,817,000 1,343,000 (219,000)
Income taxes............ 2,893,000 2,328,000 1,859,000 598,000 --
Minority interests...... 1,429,000 1,714,000 -- -- --
----------- ----------- ----------- ----------- -----------
Net income........... $ 3,772,000 $ 3,917,000 $ 1,958,000 745,000 (219,000)
=========== =========== =========== =========== ===========
Pro forma net income
data:
Net income as reported. $ 3,772,000 $ 3,917,000 -- -- --
Pro forma adjustment to
provision for income
taxes................. 124,000 666,000 -- -- --
----------- ----------- ----------- ----------- -----------
Pro forma net income... $ 3,648,000 $ 3,251,000 -- -- --
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-115
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND THE THREE MONTHS
ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
DUE FROM
FALCONITE, INC. COMBINED COMPANIES' AFFILIATED
COMMON STOCK COMMON STOCK ADDITIONAL COMPANIES TOTAL
------------------ -------------------- PAID-IN AND RELATED RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL PARTIES EARNINGS EQUITY
---------- ------- --------- ---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... -- -- 14,000 $ 131,000 $ 87,000 -- $ 6,509,000 $ 6,727,000
Common stock issued by
McCurry and Falconite,
Inc.................... -- -- 1,000 1,000 -- -- -- 1,000
Net income.............. -- -- -- -- -- -- 3,772,000 3,772,000
Capital distribution to
shareholder of McCurry
& Falconite Equipment
Company, Inc........... -- -- -- -- -- -- (160,000) (160,000)
---------- ------- -------- ---------- ----------- ----------- ----------- -----------
Balance at January 1,
1996................... -- -- 15,000 $ 132,000 $ 87,000 -- $10,121,000 $10,340,000
Net income.............. -- -- -- -- -- -- 3,917,000 3,917,000
Capital distribution to
shareholder of McCurry
& Falconite Equipment
Company, Inc........... -- -- -- -- -- -- (215,000) (215,000)
Formation of Falconite,
Inc. and
Recapitalization
Agreement transactions. 8,330,000 $83,000 (15,000) (132,000) 20,163,000 -- -- 20,114,000
---------- ------- -------- ---------- ----------- ----------- ----------- -----------
Balance at December 31,
1996................... 8,330,000 83,000 -- -- 20,250,000 -- 13,823,000 34,156,000
Net income.............. -- -- -- -- -- -- 1,958,000 1,958,000
Capital distribution to
shareholder of McCurry
& Falconite Equipment
Company, Inc........... -- -- -- -- -- -- (1,574,000) (1,574,000)
Due from affiliated
companies and related
parties................ -- -- -- -- -- $(2,144,000) -- (2,144,000)
---------- ------- -------- ---------- ----------- ----------- ----------- -----------
Balance at December 31,
1997................... 8,330,000 $83,000 -- -- $20,250,000 $(2,144,000) $14,207,000 $32,396,000
Net loss (unaudited).... -- -- -- -- -- -- (219,000) (219,000)
Due from affiliated
companies and related
parties (unaudited).... -- -- -- -- -- 1,055,000 -- 1,055,000
---------- ------- -------- ---------- ----------- ----------- ----------- -----------
Balance at March 31,
1998 (unaudited)....... $8,330,000 $83,000 -- -- $20,250,000 $(1,089,000) $13,988,000 $33,232,000
========== ======= ======== ========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-116
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------- -------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)..... $ 3,772,000 $ 3,917,000 $ 1,958,000 $ 745,000 $ (219,000)
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation and
amortization......... 4,849,000 7,587,000 13,542,000 2,948,000 4,047,000
Minority interests.... 1,429,000 1,714,000 -- -- --
Provision for losses
on trade accounts
receivable........... 323,000 891,000 297,000 130,000 21,000
Provision for deferred
income taxes......... 2,308,000 2,208,000 1,844,000 270,000 --
Net gain on sale of
rental equipment and
operating property
and equipment........ (987,000) (978,000) (1,788,000) (737,000) (288,000)
Change in operating
assets and
liabilities, net of
effect of business
acquisitions:
Trade accounts
receivable.......... (2,302,000) (2,139,000) (2,284,000) 844,000 398,000
Due from affiliated
companies and
related parties..... (173,000) (140,000) (1,691,000) (230,000) 1,056,000
Income taxes
receivable.......... -- (136,000) (246,000) -- 8,000
Inventories.......... 226,000 (989,000) 19,000 237,000 (1,061,000)
Prepaid and other
assets.............. (89,000) (752,000) 420,000 (170,000) (771,000)
Trade accounts
payable, accrued
expenses, and
accrued interest
payable............. 245,000 12,052,000 (9,338,000) (5,179,000) (733,000)
Income taxes payable. (274,000) (33,000) -- 328,000 --
Due to affiliated
companies and
related parties..... (97,000) (240,000) (82,000) (15,000) (4,000)
Other liabilities.... 64,000 299,000 365,000 (173,000) (171,000)
------------ ------------ ------------ ------------ -----------
Net cash provided by
(used in) operating
activities......... 9,294,000 23,261,000 3,016,000 (1,002,000) 2,283,000
------------ ------------ ------------ ------------ -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisitions of rental
operations, net of
cash acquired........ (451,000) (3,094,000) -- -- (8,043,000)
Proceeds from sales of
rental equipment and
operating assets..... 5,622,000 7,936,000 11,419,000 3,314,000 1,532,000
Capital expenditures
for rental equipment. (29,100,000) (41,092,000) (42,552,000) (20,031,000) (1,884,000)
Capital expenditures
for operating
property and
equipment............ (1,829,000) (3,229,000) (5,726,000) (2,450,000) (846,000)
------------ ------------ ------------ ------------ -----------
Net cash used in
investing
activities......... (25,758,000) (39,479,000) (36,859,000) (19,167,000) (9,241,000)
------------ ------------ ------------ ------------ -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net borrowings under
revolving lines of
credit............... 7,899,000 12,746,000 64,264,000 31,673,000 8,935,000
Proceeds form issuance
of term debt......... 33,261,000 22,100,000 15,559,000 4,881,000 5,000
Principal payments on
term debt and
obligations under
capital lease........ (25,190,000) (18,039,000) (44,002,000) (16,401,000) (1,160,000)
Proceeds from issuance
of common stock...... 1,000 -- -- -- --
Capital distributions
to shareholders...... (160,000) (215,000) (1,574,000) -- --
Capital distributions
to minority
shareholder.......... (160,000) (216,000) -- -- --
------------ ------------ ------------ ------------ -----------
Net cash provided by
financing
activities......... 15,651,000 16,376,000 34,247,000 20,153,000 7,780,000
------------ ------------ ------------ ------------ -----------
Net increase (decrease)
in cash and cash
equivalents........... (813,000) 158,000 404,000 (16,000) 822,000
Cash and cash
equivalents at
beginning of year..... 1,071,000 258,000 416,000 416,000 820,000
------------ ------------ ------------ ------------ -----------
Cash and cash
equivalents at end
year.................. $ 258,000 $ 416,000 $ 820,000 $ 400,000 $ 1,642,000
============ ============ ============ ============ ===========
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Cash paid for:
Interest.............. $ 3,227,000 $ 4,319,000 $ 6,857,000 $ 1,369,000 $ 2,152,000
Income taxes.......... 912,000 505,000 382,000 -- --
NONCASH FINANCING
ACTIVITIES:
Refinancings of term
debt................. -- 8,346,000 -- 8,346,000 --
Purchase of equipment
with capital leases.. 1,119,000 296,000 3,376,000 556,000 450,000
Reduction in term debt
due to sale of
property............. 1,123,000 -- -- -- --
Term debt entered into
for purchases of
businesses and
covenants not to
compete.............. 150,000 450,000 -- -- --
Loan costs funded by
debt................. -- -- 384,000 -- --
Noncash consideration
for acquisitions of
minority interest.... -- 20,287,000 -- -- --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-117
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A) PRINCIPLES OF CONSOLIDATION:
Falconite, Inc. (Falconite or the Company) was formed on December 31, 1996
when the shareholders of Falconite Equipment, Inc. (Falconite Equipment),
formerly known as Falconite, Inc., M&M Properties, Inc., d/b/a M&M Equipment
Company (M&M Equipment), and McCurry and Falconite Equipment Company, Inc.
(M&F Equipment) entered into a Recapitalization Agreement. Pursuant to the
terms of the Recapitalization Agreement, the shareholders of Falconite
Equipment, M&M Equipment, and M&F Equipment exchanged their common shares for
common shares of Falconite (the Recapitalization). The exchange of shares was
accounted for at historical basis for the controlling shareholders of
Falconite and at fair market value for the minority interests in M&M Equipment
and M&F Equipment.
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. Prior to formation of the Company, the
historical financial statements of Falconite Equipment, M&M Equipment, and M&F
Equipment were combined for financial reporting purposes. For purposes of
these financial statements, the 1996 and 1997 consolidated financial
statements and the 1995 combined financial statements will be referred to as
consolidated financial statements. All significant intercompany balances and
transactions have been eliminated in the consolidated financial statements.
The consolidated statements of income reflect the 49% minority interest
through December 31, 1996 for M&M Equipment and M&F Equipment when the
remaining interests were purchased by Falconite.
In January 1990, M&M Equipment was formed by two shareholders of Falconite
Equipment and a third party. Subsequent to its formation, M&M Equipment was
considered an entity under common control as the controlling shareholders of
Falconite Equipment owned 51% of M&M Equipment. The combined financial
statements for the year ended December 31, 1995 reflect the 49% minority
interest.
In October 1993, Falconite Equipment acquired a 70% ownership of Erzinger
Equipment Co. (Erzinger). Subsequently, on September 10, 1996, Falconite
Equipment acquired the remaining 30% of Erzinger. The minority interest is
reflected through September 10, 1996. For the period September 10, 1996
through December 31, 1996, Erzinger is accounted for as a wholly owned
subsidiary of Falconite Equipment.
In March 1995, a shareholder of Falconite Equipment and the minority
shareholder of M&M Equipment created a Subchapter S corporation, M&F
Equipment. M&F Equipment has been operated as a branch of M&M Equipment since
its inception. The consolidated financial statements reflect the operations of
M&F Equipment since inception and reflect the minority shareholder's interest
in M&F Equipment through December 31, 1996. On December 31, 1996, as part of
the Recapitalization, the Subchapter S Corporation election was terminated.
The consolidated balance sheets are presented in an unclassified format, as
management believes it more accurately reflects its operations and presents
its financial position on a basis comparable to other companies in its
industry.
B) DESCRIPTION OF BUSINESS:
Falconite, an Illinois corporation, through its wholly owned subsidiaries,
is engaged primarily in a single-industry segment--the rental, sales, and
service of cranes, other lift equipment, and smaller equipment ranging from
pumps and generators to larger equipment such as backhoes and forklifts.
Falconite's operations are based in certain southern and midwestern states.
C) CASH EQUIVALENTS:
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
F-118
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
D) INVENTORIES:
Inventories consist of parts, supplies and small tools. Inventories are
stated at cost. Cost is determined using the first-in, first-out method.
E) RENTAL EQUIPMENT AND OPERATING PROPERTY AND EQUIPMENT:
Rental equipment and operating property and equipment are stated at cost.
Rental equipment and operating property and equipment under capital leases are
stated at the present value of future minimum lease payments at the inception
of the lease.
Depreciation is calculated on the straight-line method over the estimated
useful lives of the assets. Prior to January 1, 1997, M&M Equipment assigned a
salvage value of 25% to its rental equipment purchases, whereas Falconite
Equipment did not provide for a salvage value on its rental equipment.
Equipment held under capital leases and leasehold improvements are amortized
on the straight-line basis over the shorter of the lease term or estimated
useful life of the asset.
Amortization of assets under capital leases is included in depreciation
expense. Prior to January 1, 1997, depreciation expense was computed over the
following useful lives in years:
<TABLE>
<CAPTION>
FALCONITE M&M
EQUIPMENT EQUIPMENT
--------- ---------
<S> <C> <C>
Rental equipment:
Cranes.............................................. 10-15 10
Lift equipment...................................... 10 10
Other heavy equipment............................... 7 7
Miscellaneous....................................... 2-5 5-7
Operating equipment:
Buildings........................................... 45 --
Other buildings and leasehold improvements.......... 20-40 39
Vehicles............................................ 5 5
Furniture and fixtures.............................. 5 5-7
Computer equipment.................................. 3 5-7
</TABLE>
Rental equipment acquired subsequently to January 1, 1997 is being
depreciated using the straight-line method, after giving effect to an
estimated salvage value as follows:
<TABLE>
<CAPTION>
USEFUL LIFE SALVAGE
TYPE OF EQUIPMENT IN YEARS VALUE
----------------- ----------- -------
<S> <C> <C>
Large (28 tons and greater) cranes.................... 15 25%
Small (less than 28 tons) cranes...................... 10 10
Large lifts........................................... 10 10
Small lifts........................................... 7 10
Forklifts............................................. 7 10
Dirt moving........................................... 7 10
Other small equipment................................. 5 10
Vehicles and trailers................................. 5 --
</TABLE>
The change in depreciation policy did not have a material effect on the
consolidated financial statements.
Equipment reported under the classification of "rental equipment," although
primarily utilized within the rental aspect of the business, is available for
sale in the ordinary course of business and is recorded at the lower of cost,
net of accumulated depreciation, or market. Rental equipment sold by the
Company is sold "as is."
F-119
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
F) EXCESS OF COST OVER NET ASSETS OF PURCHASED BUSINESSES:
Excess of cost over net assets of purchased businesses (goodwill) is
amortized on a straight-line basis over the expected periods to be benefited,
generally 5 to 30 years. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through the undiscounted
future operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected future operating cash flows
on a discounted basis.
G) INCOME TAXES:
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating losses and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
Prior to January 1, 1997, M&F Equipment had elected S corporation status in
accordance with the provisions of Subchapter S of the Internal Revenue Code.
Pursuant to this election, the taxable income of M&F Equipment was reported in
the federal and state income tax returns of the shareholders. Accordingly, a
provision for federal and state income taxes that is payable by an S
corporation has not been reflected in the accompanying consolidated financial
statements. The pro forma income tax adjustment included on the consolidated
statements of income represents federal income tax expense that would have
been incurred had M&F Equipment been a C corporation.
H) ALLOWANCE FOR DOUBTFUL ACCOUNTS:
The Company determines the allowance for doubtful accounts by reserving
specific trade accounts receivable and providing an estimate based on the
aging of the trade receivables. The Company recognized bad debt expense of
$323,000, $891,000 and $297,000 for the years ended December 31, 1995, 1996
and 1997, respectively. The Company writes off trade receivables when
considered uncollectible.
I) USE OF ESTIMATES:
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
J) CONCENTRATIONS OF RISKS:
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and trade accounts receivable. The Company places its cash with high quality
financial institutions in amounts that from time to time exceed federally
insured limits. No losses have been incurred on such deposits.
Falconite's customers are primarily concentrated in the construction and
manufacturing industries and are dependent on those industries. Management
believes it has addressed this concentration by expanding its operations
throughout certain southern and midwestern states. Falconite performs ongoing
credit evaluations of
F-120
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
its customers' financial condition but does not require collateral to support
customer receivables. In certain instances, Falconite may file a mechanic's
lien to protect its interest.
K) REVENUE RECOGNITION:
Equipment rental and delivery charge revenue is recognized when earned.
New and used equipment sales and revenues from the sale of parts and
supplies are recognized when title passes to the purchaser usually at the time
of delivery or pickup. When equipment is sold, the cost consists of actual
costs in the case of new equipment and the net book value in the case of used
equipment.
Revenue associated with repairs and maintenance of equipment owned or rented
by customers is recognized when earned. Fees for repairs and maintenance on
equipment owned by customers of the Company are either paid by the customer or
reimbursed to the Company under the original manufacturer's warranty
agreement. Revenue associated with the warranty work is recognized when
earned.
L) DEFERRED COSTS:
Debt issuance costs are amortized to interest expense over the term of the
related debt, utilizing the interest method. Debt issuance costs are included
in prepaid and other assets.
Falconite had deferred costs of approximately $427,000 as of December 31,
1996, in connection with a planned initial public offering that was in
process. These costs as well as $573,000 of costs incurred during 1997 have
been written off during the current year.
M) INTERIM FINANCIAL DATA:
The interim financial data is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for fair statements of financial position and
results of operations and of cash flows for the interim periods.
2. ACQUISITIONS:
In December 1995, Falconite Equipment acquired the assets of a rental
company located in Calvert City, Kentucky. This acquisition was accounted for
under the purchase method, with the operating results being included within
the consolidated financial statements since the date of the acquisition. The
total purchase price was approximately $585,000, for which Falconite
recognized total goodwill of approximately $100,000 which is being amortized
on a straight-line basis over a five-year period.
In September 1996, Falconite purchased the 30% minority interest of Erzinger
for approximately $875,000 in cash, a note payable, certain assets of
Erzinger, and entered into covenants not to compete for $450,000. The
covenants not to compete are being amortized on a straight-line basis over the
life of the agreements, two years. The acquisition was accounted for using the
purchase method, with the operating results of Erzinger included in the
consolidated operating results since the date of the original acquisition. The
operating results have been adjusted to reflect the minority shareholder's
interest in the operating results for the respective periods disclosed. Total
goodwill of $543,000 is being amortized on a straight-line basis over a five-
year period.
In November 1996, M&M Equipment acquired various pieces of rental equipment
from a rental company in Tallahassee, Florida for $653,000. The total purchase
price was $1,053,000 which included $400,000 in covenants not to compete.
Covenants not to compete are being amortized over three years.
In December 1996, Falconite Equipment acquired the assets of another rental
company in Calvert City, Kentucky. This acquisition was accounted for under
the purchase method, with the operating results being included in the
consolidated financial statements since the date of acquisition. The total
purchase price was
F-121
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$300,000, for which Falconite Equipment recognized total goodwill of
approximately $86,000. Goodwill for this acquisition is being amortized on a
straight-line basis over a five-year period.
In December 1996, Falconite Equipment acquired 100% of the outstanding
common stock of a rental company with locations in Fort Campbell, Kentucky and
Clarksville, Tennessee. This acquisition was accounted for under the purchase
method, with the operating results being included in the consolidated
financial statements since the date of acquisition. The total purchase price
was $985,000, for which Falconite Equipment recognized total goodwill of
approximately $286,000, which is being amortized on a straight-line basis over
a five-year period.
As part of the Recapitalization, on December 31, 1996, Falconite purchased
the 49% minority interest in M&M Equipment by exchanging 1,225,000 shares of
its common stock. The 49% minority interest in M&M Equipment's net assets
acquired were recorded at their estimated fair market value of $20,080,000
whereas the remaining 51% was recorded at the historical cost of such assets.
The excess of the purchase price over the fair market value of the net assets
acquired of $16,178,000 was recorded as goodwill, and is being amortized on a
straight-line basis over its expected useful life of 30 years.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company estimates the fair value of financial instruments using quoted
market prices when available, or fair values which are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumption used, including the discount rate and
estimates of future cash flows. In that regard the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
The use of different market assumptions and estimation methodologies may have
a material effect on the estimated fair value amounts. The aggregate fair
value amounts referred to do not represent the underlying value of Falconite.
Because of their relatively short maturities, generally the estimated fair
values of the Company's financial instruments approximate their carrying
amounts on the consolidated balance sheets. The estimated fair value of term
debt with adjustable rates approximate their carrying amounts. For fixed rate
instruments, the estimated fair values are calculated using a discounted cash
flow calculation that applies current incremental borrowing rates for similar
types of arrangements. At December 31, 1996 and 1997, there were no material
differences between the carrying amount and the fair value of term debt.
4. OPERATING PROPERTY AND EQUIPMENT, NET:
Operating property and equipment, net at December 31, 1996 and 1997 consist
of the following:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Land, buildings and leasehold improvements......... $1,608,000 $ 5,002,000
Transportation equipment........................... 6,044,000 5,820,000
Furniture, fixtures and equipment.................. 871,000 2,120,000
---------- -----------
8,523,000 12,942,000
Less accumulated depreciation and amortization..... 1,505,000 2,400,000
---------- -----------
$7,018,000 $10,542,000
========== ===========
</TABLE>
5. LEASES:
Falconite is party to several operating leases for transportation equipment
and certain office and warehouse facilities that expire at various times
through the year 2003. These leases require Falconite to pay all executory
costs such as maintenance and insurance. Rental expense for operating leases
for the years ended December 31, 1995, 1996 and 1997 was $303,000, $396,000
and $571,000, respectively.
F-122
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition to the above, Falconite leases various facilities and equipment
from its shareholders. The facility leases are on varying terms ranging from
one year to ten years. Management believes these lease arrangements reflect
those that could be obtained from a third party. Total rent expense associated
with these leases for the years ended December 31, 1995, 1996 and 1997 was
$278,000, $689,000 and $629,000, respectively.
Future minimum lease payments under operating leases (with initial or
remaining lease terms in excess of one year) as of December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
YEAR
ENDING OPERATING
DECEMBER 31, LEASES
------------ ----------
<S> <C>
1998......................................................... $1,396,000
1999......................................................... 1,065,000
2000......................................................... 818,000
2001......................................................... 681,000
2002......................................................... 466,000
Thereafter................................................... 1,260,000
----------
Total minimum lease payments.................................. $5,686,000
==========
</TABLE>
Falconite has capitalized certain rental and transportation equipment under
various lease agreements. The book value of these leased assets is included in
the recorded amounts for rental equipment and operating property and
equipment.
A schedule of future minimum lease payments under capital leases at December
31, 1997 consisted of the following:
<TABLE>
<CAPTION>
YEAR
ENDING
DECEMBER 31, AMOUNT
------------ ----------
<S> <C>
1998......................................................... $2,957,000
1999......................................................... 648,000
2000......................................................... 375,000
2001......................................................... 252,000
2002......................................................... 136,000
----------
Total minimum lease payments.................................. 4,368,000
Less amount representing imputed interest..................... 275,000
----------
Present value of minimum payments............................. $4,093,000
==========
</TABLE>
F-123
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. REVOLVING LINES OF CREDIT AND TERM DEBT:
Term debt at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Notes payable with Nations Bank of Tennessee,
N.A., with monthly principal and interest
payments of $30,368 maturing in 2002; interest
stated at LIBOR (8.47% at December 31, 1997)
plus 2.5%...................................... -- $3,362,000
Various notes payable, with varying monthly
principal and interest payments; interest rates
ranging from 7.0% to 9.75% at December 31,
1997, with maturities ranging from January 1,
1998 to September 30, 2002..................... $15,472,000 1,329,000
Various notes payable with Southwest Bank of St.
Louis, with monthly payments of principal and
interest; interest rates ranging from prime
(8.25% at December 31, 1996) plus .75% to 10%.. 8,346,000 --
Notes payable with Citizens Bank & Trust, with
monthly payments of principal and interest at
prime (8.25% at December 31, 1996),
collateralized by a guarantee of the majority
shareholder.................................... 6,850,000 --
Notes payable with GE Capital, with monthly
principal and interest payments of $11,217;
interest at the 30 days' commercial paper rate
(5.41% at December 31, 1996) plus 2.08%........ 1,088,000 --
Note payable with the Kentucky Development
Finance Authority, with monthly principal and
interest payments of $2,660 maturing in 2000;
interest stated at a fixed rate of 5.06%,
collateralized by real estate.................. 111,000 --
----------- ----------
$31,867,000 $4,691,000
=========== ==========
</TABLE>
Annual maturities of term debt at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................... $1,238,000
1999........................................................... 389,000
2000........................................................... 348,000
2001........................................................... 185,000
2002........................................................... 109,000
Thereafter..................................................... 2,422,000
----------
Total........................................................ $4,691,000
==========
</TABLE>
The Citicorp Facility is comprised of a revolving line of credit extended to
Falconite Equipment and M&M Equipment. The total amount of credit available
under the Citicorp Facility is limited to a borrowing base equal to the lesser
of (i) $100 million, of which $2 million is available as a swingline
subfacility; or (ii) a formula based on accounts receivable, parts inventory,
transportation equipment owned by the Company and rental and resale equipment
inventory. The obligations of Falconite Equipment and M&M Equipment under the
Citicorp Facility are collateralized by substantially all of the assets of
Falconite Equipment and M&M Equipment. The Citicorp Facility has financial
covenants regarding tangible net worth, debt ratios and debt coverage. The
Company was not in compliance with certain loan provisions at December 31,
1997, but received waivers from the lender for these violations, effectively
through the term of the facility, on March 23, 1998. The Citicorp Facility
also contains covenants and provisions that restrict, among other things,
Falconite Equipment's and
F-124
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
M&M Equipment's ability to: (i) incur liens on its property; (ii) engage in
certain sales of assets; (iii) merge or consolidate with or acquire another
person or engage in other fundamental changes; (iv) engage in certain
transactions with affiliates; and (v) commit to make capital expenditures in
excess of certain preset limits. The Citicorp Facility provides for certain
events of default. At December 31, 1997, the principal amount outstanding
under the Citicorp Facility was $81,900,000, and the interest rate on such
borrowings was 8.1875% (30 day LIBOR plus 2.5%). At December 31, 1997, $9.6
million of additional borrowings were available to Falconite Equipment and M&M
Equipment under the Citicorp Facility. The obligations of Falconite Equipment
and M&M Equipment under the Citicorp Facility are guaranteed by the Company,
certain subsidiaries of the Company, Ralph W. McCurry and Michael A.
Falconite.
The Deutsche Facility is comprised of a line of credit, which amount is
determined at Deutsche's sole discretion, extended to M&M Equipment for the
purchase of equipment from certain designated manufacturers. The obligations
of M&M Equipment under the Deutsche Facility are collateralized by all of M&M
Equipment's inventory and equipment manufactured by such designated
manufacturers, including all accounts, rights, instruments and proceeds
arising from such inventory and equipment. The Deutsche Facility has financial
covenants and provisions regarding tangible net worth and debt ratios. The
Company was not in compliance with certain loan provisions at December 31,
1997, but received waivers from the lender for these violations, effectively
through the term of the facility, on March 23, 1998. The obligations of M&M
Equipment under the Deutsche Facility are guaranteed by Falconite Equipment,
Ralph W. McCurry and Wanda R. McCurry. At December 31, 1997, the principal
amount outstanding under the Deutsche Facility was $9,516,000, and the
interest rate on such borrowings was 9.5%.
7. INCOME TAXES:
Income tax expense consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Year ended December 31, 1995:
Federal................................ $565,000 $2,011,000 $2,576,000
State and local........................ 20,000 297,000 317,000
-------- ---------- ----------
$585,000 $2,308,000 $2,893,000
======== ========== ==========
Year ended December 31, 1996:
Federal................................ $196,000 $2,006,000 $2,202,000
State and local........................ (76,000) 202,000 126,000
-------- ---------- ----------
$120,000 $2,208,000 $2,328,000
======== ========== ==========
Year ended December 31, 1997:
Federal................................ $ 13,000 $1,598,000 $1,611,000
State and local........................ 2,000 246,000 248,000
-------- ---------- ----------
$ 15,000 $1,844,000 $1,859,000
======== ========== ==========
</TABLE>
Income tax expense for the years ended December 31, 1996 and 1997 differed
from the amounts computed by applying the federal income tax rate of 34% to
income before income taxes as a result of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense....... $2,752,000 $2,706,000 $1,298,000
Increased (reduction) in income taxes
resulting from:
Nontaxable M&F Equipment income..... (124,000) (666,000) --
State and local income taxes, net of
federal income tax benefit......... 209,000 84,000 164,000
Amortization........................ -- -- 349,000
Other, net.......................... 56,000 204,000 48,000
---------- ---------- ----------
$2,893,000 $2,328,000 $1,859,000
========== ========== ==========
</TABLE>
F-125
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
From the time of its inception, March 20, 1995, through December 31, 1996,
M&F Equipment was taxed as an S corporation under Subchapter S of the Internal
Revenue Code. The pro forma income tax adjustments included on the
consolidated statements of income represent federal income tax expense that
would have been required had M&F Equipment been a C corporation. M&F
Equipment's undisturbed earnings of $1,574,000 were distributed in September
1997.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1997 are presented below:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Trade accounts receivable, principally due
to allowance for doubtful accounts........ $ 195,000 $ 161,000
Alternative minimum tax credit
carryforwards............................. 1,713,000 1,713,000
Net operating loss carryforwards........... 1,402,000 4,168,000
Sales tax accruals......................... -- 223,000
Inventory obsolescence reserves............ 175,000 56,000
Other...................................... 175,000 205,000
------------ ------------
Net deferred tax assets.................. 3,660,000 6,526,000
Deferred tax liability:
Rental and operating property and
equipment, principally due to difference
in depreciation........................... (11,461,000) (16,171,000)
------------ ------------
Net deferred tax liability............... $ (7,801,000) $ (9,645,000)
============ ============
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $11.1 million which are available
to offset future federal taxable income through the year 2011. The net
operating loss carryforwards are primarily attributable to M&M Equipment and
may be subject to certain limitations. The Company expects to pursue certain
tax planning strategies that management believes make it more likely than not
that the Company will recover the tax benefit of the net operating loss
carryforwards.
In addition, as of December 31, 1997, the Company had alternative minimum
tax credit carryforwards of approximately $1,713,000 which are available to
reduce future federal regular income taxes, if any, over an indefinite period.
8. EMPLOYEE BENEFIT PLANS:
Prior to August 1, 1997, Falconite Equipment had a discretionary profit-
sharing plan covering substantially all of its employees. Profit-sharing
expense was funded through annual contributions to the plan. There were no
contributions to the plan during 1996 and 1997. Falconite Equipment also
contributes to a union-administered pension plan as required. Falconite
Equipment's contributions to these plans for the years ended December 31,
1995, 1996 and 1997 totaled $71,000, $45,000 and $105,000, respectively.
Falconite Equipment could, under certain circumstances, be liable for unfunded
vested benefits or other expenses of jointly administered union plans. At this
time, Falconite has not established any liabilities because withdrawal from
these plans is not probable.
M&M Equipment has a discretionary 401(k) plan covering substantially all of
its employees. Plan expense is funded through annual contributions. For the
years ended December 31, 1995, 1996 and 1997, M&M Equipment contributions
totaled $38,000, $60,000 and $86,000, respectively. As of July 1, 1997,
Falconite has a discretionary 401(k) plan covering substantially all of its
employees. For the year ended December 31, 1997, Falconite contributions
totaled $70,000.
F-126
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. RELATED PARTY TRANSACTIONS:
The individual companies included in the consolidated financial statements
enter into various related party transactions with affiliated companies and
shareholders of the individual companies.
A summary of receivables/payables included in the consolidated balance sheet
as of December 31, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Due from affiliated companies and related parties:
Note receivable--officer.......................... $ 77,000 $ 101,000
Note receivable--majority shareholder............. 332,000 483,000
Due from F&F Leasing.............................. 44,000 16,000
Due from E&F Leasing.............................. -- 200,000
Due from M&F Investments.......................... -- 1,344,000
-------- ----------
$453,000 $2,144,000
======== ==========
Due to affiliated companies and related parties:
Due to F&F Leasing................................ $ 42,000 --
Notes payable--majority shareholder............... 79,000 $ 39,000
-------- ----------
$121,000 $ 39,000
======== ==========
</TABLE>
A summary of expenses included in the consolidated statements of income for
the years ended December 31, 1995, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Building rent expense paid to affiliates and
related parties:
Rent paid to F&F Leasing.................. $ 63,000 $200,000 $137,000
Rent paid to an officer................... 30,000 30,000 --
Rent paid to M&F Investments.............. 13,000 122,000 247,000
Rent paid to the minority shareholder of
M&M...................................... 22,000 -- --
Rent paid to E&F Leasing.................. 27,000 188,000 246,000
-------- -------- --------
$155,000 $540,000 $630,000
======== ======== ========
Equipment rent expense paid to F&F Leasing.. $123,000 $149,000 --
======== ======== ========
Interest expense paid to director........... $ 19,000 $ 11,000 $ 5,000
======== ======== ========
Management fee paid to officers:
From M&M Equipment........................ $ 28,000 $ 28,000 --
From Erzinger............................. 31,000 36,000 --
-------- -------- --------
$ 59,000 $ 64,000 --
======== ======== ========
</TABLE>
Falconite Equipment and M&M Equipment lease buildings from affiliated
companies for which the companies pay monthly rental to the affiliated
companies pursuant to various lease agreements. Falconite Equipment leased its
Erzinger facility from E&F Leasing, a related party, through July 31, 1996 for
approximately $24,000 a month. Effective August 1, 1996, the monthly rental
was reduced to $15,000 retroactive to January 1, 1996, such that no rent
expense was incurred in August or September 1996. The ongoing agreed-upon
monthly rent will be $17,500 per month.
F-127
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES:
Department of Revenue Notifications
During 1995, Falconite Equipment received a notification from the Illinois
Department of Revenue asserting deficiencies in Illinois' use taxes for the
period from July 1989 to May 1995. The asserted deficiencies, which totaled
approximately $520,000 plus interest and penalties, result from Falconite
Equipment's rental of equipment to customers within the State of Illinois and
complexities of how use taxes should be calculated. Falconite Equipment is in
the process of challenging the asserted deficiencies.
During 1996, Falconite Equipment received a notification from the Tennessee
Department of Revenue asserting certain deficiencies in Tennessee sales tax
for the period from 1991 to 1996. The sales tax liability was settled during
1997 for $307,000
Management, after consultation with counsel, believes the ultimate outcome
of the alleged deficiencies will not result in a material impact on Falconite
Equipment's consolidated financial position, results of operations or cash
flows although resolution in any year or quarter could be material to the
results of operations or cash flows for that period. Accrued expenses have
been recorded within the range of management's best estimate of the probable
loss.
Government and Environmental Regulations
Falconite and its operations are subject to various federal, state, and
local laws and regulations governing, among other things, worker safety, air
emissions, water discharge, and the generation, handling, storage,
transportation, treatment, and disposal of hazardous substances and wastes.
Under such laws, an owner or lessee of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances located on,
in or emanating from, such property, as well as related costs of investigation
and property damage. Such laws often impose such liability without regard to
whether the owner or lessee knew of, or was responsible for, the presence of
such hazardous or toxic substances. In addition, Falconite dispenses petroleum
products from above-ground storage tanks located at certain rental locations
that it owns or leases. Falconite maintains an environmental compliance
program that includes the implementation of required technical and operational
activities designed to minimize the potential for leaks and spills, the
maintenance of records, and the regular testing and monitoring of tank
systems. Falconite also uses hazardous materials such as solvents to clean and
maintain its rental equipment fleet. In addition, Falconite generates and
disposes waste such as used motor oil, radiator fluid, and solvents, and may
be liable under various federal, state, and local laws for an environmental
contamination at facilities where its waste is or has been disposed. While
there can be no assurance that the Company's operations have been operated in
compliance with governmental regulations, in the opinion of management, the
ultimate disposition of any matters, that may arise, will not have a material
adverse effect on Falconite's consolidated financial position, results of
operations or cash flows although resolution in any year or quarter could be
material to the results of operations or cash flows for that period.
Legal Proceedings
Falconite is involved in various other claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
Falconite's consolidated financial position, results of operations or cash
flows although resolution in any year or quarter could be material to the
results of operations or cash flows for that period.
Commitments for Capital Expenditures
Falconite has outstanding firm commitments for capital expenditures of
approximately $549,000 at December 31, 1997. The commitments relate to the
purchasing of additional rental equipment and the replacement of older lease
fleet assets.
F-128
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Workers' Compensation
Falconite is fully insured, subject to varying deductibles, for workers'
compensation claims in substantially all states in which it operates. In the
remaining states, Falconite provides for workers' compensation claims through
incurred loss retrospective policies. Management believes any potential
liability for estimated claims, including the effect of any retroactive
premium adjustments, is immaterial.
11. BUSINESS AND CREDIT CONCENTRATIONS:
Falconite engages in the rental of equipment to a variety of industrial and
construction customers which are significantly impacted by the U.S. economy as
well as the regional and local economies. Management believes diversifying
into other states reduces the impact of events or conditions in a particular
region, such as regional slowdowns, adverse weather and other factors. In
addition, Falconite's operating results may be adversely affected by increases
in interest rates that may lead to a decline in economic activity while
simultaneously resulting in higher interest payments by Falconite under its
variable rate credit facilities.
Most of Falconite's customers are located in a four-state area: Kentucky,
Tennessee, Alabama and Missouri. No single customers accounted for more than
1% of Falconite's consolidated sales in 1996 and 1997, and no trade account
receivable from any customer exceeded $289,000 at December 31, 1997. Falconite
estimates an allowance for doubtful accounts based on the creditworthiness of
its customers as well as general economic conditions. Consequently, an adverse
change in those factors could affect management's estimate of its bad debts.
12. SUBSEQUENT EVENTS:
In January 1998, the Company purchased the assets of Genequip, Inc., an
equipment rental company with locations in Louisville and Lexington, Kentucky
and Indianapolis, Indiana. The total purchase price was $10,037,000 and was
accounted for using the purchase method.
On April 1, 1998, the Company's owners entered into a definitive and binding
agreement to sell all of the outstanding shares of common stock to National
Equipment Services, Inc. in exchange for $62,000,000 in cash and $3,750,000 of
subordinated promissory notes which bear interest at 8%.
F-129
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC.
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
National Equipment Services, Inc. ("the Company") was founded in June 1996
to acquire and integrate equipment rental companies. In 1997, the Company
acquired six businesses in separate transactions. In 1998, the Company
acquired nine businesses in separate transactions and consummated the
Company's initial public offering of common stock (the "Initial Stock
Offering"). While the Acquired Businesses (Acquired Businesses herein defined
to mean (i) all of the 15 acquired businesses were acquired at various dates
during 1997 and 1998, the following unaudited pro forma statements of
operations are presented as if all such acquisitions, the Initial Stock
Offering and certain borrowings under the New Credit Facility had occurred on
January 1, 1997. The following unaudited pro forma balance sheet gives effect
to the aforementioned transactions as if they had occurred on March 31, 1998.
The unaudited pro forma financial statements have been derived from Company
(the Company herein defined to include the Acquired Businesses) prepared
financial information (and, when applicable, includes adjustments to conform
fiscal periods to calendar periods), the audited and unaudited Financial
Statements and notes thereto of certain of the Acquired Businesses for certain
periods and the audited and unaudited Financial Statements and notes thereto
of the Company since inception, which Financial Statements appear elsewhere in
this Prospectus.
The unaudited pro forma financial statements have been prepared for
comparative purposes only and do not purport to be indicative of the results
which would have been achieved had the Acquired Businesses been purchased, the
Initial Stock Offering been consummated and certain borrowings under the New
Credit Facility been made as of the assumed dates, nor are the results
indicative of the Company's future results.
F-130
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS(A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------------------------------------------
AERIAL EQUIPCO WORK GRAND
THE PLAT- BAT RENTALS & LONE STAR SAFE EAGLE CORMIER DRAGON HI-
COMPANY FORMS RENTALS SALES RENTALS SPRINTANK SUPPLY GENPOWER SCAFFOLDING EQUIPMENT RENTALS REACH
------- ------ ------- --------- --------- --------- ------ -------- ----------- --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental revenues. $26,398 $ 406 $1,457 $2,180 $1,455 $5,715 $6,385 $7,110 $1,067 $12,107 $8,907 $5,568
Rental equipment
sales........... 4,186 51 995 332 188 -- 891 161 -- 960 -- 953
New equipment
sales and other. 10,704 237 1,350 877 -- 327 88 4,830 612 2,685 1,657 1,108
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------
Total revenues... 41,288 694 3,802 3,389 1,643 6,042 7,364 12,101 1,679 15,752 10,564 7,629
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------
Cost of Revenues:
Rental equipment
depreciation.... 5,009 47 707 710 242 1,109 835 560 80 2,742 844 885
Cost of rental
equipment sales. 2,935 34 352 97 119 -- 588 111 -- 339 -- 636
Cost of new
equipment sales. 4,872 180 1,010 570 -- -- -- 3,108 23 391 -- 334
Other operating
expenses........ 12,899 277 462 641 1,010 643 2,517 2,863 776 6,925 5,222 3,125
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------
Total cost of
revenues......... 25,715 538 2,531 2,018 1,371 1,752 3,940 6,642 879 10,397 6,066 4,980
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------
Gross profit
(loss)........... 15,573 156 1,271 1,371 272 4,290 3,424 5,459 800 5,355 4,498 2,649
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------
Selling, general
and
administrative
expenses......... 7,910 249 489 684 475 2,028 1,237 2,797 327 3,241 2,166 1,534
Non-rental
depreciation and
amortization..... 1,476 8 25 33 26 83 80 37 -- 250 59 107
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------
Operating income
(loss)........... 6,187 (101) 757 654 (229) 2,179 2,107 2,625 473 1,864 2,273 1,008
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------
Other income
(expense), net... 72 -- (1) 20 139 (10) 8 13 8 -- (670) 14
Interest expense,
net.............. 4,336 16 46 73 164 553 22 103 33 302 675 462
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------
Income (loss)
before income
taxes............ 1,923 (117) 710 601 (254) 1,616 2,093 2,535 448 1,562 928 560
Income tax
expense
(benefit)........ 818 (6) -- 240 -- -- -- 859 -- 8 212 --
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------
Net income
(loss)........... $ 1,105 $(111) $ 710 $ 361 $ (254) $1,616 $2,093 $1,676 $ 448 $ 1,554 $ 716 $ 560
======= ===== ====== ====== ====== ====== ====== ====== ====== ======= ====== ======
<CAPTION>
ALBANY R&R ADJUST- PRO
LADDER FALCONITE RENTALS MENTS(B) FORMA
------- --------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental revenues. $18,410 $44,911 $6,888 $ 5,144 $154,108
Rental equipment
sales........... 1,885 9,222 -- 2,910 22,734
New equipment
sales and other. 13,909 9,513 1,556 2,393 51,846
------- --------- -------- ------------ -----------
Total revenues... 34,204 63,646 8,444 10,447 228,688
------- --------- -------- ------------ -----------
Cost of Revenues:
Rental equipment
depreciation.... 3,445 11,114 2,154 591 (c) 31,074
Cost of rental
equipment sales. 721 7,582 -- 2,561 16,075
Cost of new
equipment sales. 7,725 4,103 35 1,579 23,930
Other operating
expenses........ 10,738 11,395 3,962 (327)(d) 63,128
------- --------- -------- ------------ -----------
Total cost of
revenues......... 22,629 34,194 6,151 4,404 134,207
------- --------- -------- ------------ -----------
Gross profit
(loss)........... 11,575 29,452 2,293 6,043 94,481
------- --------- -------- ------------ -----------
Selling, general
and
administrative
expenses......... 7,796 15,065 1,843 (4,516)(e) 43,326
Non-rental
depreciation and
amortization..... 640 2,428 128 5,168 (f) 10,547
------- --------- -------- ------------ -----------
Operating income
(loss)........... 3,139 11,959 322 5,391 40,608
------- --------- -------- ------------ -----------
Other income
(expense), net... 117 (815) 171 1,372 (g) 438
Interest expense,
net.............. 846 7,327 1,079 11,987 (h) 28,024
------- --------- -------- ------------ -----------
Income (loss)
before income
taxes............ 2,410 3,817 (586) (5,224) 13,022
Income tax
expense
(benefit)........ -- 1,859 -- 1,474 (i) 5,464
------- --------- -------- ------------ -----------
Net income
(loss)........... $ 2,410 $ 1,958 $ (586) $(6,698) $ 7,558(j)
======= ========= ======== ============ ===========
</TABLE>
(See Notes to Unaudited Pro Forma Financial Statements)
F-131
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS(A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
---------------------------------------------------------------------------------------------------------------
EQUIPCO LONE WORK
THE AERIAL BAT RENTALS STAR SAFE EAGLE CORMIER DRAGON GRAND
COMPANY PLATFORMS RENTALS & SALES RENTALS SPRINTANK SUPPLY GENPOWER SCAFFOLDING EQUIPMENT RENTALS HI-REACH
------- --------- ------- ------- ------- --------- ------ -------- ----------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rentals
revenues........ $1,276 $ 406 $1,457 $ 854 $1,455 $2,572 $ 107 $1,465 $277 $2,299 $1,758 $1,059
Rental equipment
sales........... 93 51 995 185 188 -- 23 40 -- 173 -- 197
New equipment
sales and other. 950 237 1,350 358 -- 147 2 1,245 145 626 294 228
------ ----- ------ ----- ------ ------ ----- ------ ---- ------ ------ ------
Total revenues... 2,319 694 3,802 1,397 1,643 2,719 132 2,750 422 3,098 2,052 1,484
Cost of Revenues:
Rental equipment
depreciation.... 335 47 707 266 242 545 105 111 20 654 173 233
Cost of rental
equipment sales. 75 34 352 58 119 -- 15 28 -- 61 -- 123
Cost of new
equipment sales. 306 180 1,010 227 -- -- -- 700 6 110 -- 64
Other operating
expenses........ 760 277 462 263 1,010 289 41 605 199 1,487 1,069 525
------ ----- ------ ----- ------ ------ ----- ------ ---- ------ ------ ------
Total cost of
revenues......... 1,476 538 2,531 814 1,371 834 161 1,444 225 2,312 1,242 945
------ ----- ------ ----- ------ ------ ----- ------ ---- ------ ------ ------
Gross profit
(loss)........... 843 156 1,271 583 272 1,885 (29) 1,306 197 786 810 539
Selling, general
and
administration
expenses......... 783 249 489 352 475 913 203 575 83 621 443 302
Non-rental
depreciation and
amortization..... 88 8 25 27 26 41 15 7 -- 60 12 30
------ ----- ------ ----- ------ ------ ----- ------ ---- ------ ------ ------
Operating income
(loss)........... (28) (101) 757 204 (229) 931 (247) 724 114 105 355 207
Other income
(expense), net... -- -- (1) 1 139 (5) (4) 4 -- -- (117) --
Interest expense,
net.............. 262 16 46 34 164 249 5 15 8 39 118 122
------ ----- ------ ----- ------ ------ ----- ------ ---- ------ ------ ------
Income (loss)
before income
taxes............ (290) (117) 710 171 (254) 677 (256) 713 106 66 120 85
Income tax
expense
(benefit)........ (135) (6) -- 74 -- -- -- 238 -- 4 27 --
------ ----- ------ ----- ------ ------ ----- ------ ---- ------ ------ ------
Net income
(loss)........... $ (155) $(111) $ 710 $ 97 $ (254) $ 677 $(256) $ 475 $106 $ 62 $ 93 $ 85
====== ===== ====== ===== ====== ====== ===== ====== ==== ====== ====== ======
<CAPTION>
ALBANY R&R PRO
LADDER FALCONITE RENTALS ADJUSTMENTS(B) FORMA
------- --------- -------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Rentals
revenues........ $3,333 $8,989 $1,476 $ 1,228 $30,011
Rental equipment
sales........... 436 3,276 -- 727 6,384
New equipment
sales and other. 2,455 2,109 319 556 11,021
------- --------- -------- --------------- ----------
Total revenues... 6,224 14,374 1,795 2,511 47,416
Cost of Revenues:
Rental equipment
depreciation.... 800 2,373 487 661 (c) 7,759
Cost of rental
equipment sales. 189 2,516 -- 640 4,210
Cost of new
equipment sales. 1,196 755 4 395 4,953
Other operating
expenses........ 2,180 2,544 866 (25)(d) 12,552
------- --------- -------- --------------- ----------
Total cost of
revenues......... 4,365 8,188 1,357 1,671 29,474
------- --------- -------- --------------- ----------
Gross profit
(loss)........... 1,859 6,186 438 840 17,942
Selling, general
and
administration
expenses......... 1,748 2,938 404 (997)(e) 9,581
Non-rental
depreciation and
amortization..... 166 576 32 1,461 (f) 2,574
------- --------- -------- --------------- ----------
Operating income
(loss)........... (55) 2,672 2 376 5,787
Other income
(expense), net... 18 4 122 (17)(g) 144
Interest expense,
net.............. 208 1,333 289 4,098 (h) 7,006
------- --------- -------- --------------- ----------
Income (loss)
before income
taxes............ (245) 1,343 (165) (3,739) (1,075)
Income tax
expense
(benefit)........ -- 598 -- (1,252)(i) (452)
------- --------- -------- --------------- ----------
Net income
(loss)........... $ (245) $ 745 $ (165) $(2,487) $ (623)(j)
======= ========= ======== =============== ==========
</TABLE>
(See Notes to Unaudited Pro Forma Financial Statements)
F-132
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS (A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-------------------------------------------------------------------------------------------------------
WORK
THE SAFE EAGLE CORMIER DRAGON GRAND ALBANY R&R PRO
COMPANY SUPPLY SCAFFOLDING EQUIPMENT RENTALS HI-REACH LADDER FALCONITE RENTALS ADJUSTMENTS FORMA
------- ------ ----------- --------- ------- -------- ------ --------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental revenues. $15,815 $ 24 $54 $1,770 $1,871 $ 336 $4,612 $12,033 $2,100 $ 261 $38,876
Rental equipment
sales........... 1,742 -- -- 257 -- 30 449 1,364 -- -- 3,842
New equipment
sales and other. 4,594 23 31 900 125 28 3,537 3,236 513 244 13,231
------- ----- --- ------ ------ ----- ------ ------- ------ ------ -------
Total revenues... 22,151 47 85 2,927 1,996 394 8,598 16,633 2,613 505 55,949
Cost of revenue:
Rental equipment
depreciation.... 2,727 23 5 376 160 47 877 3,367 565 (174) (c) 7,973
Cost of rental
equipment sales. 1,037 -- -- 52 -- 21 146 1,097 -- -- 2,353
Cost of new
equipment sales. 2,187 13 1 441 -- -- 1,918 1,800 -- -- 6,360
Other operating
expenses........ 7,549 61 29 1,170 989 282 2,816 3,238 1,112 (162)(d) 17,084
------- ----- --- ------ ------ ----- ------ ------- ------ ------ -------
Total cost of
revenues......... 13,500 97 35 2,039 1,149 350 5,757 9,502 1,677 (336) 33,770
------- ----- --- ------ ------ ----- ------ ------- ------ ------ -------
Gross profit..... 8,651 (50) 50 888 847 44 2,841 7,131 936 841 22,179
Selling, general
and
administrative
expenses......... 4,531 60 12 429 410 129 2,486 4,482 458 (1,296)(e) 11,701
Non-rental
depreciation and
amortization..... 807 28 -- 39 11 7 160 680 32 927 (f) 2,691
------- ----- --- ------ ------ ----- ------ ------- ------ ------ -------
Operating income
(loss)........... 3,313 (138) 38 420 426 (92) 195 1,969 446 1,210 7,787
Other income
(expense), net... 77 -- 12 -- (126) 2 58 (8) -- 10 25
Interest expense,
net.............. 3,100 46 3 90 127 19 216 2,180 333 892 (h) 7,006
------- ----- --- ------ ------ ----- ------ ------- ------ ------ -------
Income (loss)
before income
taxes............ 290 (184) 47 330 173 (109) 37 (219) 113 328 806
Income tax
expense.......... 151 -- -- -- -- -- -- -- -- 175 (i) 326
------- ----- --- ------ ------ ----- ------ ------- ------ ------ -------
Net income
(loss)........... $ 139 $(184) $47 $ 330 $ 173 $(109) $ 37 $ (219) $ 113 $ 153 $ 480(j)
======= ===== === ====== ====== ===== ====== ======= ====== ====== =======
</TABLE>
(See Notes to Unaudited Pro Forma Financial Statements)
F-133
<PAGE>
PRO FORMA BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT MARCH 31, 1998
--------------------------------------------------------------
THE R&R PRO
COMPANY(K) FALCONITE(K) RENTALS(K) ADJUSTMENTS(L)(M) FORMA
---------- ------------ ---------- ----------------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ 3,773 $ 1,642 $ 1,597 $(4,854)(i) $ 2,158
Accounts receivable,
net.................... 24,095 8,862 1,997 (1,775) 33,179
Inventory, net.......... 7,158 2,658 -- 23 9,839
Rental equipment, net... 104,937 112,937 9,813 (6,795)(ii) 220,892
Property and equipment,
net.................... 6,968 11,547 480 2,230 (iii) 21,225
Intangible assets, net.. 86,888 17,069 -- 62,397 (iv) 166,354
Loan origination costs,
net.................... 6,139 -- -- (1,133)(v) 5,006
Prepaid and other
assets, net............ 2,345 1,511 3,593 (3,360) 4,089
-------- -------- ------- ------- --------
Total assets.......... $242,303 $156,226 $17,480 $46,733 $462,742
======== ======== ======= ======= ========
LIABILITIES
Accounts payable........ $ 9,647 $ 1,715 $ 201 $ (160) $ 11,403
Accrued interest........ 3,904 715 360 (360) 4,619
Accrued expenses and
other liabilities...... 7,938 12,134 184 (175) 20,081
Debt.................... 193,954 108,430 15,849 (8,089)(vi) 310,144
-------- -------- ------- ------- --------
Total liabilities..... 215,443 122,994 16,594 (8,784) 346,247
Stockholders' equity.... 26,860 33,232 886 55,517 (vii) 116,495
-------- -------- ------- ------- --------
Total liabilities and
stockholders' equity. $242,303 $156,226 $17,480 $46,733 $462,742
======== ======== ======= ======= ========
</TABLE>
(See Notes to Unaudited Pro Forma Financial Statements)
F-134
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) For the Company, results for the year ended December 31, 1997 and for the
three months ended March 31, 1997 represent actual historical 1997
results, including results for the Acquired Businesses purchased in the
related 1997 period from the date of acquisition. Results for the Company
for the three months ended March 31, 1998 represent actual historical
results for the Company, including results for the Acquired Businesses
purchased in the first quarter of 1998 from the date of acquisition. For
the Acquired Businesses, results for the year ended December 31, 1997 and
for the three months ended March 31, 1997, represent combined historical
results for (i) the Acquired Businesses purchased in the related 1997
period prior to the date of acquisition and (ii) the Acquired Businesses
purchased in 1998. For the Acquired Businesses, results for the three
months ended March 31, 1998 represent combined historical results for the
Acquired Businesses purchased in the first quarter of 1998 prior to the
date of acquisition.
(b) In each of the following items, reflects the elimination of a location
not purchased from Cormier Equipment as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ ------------
<S> <C> <C>
Rental revenues................................. $ 130 $100
New equipment sales and other................... 21 17
----- ----
Total revenues.................................. 151 117
Rental equipment depreciation................... 81 60
Other operating expenses........................ 102 50
----- ----
Total cost of revenues.......................... 183 110
----- ----
Gross profit (loss)............................. (32) 7
Selling, general and administrative expenses.... 72 41
Non-rental depreciation and amortization........ 1 1
----- ----
Operating loss.................................. $(105) $(35)
===== ====
</TABLE>
In addition, reflects the acquisition of GenEquip, Inc., a business
acquired by Falconite, Inc. in January 1998, and Aerial Equipment Rental,
Inc., a business acquired by Falconite in May 1998, as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1997 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Rental revenues................... $5,274 $1,327 $142
Rental equipment sales............ 2,910 728 --
New equipment sales and other..... 2,415 571 121
------ ------ ----
Total revenues.................... 10,599 2,626 263
Rental equipment depreciation..... 1,808 464 24
Cost of rental equipment sales.... 2,561 640 --
Cost of new equipment sales....... 1,578 395 --
Other operating costs............. 2,503 629 140
------ ------ ----
Total cost of revenues............ 8,450 2,128 164
------ ------ ----
Gross profit...................... 2,149 498 99
Selling, general and
administrative expenses.......... 1,789 400 54
Non-rental depreciation and
amortization..................... 121 31 2
------ ------ ----
Operating income.................. 239 67 43
Other income, net................. 179 16 23
Interest income (expense), net.... (25) (7) (5)
------ ------ ----
Income before income taxes........ $ 393 $ 76 61
====== ====== ====
</TABLE>
F-135
<PAGE>
(c) Pursuant to SEC reporting requirements, rental equipment depreciation has
been derived utilizing the rental equipment asset values of each of the
Acquired Businesses at the time of their acquisition rather than utilizing
values of rental equipment assets actually held by each of the Acquired
Businesses the period presented. Reflects the impact on rental equipment
depreciation resulting from the application of the Company's depreciation
policy rather than those of the former owners of the Acquired Businesses.
In addition, reflects the change in rental equipment depreciation
resulting from the write-up or write-down of rental equipment assets to
fair value arising from purchase accounting. In addition, reflects the
increase in rental equipment depreciation resulting from the purchase of
equipment referred to in note (d) below.
(d) Reflects the elimination of lease expense resulting from the termination
of certain rental equipment leases which occurred with the purchase of
the underlying equipment. Also reflects the rent expense resulting from
the Company's current lease terms as compared to lease terms entered into
by former owners. In addition, reflects the increase in rent expense and
corresponding decrease in depreciation expense and real estate tax
expense resulting from the Company leasing rather than owning certain
related facilities and, conversely, the decrease in rent expense and
corresponding increase in depreciation expense and real estate tax
expense resulting from the termination of certain facility leases which
occurred with the purchase of the underlying facility by the Company.
Also, reflects the decrease in rent expense resulting from the
termination of certain facility leases.
(e) Reflects the decrease resulting from differentials between the
compensation levels of former owners of the Acquired Businesses and the
terms of the employment agreements entered into between certain of the
former owners and the Company. The employment agreements provide for
bonuses to be paid based on increased future earnings. Compensation
amounts presented reflect bonuses due based on current operating results.
Additional bonuses would be due if increased earnings levels are achieved.
(f) Pursuant to SEC reporting requirements, non-rental depreciation has been
derived utilizing the property, plant and equipment values of each of the
Acquired Businesses at the time of their acquisition, rather than
utilizing values of property, plant and equipment actually held by each of
the Acquired Businesses in the period presented. Reflects the decrease in
non-rental depreciation resulting from the application of the Company's
depreciation policy rather than those of the former owners of the Acquired
Businesses. In addition, reflects the increase in non-rental depreciation
resulting from the write-up of property, plant and equipment to fair value
arising from purchase accounting. Also reflects amortization of goodwill
calculated on a goodwill life of 40 years and amortization of non-compete
agreements calculated on their contract terms of two to five years, in
each case specifically related to the purchases of the Acquired
Businesses. The pro forma adjustments consist of the following:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------
1997 1997 1998
------------ ------ ----
<S> <C> <C> <C>
Non-rental depreciation......................... $1,321 $ 352 $260
Amortization of goodwill........................ 3,223 890 607
Amortization of non-compete agreements.......... 624 219 60
------ ------ ----
$5,168 $1,461 $927
====== ====== ====
</TABLE>
(g) Reflects discontinuation and elimination of unrelated businesses
previously operated and related charges incurred by the former owners of
certain of the Acquired Businesses.
(h) Reflects increased interest expense at the Company's borrowing rate under
the New Credit Facility of 7.75% on the indebtedness resulting from (i)
the purchase of the Acquired Businesses for $113,172 after giving effect
to the partial repayment of the New Credit Facility with $3,434 of cash on
hand at the Acquired Businesses purchased or to be purchased on or after
March 31, 1998 and (ii) the borrowing of $3,085 under the New Credit
Facility to fund certain potential purchase price adjustments in
connection with the Acquired Businesses purchased in 1998.
(i) Reflects the income tax rate that would have been in effect if the
Acquired Businesses had been combined and subject to a federal statutory
rate of 34% and the applicable state statutory rate for each of the
Acquired Businesses throughout the periods presented.
F-136
<PAGE>
(j) Unaudited pro forma earnings per share has been computed based on the
weighted average number of common shares outstanding during the period,
after giving effect to the Reclassification, the Stock Split, the Initial
Stock Offering and the conversion of the 8% convertible subordinated
promissory notes to be issued in connection with the acquisition of
Falconite, but without giving effect to shares issuable upon exercise of
outstanding options because they are not dilutive. Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
("SFAS 123") allows entities to choose between a new fair value based
method of accounting for employee stock options or similar equity
instruments and the current intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25").
Entities electing to account for employee stock options or similar equity
instruments under APB No. 25 must make pro forma disclosures of net income
and earnings per share as if the fair value method of accounting has been
applied. The Company has elected APB No. 25, and will provide pro forma
disclosure of net income and earnings per share, as applicable, in the
notes to future consolidated financial statements. Had pro forma
compensation cost for the Company's stock-based compensation plans been
determined based on the pro forma fair value at the assumed grant date for
awards under those plans consistent with the method of SFAS 123, the
Company's pro forma net income and net income per share would have been as
follows for the year ended December 31, 1997 and the three month periods
ended March 31, 1997 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED
ENDED MARCH 31,
DECEMBER 31, -------------
1997 1997 1998
------------ ------ -----
<S> <C> <C> <C>
Net income.................................... $6,986 $ (768) $ 333
Basic earnings per share...................... $ 0.32 $(0.04) $0.02
Diluted earnings per share.................... $ 0.30 $(0.03) $0.01
</TABLE>
The pro forma fair value of the options was estimated on the assumed date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions: dividend yield of 0%, expected volatility of
30%, risk free interest rates of 5.67% and expected lives of 5 years.
(k) Represents the actual historical balance sheets as of March 31, 1998 of
the Company, Falconite and R&R Rentals.
(l) The following are adjustments to the aforementioned balance sheets:
(i) Reflects the use of the cash on hand at the Acquired Businesses
purchased on or after March 31, 1998 of $3,434 and the elimination of
cash not purchased in the R&R Rentals acquisition.
(ii) Reflects the write-down of rental equipment as part of purchase
accounting related to the residual value in excess of fair value.
(iii) Reflects the write-up of property and equipment to fair value as part
of purchase accounting.
(iv) Reflects $61,797 of goodwill representing the excess of the purchase
price over the fair value of net assets acquired. In addition,
reflects $600 of noncompete agreements entered into by the Company and
certain selling shareholders.
(v) Reflects the incremental loan origination costs related to the New
Credit Facility.
(vi) Reflects the use of the cash on hand at the Acquired Businesses
purchased or to be purchased on or after March 31, 1998 of $3,434 and
the elimination of the Acquired Businesses' indebtedness of $124,279,
offset by additional borrowings under the New Credit Facility of
$116,190, and the borrowing of $3,085 under the New Credit Facility to
fund certain potential purchase price adjustments in connection with
the Acquired Businesses purchased in 1998.
(vii) Reflects the cash proceeds from the Initial Stock Offering of $94,500
and the mandatory conversion at the initial public offering price of
$3,750 of 8% subordinated promissory notes issued in connection with
the Falconite acquisition, net of estimated Initial Stock Offering
cost of $8,615 and the elimination of equity of Falconite of $33,232
and R&R Rentals of $886.
F-137
<PAGE>
(m) In addition, reflects the acquisition of Aerial Equipment Rental, Inc., a
business acquired by Falconite in May 1998, as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
<S> <C>
Cash and cash equivalents.................................. $ 177
Accounts receivable, net................................... 222
Inventory, net............................................. 23
Rental equipment, net...................................... 506
Property and equipment, net................................ 80
Prepaids and other assets, net............................. 2
------
Total assets........................................... $1,010
======
Accounts payable........................................... $ 41
Accrued expenses and other liabilities..................... 9
Debt....................................................... 488
------
Total liabilities...................................... 538
Stockholders' equity....................................... 472
------
Total liabilities and stockholders' equity............. $1,010
======
</TABLE>
F-138
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED HEREIN OTHER THAN THOSE
CONTAINED IN THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCE IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THE PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... iii
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 15
Capitalization............................................................ 16
Selected Pro Forma Financial Data......................................... 17
Selected Historical Financial Data........................................ 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 27
Business.................................................................. 38
Management................................................................ 45
Security Ownership of Certain Beneficial Owners and Management............ 51
Certain Relationships and Related Transactions............................ 52
Description of New Credit Facility........................................ 53
Description of Exchange Notes............................................. 55
The Exchange Offer........................................................ 80
Certain Federal Income Tax Consequences................................... 87
Plan of Distribution...................................................... 88
Experts................................................................... 88
Legal Matters............................................................. 89
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$100,000,000
LOGO
NATIONAL EQUIPMENT
SERVICES, INC.
OFFER TO EXCHANGE ITS
10% SENIOR SUBORDINATED
NOTES DUE 2004,
SERIES B FOR ANY AND ALL
OF ITS OUTSTANDING
10% SENIOR SUBORDINATED NOTES
DUE 2004
------------
PROSPECTUS
, 1998
------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company, BAT, FAI, NES Acquisition, NES East and NES Michigan. The
Company and each of BAT, FAI, NES Acquisition, NES East and NES Michigan are
incorporated under the laws of the State of Delaware. Section 145 of the
General Corporation Law of the State of Delaware ("Section 145") provides that
a Delaware corporation may indemnify any persons who are, or are threatened to
be made, parties to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of such corporation), by reason of the fact
that such person is or was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the corporation's best interests and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any persons who are, or are
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorney's fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably incurred. Section
145 further provides that the indemnification provisions of Section 145 shall
not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
such person's official capacity and as to action in another capacity while
holding such office.
The certificates of incorporation, as amended (if applicable), of each of
the Company, BAT, FAI, NES Acquisition, NES East and NES Michigan provide
that, to the fullest extent permitted by the General Corporation Law of the
State of Delaware, no director of the corporation shall be liable to the
corporation or its stockholders for monetary damages arising from a breach of
fiduciary duty owed to the corporation or its stockholders.
Article V of the by-laws of each of the Company, BAT, FAI, NES Acquisition,
NES East and NES Michigan provides that any person who was or is a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative by reason
of the fact that he, or a person of whom he is the legal representative, is or
was a director or officer of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee, fiduciary or
agent of another corporation or of a partnership, joint venture, trust or
other enterprise, shall be indemnified and held harmless by the corporation to
the fullest extent to which it is empowered to do so unless prohibited from
doing so by the General Corporation Law of the State of Delaware, as may be
amended (but only to the extent such amendment permits the corporation to
provide broader indemnification rights than were permitted prior to such
amendment) against expense, liability and loss (including attorneys' fees
actually and reasonably incurred by such person in connection with such
proceeding) and such indemnification shall continue as to an indemnitee who
has ceased to a be a director, officer, employee or agent and shall inure to
the benefit of the indemnitee's heirs, executors and administrators, provided
that, such person shall be indemnified only (subject to certain limited
exceptions) in connection with a proceeding initiated by such person only if
such proceeding was authorized by the board of directors of the corporation.
The right to indemnification of such person shall be a contract right and
shall include the right to be paid expenses incurred in defending any
proceeding in advance of its final disposition. In addition,
II-1
<PAGE>
the Company has agreed to indemnify and hold harmless Mr. Grove against all
expense, liability and loss reasonably incurred or suffered by Mr. Grove in
connection with any alligation that his membership on the Board conflicts with
or breaches the terms of a noncompetition convenant to which Mr. Grove is a
party.
Section 9(B)(1) of the certificate of incorporation of FAI provides that any
person who was or is a party, or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a director or
officer of the corporation or is or was a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as
a director, officer, employee or agent, shall be indemnified and held harmless
by the corporation against all expense, liability and loss (including
attorney's fees and expenses, judgments, fines, ERISA excise taxes and
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and
administrators. Section 9(B)(1) of the certificate of incorporation of FAI
further provides that the corporation may, by action of its board of
directors, provide indemnification to employees and agents of the corporation
with the same scope and effect as the above indemnification of directors and
officers. Section 9(B)(3) of the certificate of incorporation of FAI provides
that the indemnification provisions referred to above shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, provision of the certificate of incorporation, by-law, agreement,
vote of stockholders or disinterested directors or otherwise.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation
or enterprise, against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
Article V of the by-laws of each of the Company, BAT, NES Acquisition, NES
East and NES Michigan provides that such corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of such corporation or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by
him or her in any such capacity, whether or not the corporation would have the
power to indemnify such person against such liability under Article V of its
by-laws. Section 9(B)(4) of the certificate of incorporation of FAI authorizes
the corporation to maintain insurance, at its expense, to protect itself and
any director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss.
All of the directors and officers of each of the Company and BAT, FAI, NES
Acquisition, NES East and NES Michigan are covered by insurance policies
maintained and held in effect by such corporation against certain liabilities
for actions taken in such capacities, including liabilities under the
Securities Act of 1933.
Albany. Albany is incorporated under the laws of the State of New York.
Pursuant to the statutes of the State of New York, a director or officer of a
corporation is entitled, under specified circumstances, to indemnification by
the corporation against reasonable expenses, including attorneys' fees,
incurred by him in connection with the defense of a civil or criminal
proceeding to which he has been made, or threatened to be made, a party by
reason of the fact that he was such director or officer. In certain
circumstances, indemnity is provided against judgments, fines and amounts paid
in settlement. In general, indemnification is available where the director or
officer acted in good faith, for a purpose such director or officer reasonably
believed to be in the best interests of the corporation. Specific court
approval is required in some cases. The foregoing statement is qualified in
its entirety by reference to Sections 715, 717 and 721 through 725 of the New
York Business Corporation Law ("NYBCL").
Section 10 of the certificate of incorporation of Albany provides that, to
the maximum extent now or thereafter permitted by the laws of the State of New
York, including but not limited to Article 7 of the NYBCL
II-2
<PAGE>
or its successor statutes, and without further action by the stockholders or
directors of Albany, or any court, Albany will indemnify its officers,
directors and stockholders who are made or threatened to be made a party to
any action or proceeding whatsoever whether administrative, civil or criminal,
in any court, agency or forum whatsoever, brought by or on behalf of any party
whomsoever by reason of the fact that such person was an officer, director or
stockholder of Albany, or of a corporation in which the stockholders of Albany
were also stockholders and which is thereafter merged into Albany, against
judgments, fines, amounts paid in settlements and reasonable expenses,
including attorneys' fees actually and necessarily incurred as a result of
such actual or threatened action or proceeding, or any appeal therein and so
far as permitted by law, stockholders, officers and directors of Albany shall
not be personally liable to Albany or its stockholders for monetary damages
for breach of fiduciary duty, except for liability fixed by judgment or other
final adjudication which establishes that such acts were acts committed in bad
faith or were the result of actual and deliberate dishonesty and were material
to the cause of action so adjudicated, or for any transaction from which the
stockholder, officer or director derived a financial profit or other advantage
to which he was not legally entitled. In addition, the certificate of
incorporation of Albany provides that if the laws of the State of New York are
later amended to permit corporate action further eliminating or limiting the
personal liability of stockholders, officers and directors, then the liability
of a stockholder, officer or director of Albany shall be eliminated or limited
to the fullest extent permitted by the New York State Law, as so amended.
All of the directors and officers of Albany are covered by insurance
policies against certain liabilities for actions taken in such capacities,
including liabilities maintained and held in effect by Albany under the
Securities Act of 1933.
CMSRACI. CMSRACI is incorporated under the laws of the State of Tennessee.
The Tennessee Business Corporation Act sets forth in Sections 48-18-502
through 48-18-508 the circumstances governing the indemnification of
directors, officers, employees and agents of a corporation against liability
incurred in the course of their official capacities. Section 48-18-502
provides that a corporation may indemnify any director against liability
incurred in connection with a proceeding if the director acted in good faith
and the director reasonably believed, in the case of conduct in his or her
official capacity with the corporation, that such conduct was in the
corporation's best interest, or, in all other cases, that his or her conduct
was at least not opposed to the best interests of the corporation and, in
connection with any criminal proceeding, the director had no reasonable cause
to believe that his or her conduct was unlawful. In actions brought by or in
the right of the corporation, however, Section 48-18-502 provides that no
indemnification may be made if the director or officer is adjudged to be
liable to the corporation. Similarly, Section 48-15-502 prohibits
indemnification in connection with any proceeding charging improper personal
benefit to a director, whether or not involving action in the director's
official capacity, if such director is adjudged liable on the basis that a
personal benefit was improperly received. In cases where the director is
wholly successful, on the merits or otherwise, in the defense of any
proceeding instigated because of his or her status as a director of a
corporation, Section 48-18-503 mandates that the corporation indemnify the
director against reasonable expenses incurred in the proceeding.
Notwithstanding the foregoing, Section 48-18-505 provides that a court of
competent jurisdiction, upon application, may order that a director or officer
be indemnified for reasonable expenses incurred if, in consideration of all
relevant circumstances, the court determines that such individual is fairly
and reasonably entitled to indemnification, whether or not the standard of
conduct set forth above was met. Officers, employees, and agents who are not
directors are entitled, through the provisions of Section 48-18-507 to the
same degree of indemnification afforded to directors under Sections 48-18-503
and 48-18-505.
Section 48-18-508 provides that a corporation may purchase and maintain
insurance on behalf of an individual who is or was a director, officer,
employee, or agent of the corporation, or who, while a director, officer,
employee, or agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, against liability asserted against
or incurred by the individual in that capacity or arising from the
individual's status as a director, officer, employee, or agent, whether or not
the corporation would have the power to indemnify the individual.
All directors and officers of CMSRACI are covered by insurance policies
against certain liabilities for actions taken in such capacities, including
liabilities maintained and held in effect by CMSRACI under the Securities Act
of 1933.
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Falconite and FEI. Falconite and FEI are incorporated under the laws of the
State of Illinois. Under Section 8.75 of the Illinois Business Corporation Act
of 1983, a corporation is empowered, subject to the procedures and limitations
stated therein, to indemnify any person who was or is a party, or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he or she is or was a director, officer, employee or agent of the
corporation or who is or was serving or had served at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding, if such person acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In actions
brought by or in the right of the corporation, however, Section 8.75 provides
that no indemnification may be made without judicial approval if the director
or officer is adjudged to be liable to the corporation. In addition, Section
8.75 provides that to the extent that a director, officer, employee or agent
of a corporation has been successful, on the merits or otherwise, in the
defense of any action, suit or proceeding or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorney's fees) actually and reasonably incurred by such person in connection
therewith. Section 8.75 further provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors, or otherwise, and that such indemnification shall
continue as to a director, officer, employee or agent of the corporation who
has ceased to serve in such capacity, and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Article XI of the articles of incorporation and Article IX of the by-laws of
Falconite provide that the corporation shall indemnify any person who was or
is a party, or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he or she is a director, officer, employee or agent
of the corporation, or who is serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorney's fees), judgements, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such action, suit or
proceeding, if such person acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination
of any action, suit or proceeding by judgement, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a manner
which he or she reasonably believed to be in or not opposed to the best
interests of the corporation or, with respect to any criminal action or
proceeding, that the person had reasonable cause to believe that his or her
conduct was unlawful. In actions brought by or in the right of the
corporation, however, the articles of incorporation and by-laws provide that
no indemnification may be made if the director, officer, employee or agent is
adjudged to be liable for negligence or misconduct in the performance of his
or her duty to the corporation, unless, and only to the extent that the court
in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability, in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such expenses as the court shall deem proper. In addition, Article XI of the
articles of incorporation and Article IX of the by-laws of Falconite provide
that to the extent that a director, officer, employee or agent of the
corporation has been successful, on the merits or otherwise, in the defense of
any action, suit or proceeding referred to above, the corporation must
indemnify him against the expenses (including attorney's fees) actually and
reasonably incurred. Article XI of the articles of incorporation and Article
IX of the by-laws of Falconite further provide that, to the fullest extent
permitted by the law, the indemnification provisions referred to above shall
not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any other by-law, agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in
his or her official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent, and shall inure to the benefit of the
heirs, executors and administrators of such a person.
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<PAGE>
Section 8.75 also provides that a corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or who is serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of his or her status as such, whether or not the corporation
would have the power to indemnify such person against such liability.
Article XI of the articles of incorporation and Article IX of the by-laws of
Falconite further authorize the corporation to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent
of the corporation, or who is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of his or her status as such, whether or not the corporation would
have the power to indemnify such person against such liability under the
provisions of Article XI of the articles of incorporation and Article IX of
the by-laws.
All directors and officers of Falconite and FEI are covered by insurance
policies against certain liabilities for actions taken in such capacities,
including liabilities maintained and held in effect by Falconite and FEI under
the Securities Act of 1933.
FRCI. FRCI is incorporated under the laws of the State of Kentucky. Under
Section 271B.8-510 of the Kentucky Business Corporation Act of 1988, as
amended, a corporation may indemnify a director against liability incurred in
a proceeding if the director conducted himself in good faith, and the director
believed, in the case of conduct in his official capacity as a director of the
corporation, his conduct was in the corporation's best interest or, in all
other cases, his conduct was at least not opposed to the corporation's best
interests, and in the case of any criminal proceeding, the director had no
reasonable cause to believe his conduct was unlawful. The termination of a
proceeding by judgement, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not be, of itself, determinative that the
director did not meet the standard of conduct described above.
A corporation may not indemnify a director under the above-referenced
section in connection with a proceeding by or in the right of the corporation
in which the director is adjudged liable to the corporation or any other
proceeding charging improper personal benefit to the director, whether or not
involving action in his official capacity, in which the director is adjudged
liable on the basis that personal benefit was improperly received by him.
Indemnification permitted under Section 271B.8-510 in connection with a
proceeding by or in the right of the corporation shall be limited to
reasonable expenses incurred in connection with the proceeding. Section
271B.8-560 provides that a Kentucky corporation may indemnify its officers,
employees and agents to the same extent as directors.
Unless limited by a corporation's articles of incorporation, Section 271B.8-
520 further provides mandatory indemnification against reasonable expenses
incurred in connection with a proceeding for each director and officer who is
wholly successful, on the merits or otherwise, in the defense of any
proceeding to which such director or officer was made a party because of their
official capacity with the corporation. Additionally, Section 271B.8-570
provides that a corporation may purchase and maintain insurance on behalf of
directors, officers, employees or agents of the corporation against liability
asserted against or incurred by such party in their respective capacity with
the corporation.
All directors and officers of FRCI are covered by insurance policies against
certain liabilities for actions taken in such capacities, including
liabilities maintained and held in effect by FRCI under the Securities Act of
1933.
M&FECI and M&MPI. M&FECI and M&MPI are incorporated under the laws of the
State of Alabama. Section 10-2B-8.51 of the 1994 Alabama Business Corporation
Act provides that a corporation may indemnify an individual made a party to a
proceeding because he is or was a director of the company against liability
incurred in the proceeding if the individual conducted himself in good faith
and, in the case of conduct in his
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official capacity with the company, reasonably believed that his conduct was
in the best interests of the company or, in all other cases that the conduct
was at least not opposed to the best interests of the company, and, in the
case of any criminal proceeding, he has no reasonable cause to believe his
conduct was unlawful. A corporation may not, however, indemnify a director
under Section 10-2B-8.51 in connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the corporation;
or in connection with any other proceeding charging improper personal benefit
of the director in which the director was adjudged liable on the basis that
personal benefit was improperly received by him.
Sections 10-2B-8.52 and 10-2B-8.56 provide that a corporation shall
indemnify a director or officer who was successful in the defense of any
proceeding, or of any claim, issue or matter in such proceeding, where he was
a party because he is or was a director or officer of the corporation, against
reasonable expenses incurred in connection therewith, notwithstanding that he
was not successful on any other claim, issue or matter in any such proceeding.
Sections 10-2B-8.53 and 10-2B-8.56(b) provide that a corporation may pay for
or reimburse the reasonable expenses incurred by a director, officer, employee
or agent of the corporation who is a party to a proceeding in
advance of final disposition of the proceeding if such individual furnishes
the corporation a written affirmation of good faith belief that he met the
standard of conduct required for permissive indemnification set forth in
Section 10-2B-8.51; and such individual furnishes the corporation a written
undertaking to repay the advance if it is ultimately determined that such
person did not meet such standard of conduct or is not otherwise entitled to
indemnification under Section 8.51 unless indemnification is approved by the
court under Section 8.54; and, a determination is made that the facts then
known to those making the determination would not preclude indemnification.
Article X of the by-laws of M&FECI provides that each director, officer,
employee or agent of the corporation who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, administrative, criminal or investigative (other
than an act by or in the right of the corporation) by reason of the fact he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit or investigation proceeding if he acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interest
of the corporation or other organization above, and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
willful misconduct in the performance of his duty to the corporation unless
and only to the extent that the court in which such action or suit was brought
shall determine upon application there, despite the adjudication or liability
but in view of all circumstances of the case, such person is fairly and
reasonably entitled to indemnify for such expenses which such court shall deem
proper. The termination of any action, suit or proceeding by judgement, order
or settlement shall not, of itself, create a presumption that the person did
not act in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation.
Section 10-2B-8.57 further provides that a corporation may purchase and
maintain insurance, or furnish similar protection (including but not limited
to trust funds, self-insurance reserves, or the like), on behalf of an
individual who is or was a director, officer, employee, or agent of the
corporation, or who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture trust, employee benefit plan,
or other enterprise, against liability asserted against or incurred by him or
her in that capacity or arising from his or her status as a director, officer,
employee, or agent, whether or not the corporation would have power to
indemnify him or her against the same liability.
Article X of the by-laws of M&FECI further provides that the corporation may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is
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or was serving at the request of the corporation as a director, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation has the power to indemnify him against such
liability under the law of the State of Alabama.
All directors and officers of M&FECI and M&MPI are covered by insurance
policies against certain liabilities for actions taken in such capacities,
including liabilities maintained and held in effect by M&FECI and M&MPI under
the Securities Act of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
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3.1(i) Certificate of Incorporation of the Company.*
3.1(ii) Certificate of Amendment dated January 3, 1997 to Certificate
of Incorporation of the Company.*
3.1(iii) Certificate of Amendment dated October 28, 1997 to Certificate
of Incorporation of the Company.*
3.2 By-laws of the Company*
3.3 Certificate of Incorporation of NES Michigan Acquisition Corp.*
3.4 By-laws of NES Michigan Acquisition Corp.*
3.5 Certificate of Incorporation of NES Acquisition Corp.*
3.6 By-laws of NES Acquisition Corp.*
3.7 Certificate of Incorporation of BAT Acquisition Corp.*
3.8 By-laws of BAT Acquisition Corp.*
3.9 Certificate of Incorporation of NES East Acquisition Corp.*
3.10 By-laws of NES East Acquisition Corp.*
3.11 Certificate of Incorporation of Albany Ladder Company, Inc.*
3.12 By-laws of Albany Ladder Company, Inc.*
3.13(i) Articles of Incorporation of Falconite, Inc.
3.13(ii) Articles of Amendment to the Articles of Incorporation of
Falconite, Inc.
3.14 Amended and Restated By-laws of Falconite, Inc.
3.15 Charter of Carl's Mid South Rent-All Center Incorporated.
3.16 By-laws of Carl's Mid South Rent-All Center Incorporated.
3.17 Certificate of Incorporation of Falconite Aviation, Inc.
3.18 By-laws of Falconite Aviation, Inc.
3.19(i) Articles of Incorporation of Falconite Equipment, Inc. (f/k/a
Falconite, Inc.).
3.19(ii) Articles of Amendment to the Articles of Incorporation of
Falconite Equipment, Inc. (f/k/a Falconite, Inc.).
3.20 By-laws of Falconite Equipment, Inc. (f/k/a Falconite, Inc.).
3.21 Articles of Incorporation of Falconite Rebuild Center, Inc.
3.22 By-laws of Falconite Rebuild Center, Inc.
3.23 Articles of Incorporation of McCurry & Falconite Equipment Co.,
Inc.
3.24 By-laws of McCurry & Falconite Equipment Co., Inc.
3.25 Articles of Incorporation of M&M Properties, Inc.
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3.26 By-laws of M&M Properties, Inc.
4.1(i) Indenture dated November 25, 1997 by and among the Company, the
Subsidiary Guarantors and Harris Savings and Trust Company, as
trustee.*
4.1(ii) Supplemental Indenture dated April 1, 1998 by and among NES
East Acquisition Corp., NES Michigan Acquisition Corp., Albany
Ladder Company, Inc. and Harris Savings and Trust Company, as
trustee.*
4.1(iii) Supplemental Indenture dated July 23, 1998 by and among
Falconite, Inc., Carl's Mid South Rent-All Center Incorporated,
Falconite Aviation, Inc., Falconite, Equipment, Inc., Falconite
Rebuild Center, Inc., McCurry & Falconite Equipment Co., Inc.,
M&M Properties, Inc. and Harris Savings and Trust Company, as
trustee.
4.2 Forms of Series A and Series B 10% Senior Subordinated Notes
(contained in Exhibit 4.1(i) as Exhibit A thereto).*
4.3 Form of Subsidiary Guarantee (contained in Exhibit 4.1(i) as
Exhibit D thereto).*
4.4 Registration Rights Agreement dated as of November 25, 1997
among the Company, Aerial Platforms, Inc., NES Acquisition
Corp., BAT Acquisition Corp., MST Enterprises, Inc. and the
Initial Purchasers.*
4.5 Purchase Agreement dated as of November 20, 1997 among the
Company, Aerial Platforms, Inc., NES Acquisition Corp., BAT
Acquisition Corp., MST Enterprises, Inc. and the Initial
Purchasers.*
4.6 Credit Agreement dated as of July 17, 1998 by and among the
Company, as Borrower, NES Acquisition Corp., BAT Acquisition
Corp., NES East Acquisition Corp., NES Michigan Acquisition
Corp., Albany Ladder Company, Inc., Falconite, Inc., Falconite
Equipment, Inc., M&M Properties, Inc., Carl's Mid South Rent-
All Center Incorporated, Falconite Rebuild Center, Inc.,
Falconite Aviation, Inc. and McCurry & Falconite Equipment Co.,
Inc., as Guarantors, certain financial institutions, as
Lenders, and First Union National Bank, as Lender and Agent.
4.7 Pledge Agreement dated as of July 17, 1998 by and among the
Company, NES Acquisition Corp., BAT Acquisition Corp., NES East
Acquisition Corp., NES Michigan Acquisition Corp., Albany
Ladder Company, Inc., Falconite, Inc., Falconite Equipment,
Inc., M&M Properties, Inc., Carl's Mid South Rent-All Center
Incorporated, Falconite Rebuild Center, Inc., Falconite
Aviation, Inc., McCurry & Falconite Equipment Co., Inc. and
First Union National Bank, as Agent.
4.8 Security Agreement dated as of July 17, 1998 among the Company,
NES Acquisition Corp., BAT Acquisition Corp., NES East
Acquisition Corp., NES Michigan Acquisition Corp., Albany
Ladder Company, Inc., Falconite, Inc., Falconite Equipment,
Inc., M&M Properties, Inc., Carl's Mid South Rent-All Center
Incorporated, Falconite Rebuild Center, Inc., Falconite
Aviation, Inc., McCurry & Falconite Equipment Co., Inc. and
First Union National Bank, as Agent.
5.1 Opinion and consent of Kirkland & Ellis.*
10.1(i) Professional Services Agreement dated as of June 4, 1996 by and
between the Company and Golder, Thoma, Cressey, Rauner Fund IV,
L.P.*
10.1(ii) Amendment No. 1 to Professional Services Agreement dated as of
December 31, 1996 between the Company and Golder, Thoma,
Cressey, Rauner Fund IV, L.P.*
10.2 Purchase Agreement dated as of June 4, 1996 between the Company
and Golder, Thoma, Cressey, Rauner Fund IV, L.P.*
10.3(i) Stockholders Agreement dated as of June 4, 1996 by and between
the Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and
certain Executives named therein.*
10.3(ii) Amendment No. 1 to Stockholders Agreement dated December 31,
1996 by and among the Company, Golder, Thoma, Cressey, Rauner
Fund IV, L.P. and certain Executives named therein.*
10.4(i) Registration Agreement dated as of June 4, 1996 between dated
as of June 4, 1996 between the Company and Golder, Thoma,
Cressey, Rauner Fund IV, L.P. and certain Executives named
therein.*
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10.4(ii) Amendment No. 1 to Registration Agreement dated as of December
31, 1996 by and among the Company, Golder, Thoma, Cressey,
Rauner Fund IV, L.P. and certain Executives named therein.*
10.4(iii) Amendment No. 2 to Registration Agreement dated as of July 24,
1998 by and among the Company, Golder, Thoma, Cressey, Rauner
Fund IV, L.P. and R & R Rentals, Inc.
10.5(i) Senior Management Agreement dated as of June 4, 1996 between
the Company and Kevin Rodgers.*, **
10.5(ii) Amendment No. 1 to Senior Management Agreement dated December
31, 1996 between the Company and Kevin Rodgers.*, **
10.6(i) Senior Management Agreement dated as of June 4, 1996 between
the Company and Paul Ingersoll.*, **
10.6(ii) Amendment No. 1 to Senior Management Agreement dated December
31, 1996 between the Company and Paul Ingersoll.*, **
10.7 Senior Management Agreement dated as of December 31, 1996
between the Company and Dennis O'Connor.*, **
10.8 Executive Stock Pledge Agreement dated as of June 4, 1996
between the Company and Kevin Rodgers.*
10.9 Executive Stock Pledge Agreement dated as of June 4, 1996
between the Company and Paul Ingersoll.*
10.10 Executive Stock Pledge Agreement dated as of December 31, 1996
between the Company and Dennis O'Connor.*
10.11 Promissory Note dated as of January 6, 1997 by Kevin Rodgers
in favor of the Company in the principal amount of $63,232.*
10.12 Promissory Note dated as of January 6, 1997 by Paul Ingersoll
in favor of the Company in the principal amount of $9,880.*
10.13 Promissory Note dated as of January 6, 1997 by Dennis O'Connor
in favor of the Company in the principal amount of $19,760.*
10.14 Securities Transfer Agreement dated as of December 31, 1996 by
and among the Company, Golder, Thoma, Cressey, Rauner Fund IV,
L.P., Golder, Thoma, Cressey, Rauner Fund V, L.P., Kevin
Rodgers, Paul Ingersoll and Dennis O'Connor.*
10.15 Asset Purchase Agreement dated as of January 6, 1997 by and
among NES Acquisition Corp., Industrial Crane Maintenance
Systems, Inc., Brazos Rental & Tool, Inc., Safe Work Load
Products, Inc. and certain stockholders of the Sellers
referred to therein.*
10.16 Stock Purchase Agreement dated as of February 18, 1997 by and
among Aerial Platforms, Inc., Carter B. Wilson and the
Company.*
10.17 Asset Purchase Agreement dated as March 17, 1997 by among NES
Acquisition Corp., Lone Star Rentals, Inc. and James Horsley.*
10.18 Asset Purchase Agreement dated as of April 1, 1997 by and
among, BAT Acquisition Corp., BAT Rentals, Inc. and Paul B.
Bronken.*
10.19 Asset Purchase Agreement dated as of July 1, 1997 by and among
NES Acquisition Corp., Sprint Industrial Services, Inc.,
Joseph B. Swinbank and Donald Poarch.*
10.20 Stock Purchase Agreement dated as of July 18, 1997 by and
among MST Enterprises, Inc., the stockholders of MST
Enterprises, Inc. and National Equipment Services, Inc.*
10.21 Asset Purchase Agreement dated as of January 16, 1998 by and
among McNabb Enterprises, Inc., the stockholders of McNabb
Enterprises, Inc. and BAT Acquisition Corp.*
10.22 Asset Purchase Agreement dated as of January 23, 1998 by and
among NES Michigan Acquisition Corp., Grand Hi-Reach, Inc. and
Allen Baker.*
10.23 Stock Purchase Agreement dated as of January 12, 1998 by and
among Genpower Pump & Equipment Co., Inc., the stockholders of
Genpower Pump & Equipment Co., Inc. and the Company.*
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10.24 Asset Purchase Agreement dated as of February 4, 1998 by and
among NES Michigan Acquisition Corp., Work Safe Supply Co.,
Inc., Dan J. Babcock and Kathy Babcock.*
10.25 Asset Purchase Agreement dated as of March 2, 1998 by and
among The Modern Group, Inc., the Stockholders of The Modern
Group, Inc., Southeast Texas Intermediary, Inc. and NES
Acquisition Corp.*
10.26 Asset Purchase Agreement dated as of February 9, 1998 by and
between Cormier Equipment Corporation and NES Acquisition
Corp.*
10.27 Assignment and Assumption Agreement dated as of March 4, 1998
among NES Acquisition Corp. and NES East Acquisition Corp.*
10.28 Lease dated January 6, 1997 by and between ES&L Service and
NES Acquisition Corp.*
10.29 Lease Agreement dated as of May 30, 1990 by and between Weeks
Super Partnership, LTD and Aerial Platforms, Inc.*
10.30 Lease Agreement dated as of March 17, 1997 by and between
James Horsley and NES Acquisition Corp. relating to 3440 Red
Bluff Road, Pasadena, Texas.*
10.31 Lease dated as of April 1, 1997 by and between BAT Rentals,
Inc. and BAT Acquisition Corp.*
10.32 Lease Agreement dated as of July 18, 1997 by and between March
S. Trubitz, Suellen Trubitz and MST Enterprises, Inc.*
10.33 Stock Purchase Agreement dated as of March 9, 1998 by and
among the Company, Albany Ladder Company, Inc. and the
stockholders of Albany Ladder Company, Inc.*
10.34 Stock Purchase Agreement dated as of April 1, 1998 by and
among the Company, Falconite, Inc. and the stockholders of
Falconite, Inc.*
10.35 National Equipment Services, Inc. 1998 Long Term Equity
Incentive Plan.** (1)
10.36 Asset Purchase Agreement dated as of July 24, 1998 by and
among NES Acquisition Corp., R&R Rentals, Inc. and the
stockholders of R&R Rentals, Inc.
11.1 Statement re Computation of Per Share Earnings. Not required
because the relevant computations can be clearly determined
from the material contained in the financial statements
included herein.
12.1 Statement Regarding Computation of Ratios of Earnings to Fixed
Charges.
21.1 Subsidiaries of the Company.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Albin, Randall & Bennett.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of KPMG Peat Marwick L.L.P.
23.5 Consent of Lawrence, Blackburn Meek Maxey & Co. P.C.
23.6 Consent of Kirkland & Ellis (included in Exhibit 5.1).*
24.1(i) Powers of Attorney of Directors and Officers of the Company,
NES Acquisition Corp. and BAT Acquisition Corp.*
24.1(ii) Powers of Attorney of Directors and Officers of NES Michigan
Acquisition Corp., NES East Acquisition Corp. and Albany
Ladder Company, Inc.*
24.1(iii) Power of Attorney of Director of the Company.*
24.1(iv) Powers of Attorney of Directors and Officers of Carl's Mid
South Rent-All Center Incorporated, Falconite Aviation, Inc.,
Falconite Equipment, Inc., Falconite, Inc., Falconite Rebuild
Center, Inc., McCurry & Falconite Equipment Co., Inc. and M&M
Properties, Inc.
25.1 Statement of Eligibility of Trustee on Form T-1.*
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Tender Instructions.*
</TABLE>
II-10
<PAGE>
- --------
*Filed previously.
**Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-49223).
(B) FINANCIAL STATEMENT SCHEDULES.
Schedule I--National Equipment Services, Inc. (Parent Company Only)--
Condensed Financial Information of Registrant.
Schedule II--National Equipment Services, Inc. and Subsidiaries--Valuation
and Qualifying Accounts and Reserves.
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therin, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, National
Equipment Services, Inc. has duly caused this Amendment No. 3 to Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Evanston, State of Illinois, on July 29, 1998.
NATIONAL EQUIPMENT SERVICES, INC.
/s/ PAUL R. INGERSOLL
BY: _________________________________
Paul R. Ingersoll
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement on Form S-4 has been signed on July 29, 1998
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Kevin P. Rodgers
* Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Dennis J. O'Connor Accounting Officer)
* Chairman of the Board
___________________________________________
Carl D. Thoma
* Director
___________________________________________
William C. Kessinger
* Director
___________________________________________
John L. Grove
* Director
___________________________________________
Ronald St. Clair
</TABLE>
- --------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on Form S-4 on behalf of the
above named officers and directors of National Equipment Services, Inc.
pursuant to the Power of Attorney executed by such officers and directors
and filed with the Securities and Exchange Commission.
<TABLE>
<S> <C>
/s/ PAUL R. INGERSOLL
___________________________________________
Paul R. Ingersoll
Attorney-in-fact
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, NES Acquisition
Corp. has duly caused this Amendment No. 3 to Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Evanston, State of Illinois, on July 29, 1998.
NES ACQUISITION CORP.
/s/ PAUL R. INGERSOLL
BY: _________________________________
Paul R. Ingersoll
Vice President, Treasurer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement on Form S-4 has been signed on July 29, 1998
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Kevin P. Rodgers
* Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Dennis J. O'Connor Accounting Officer)
* Director
___________________________________________
Carl D. Thoma
* Director
___________________________________________
William C. Kessinger
</TABLE>
- --------
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on Form S-4 on behalf of the
above named officers and directors of NES Acquisition Corp. pursuant to the
Power of Attorney executed by such officers and directors and filed with
the Securities and Exchange Commission.
/s/ PAUL R. INGERSOLL
- -------------------------------
Paul R. Ingersoll
Attorney-in-fact
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, NES Michigan
Acquisition Corp. has duly caused this Amendment No. 3 to Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Evanston, State of Illinois, on July 29, 1998.
NES MICHIGAN ACQUISITION CORP.
/s/ PAUL R. INGERSOLL
BY: _________________________________
Paul R. Ingersoll
Vice President, Treasurer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement on Form S-4 has been signed on July 29, 1998
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Kevin P. Rodgers
* Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Dennis J. O'Connor Accounting Officer)
* Director
___________________________________________
Carl D. Thoma
* Director
___________________________________________
</TABLE> William C. Kessinger
- --------
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on Form S-4 on behalf of the
above named officers and directors of NES Michigan Acquisition Corp.
pursuant to the Power of Attorney executed by such officers and directors
and filed with the Securities and Exchange Commission.
/s/ PAUL R. INGERSOLL
- -------------------------------
Paul R. Ingersoll
Attorney-in-fact
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, NES East
Acquisition Corp. has duly caused this Amendment No. 3 to Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Evanston, State of Illinois, on July 29, 1998.
NES EAST ACQUISITION CORP.
/s/ PAUL R. INGERSOLL
By:__________________________________
Paul R. Ingersoll
Vice President, Treasurer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement on Form S-4 has been signed on July 29, 1998
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Kevin P. Rodgers
* Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Dennis J. O'Connor Accounting Officer)
* Director
___________________________________________
Carl D. Thoma
* Director
___________________________________________
William C. Kessinger
</TABLE>
- --------
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on Form S-4 on behalf of the
above named officers and directors of NES East Acquisition Corp. pursuant
to the Power of Attorney executed by such officers and directors and filed
with the Securities and Exchange Commission.
/s/ PAUL R. INGERSOLL
- ------------------------------------------
Paul R. Ingersoll
Attorney-in-fact
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, BAT Acquisition
Corp. has duly caused this Amendment No. 3 to Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Evanston, State of Illinois, on July 29, 1998.
BAT ACQUISITION CORP.
/s/ PAUL R. INGERSOLL
BY: _________________________________
Paul R. Ingersoll
Vice President, Treasurer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement on Form S-4 has been signed on July 29, 1998
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Kevin P. Rodgers
* Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Dennis J. O'Connor Accounting Officer)
* Director
___________________________________________
Carl D. Thoma
* Director
___________________________________________
</TABLE> William C. Kessinger
- --------
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on Form S-4 on behalf of the
above named officers and directors of BAT Acquisition Corp. pursuant to the
Power of Attorney executed by such officers and directors and filed with
the Securities and Exchange Commission.
/s/ PAUL R. INGERSOLL
- -------------------------------
Paul R. Ingersoll
Attorney-in-fact
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Albany Ladder
Company, Inc. has duly caused this Amendment No. 3 to Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Evanston, State of Illinois, on July 29, 1998.
ALBANY LADDER COMPANY, INC.
/s/ PAUL R. INGERSOLL
BY: _________________________________
Paul R. Ingersoll
Vice President, Treasurer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement on Form S-4 has been signed on July 29, 1998
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Kevin P. Rodgers
* Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Dennis J. O'Connor Accounting Officer)
* Director
___________________________________________
Carl D. Thoma
* Director
___________________________________________
</TABLE> William C. Kessinger
- --------
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on Form S-4 on behalf of the
above named officers and directors of Albany Ladder Company, Inc. pursuant
to the Power of Attorney executed by such officers and directors and filed
with the Securities and Exchange Commission.
/s/ PAUL R. INGERSOLL
- -------------------------------
Paul R. Ingersoll
Attorney-in-fact
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Falconite, Inc.
has duly caused this Amendment No. 3 to Registration Statement on Form S-4 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Evanston, State of Illinois, on July 29, 1998.
FALCONITE, INC.
/s/ PAUL R. INGERSOLL
BY: ____________________________
Paul R. Ingersoll
Vice President, Treasurer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement on Form S-4 has been signed on July 29, 1998
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Kevin P. Rodgers
* Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Dennis J. O'Connor Accounting Officer)
* Director
___________________________________________
Carl D. Thoma
* Director
___________________________________________
William C. Kessinger
</TABLE>
- --------
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on Form S-4 on behalf of the
above named officers and directors of Falconite, Inc. pursuant to the Power
of Attorney executed by such officers and directors and filed with the
Securities and Exchange Commission.
/s/ PAUL R. INGERSOLL
- -------------------------------
Paul R. Ingersoll
Attorney-in-fact
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Carl's Mid South
Rent-All Center Incorporated has duly caused this Amendment No. 3 to
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Evanston, State of
Illinois, on July 29, 1998.
CARL'S MID SOUTH RENT-ALL CENTER
INCORPORATED
/s/ PAUL R. INGERSOLL
BY: ____________________________
Paul R. Ingersoll
Vice President, Treasurer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement on Form S-4 has been signed on July 29, 1998
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Kevin P. Rodgers
* Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Dennis J. O'Connor Accounting Officer)
* Director
___________________________________________
Carl D. Thoma
* Director
___________________________________________
William C. Kessinger
</TABLE>
- --------
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on Form S-4 on behalf of the
above named officers and directors of Carl's Mid South Rent-All Center
Incorporated pursuant to the Power of Attorney executed by such officers
and directors and filed with the Securities and Exchange Commission.
/s/ PAUL R. INGERSOLL
- -------------------------------
Paul R. Ingersoll
Attorney-in-fact
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Falconite
Aviation, Inc. has duly caused this Amendment No. 3 to Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Evanston, State of Illinois, on July 29, 1998.
FALCONITE AVIATION, INC.
/s/ PAUL R. INGERSOLL
BY: ____________________________
Paul R. Ingersoll
Vice President, Treasurer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement on Form S-4 has been signed on July 29, 1998
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Kevin P. Rodgers
* Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Dennis J. O'Connor Accounting Officer)
* Director
___________________________________________
Carl D. Thoma
* Director
___________________________________________
William C. Kessinger
</TABLE>
- --------
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on Form S-4 on behalf of the
above named officers and directors of Falconite Aviation, Inc. pursuant to
the Power of Attorney executed by such officers and directors and filed
with the Securities and Exchange Commission.
/s/ PAUL R. INGERSOLL
- -------------------------------
Paul R. Ingersoll
Attorney-in-fact
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Falconite
Equipment, Inc. has duly caused this Amendment No. 3 to Registration Statement
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Evanston, State of Illinois, on July 29, 1998.
FALCONITE EQUIPMENT, INC.
/s/ PAUL R. INGERSOLL
BY: ____________________________
Paul R. Ingersoll
Vice President, Treasurer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement on Form S-4 has been signed on July 29, 1998
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Kevin P. Rodgers
* Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Dennis J. O'Connor Accounting Officer)
* Director
___________________________________________
Carl D. Thoma
* Director
___________________________________________
William C. Kessinger
</TABLE>
- --------
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on Form S-4 on behalf of the
above named officers and directors of Falconite Equipment, Inc. pursuant to
the Power of Attorney executed by such officers and directors and filed
with the Securities and Exchange Commission.
/s/ PAUL R. INGERSOLL
- -------------------------------
Paul R. Ingersoll
Attorney-in-fact
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Falconite
Rebuild Center, Inc. has duly caused this Amendment No. 3 to Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Evanston, State of Illinois, on July 29, 1998.
FALCONITE REBUILD CENTER, INC.
/s/ PAUL R. INGERSOLL
BY: ____________________________
Paul R. Ingersoll
Vice President, Treasurer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement on Form S-4 has been signed on July 29, 1998
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Kevin P. Rodgers
* Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Dennis J. O'Connor Accounting Officer)
* Director
___________________________________________
Carl D. Thoma
* Director
___________________________________________
William C. Kessinger
</TABLE>
- --------
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on Form S-4 on behalf of the
above named officers and directors of Falconite Rebuild Center, Inc.
pursuant to the Power of Attorney executed by such officers and directors
and filed with the Securities and Exchange Commission.
/s/ PAUL R. INGERSOLL
- -------------------------------
Paul R. Ingersoll
Attorney-in-fact
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, McCurry &
Falconite Equipment Co., Inc. has duly caused this Amendment No. 3 to
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Evanston, State of
Illinois, on July 29, 1998.
McCURRY & FALCONITE EQUIPMENT CO.,
INC.
/s/ PAUL R. INGERSOLL
BY: ____________________________
Paul R. Ingersoll
Vice President, Treasurer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement on Form S-4 has been signed on July 29, 1998
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Kevin P. Rodgers
* Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Dennis J. O'Connor Accounting Officer)
* Director
___________________________________________
Carl D. Thoma
* Director
___________________________________________
William C. Kessinger
</TABLE>
- --------
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on Form S-4 on behalf of the
above named officers and directors of McCurry & Falconite Equipment Co.,
Inc. pursuant to the Power of Attorney executed by such officers and
directors and filed with the Securities and Exchange Commission.
/s/ PAUL R. INGERSOLL
- -------------------------------
Paul R. Ingersoll
Attorney-in-fact
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, M&M Properties,
Inc. has duly caused this Amendment No. 3 to Registration Statement on Form S-
4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Evanston, State of Illinois, on July 29, 1998.
M&M PROPERTIES, INC.
/s/ PAUL R. INGERSOLL
BY: ____________________________
Paul R. Ingersoll
Vice President, Treasurer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement on Form S-4 has been signed on July 29, 1998
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Kevin P. Rodgers
* Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Dennis J. O'Connor Accounting Officer)
* Director
___________________________________________
Carl D. Thoma
* Director
___________________________________________
William C. Kessinger
</TABLE>
- --------
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to Registration Statement on Form S-4 on behalf of the
above named officers and directors of M&M Properties, Inc. pursuant to the
Power of Attorney executed by such officers and directors and filed with
the Securities and Exchange Commission.
/s/ PAUL R. INGERSOLL
- -------------------------------
Paul R. Ingersoll
Attorney-in-fact
II-24
<PAGE>
SCHEDULE I
NATIONAL EQUIPMENT SERVICES, INC.
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents.......................... $ 12 $ 34,789
Property and equipment, net........................ 17 87
Investment in subsidiaries......................... -- 86,504
Loan origination costs, net........................ -- 6,270
Prepaid and other assets, net...................... 187 222
----- --------
Total assets..................................... $ 216 $127,872
===== ========
LIABILITIES:
Accounts payable................................... $ -- $ 1,140
Accrued interest................................... -- 1,057
Accrued expenses and other liabilities............. 110 420
Debt............................................... -- 98,782
----- --------
Total liabilities................................ 110 101,399
Commitments and contingencies (Note 5)
STOCKHOLDERS' EQUITY:
Class A Common stock, $0.01 par, 50,000 shares
authorized, 0 and 25,011 shares issued and
outstanding, respectively......................... -- 1
Class B Common stock, $0.01 par, 150,000 shares
authorized, 30,108 and 89,900 shares issued and
outstanding, respectively......................... 1 1
Additional paid-in capital......................... 301 25,663
Retained earnings (accumulated deficit)............ (195) 910
Stock subscriptions receivable..................... (1) (102)
----- --------
Total stockholders' equity....................... 106 26,473
----- --------
Total liabilities and stockholders' equity....... $ 216 $127,872
===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-1
<PAGE>
SCHEDULE I
NATIONAL EQUIPMENT SERVICES, INC.
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JUNE 4, 1996) FOR THE YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
-------------- ------------
<S> <C> <C>
Equity in net income of subsidiaries................ $ -- $2,060
Selling, general and administrative expenses........ 333 1,352
Non-rental depreciation and amortization............ 3 54
----- ------
Operating income (loss)............................. (336) 654
Other income, net................................... -- 1,155
Interest income (expense), net...................... 4 (704)
----- ------
Income (loss) before income taxes................... (332) 1,105
Income tax benefit.................................. (137) --
----- ------
Net income (loss)................................... $(195) $1,105
===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-2
<PAGE>
SCHEDULE I
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
(PARENT COMPANY ONLY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JUNE 4, 1996) FOR THE YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
-------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................ $(195) $ 1,105
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................. 3 447
Undistributed equity income in subsidiaries.... -- (2,060)
Changes in operating assets and liabilities:
Prepaid and other assets..................... (187) (72)
Accounts payable............................. -- 1,140
Accrued expenses and other liabilities....... 110 1,367
----- ---------
Net cash provided by (used in) operating
activities................................ (269) 1,927
----- ---------
INVESTING ACTIVITIES:
Net cash paid for acquisitions................... -- (68,994)
Investment in subsidiaries....................... -- (15,450)
Purchases of property and equipment.............. (20) (88)
----- ---------
Net cash used in investing activities...... (20) (84,532)
----- ---------
FINANCING ACTIVITIES:
Proceeds from long-term debt..................... -- 222,307
Payments on long-term debt....................... -- (123,526)
Net proceeds from sales of common stock.......... 301 25,263
Payments of loan origination costs............... -- (6,662)
----- ---------
Net cash provided by financing activities.. 301 117,382
----- ---------
Net increase in cash and cash equivalents.......... 12 34,777
Cash and cash equivalents at beginning of period... -- 12
----- ---------
Cash and cash equivalents at end of period......... $ 12 $ 34,789
===== =========
SUPPLEMENTAL NON-CASH FLOW INFORMATION:
Cash paid for interest........................... $ -- $ 2,707
===== =========
Cash paid for income taxes....................... $ -- $ 1,113
===== =========
Non-cash issuance of stock....................... $ 1 $ 101
===== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-3
<PAGE>
SCHEDULE I
NATIONAL EQUIPMENT SERVICES, INC.
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED TOTAL
--------------- ADDITIONAL EARNINGS STOCK STOCK-
CLASS A CLASS B PAID-IN (ACCUMULATED SUBSCRIPTIONS HOLDERS'
SHARES SHARES CAPITAL DEFICIT) RECEIVABLE EQUITY
------- ------- ---------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares issued at
inception (June 4,
1996).................. $-- $ 1 $ 301 $ -- $ (1) $ 301
Net loss................ -- -- -- (195) -- (195)
---- ---- ------- ----- ----- -------
Balance at December 31,
1996................... -- 1 301 (195) (1) 106
Sale of shares.......... 1 -- 25,362 -- (101) 25,262
Net income.............. -- -- -- 1,105 -- 1,105
---- ---- ------- ----- ----- -------
Balance at December 31,
1997................... $ 1 $ 1 $25,663 $ 910 $(102) $26,473
==== ==== ======= ===== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-4
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
National Equipment Services, Inc. ("NES") was organized on June 4, 1996
under the laws of Delaware for the purpose of owning and operating equipment
rental facilities by means of acquiring existing businesses. NES is primarily
involved in the rental of equipment to construction and industrial users. NES
operates from locations in Alabama, Georgia, Louisiana, Nevada, Texas and
Virginia.
FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
Since inception, NES adopted Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and Long-
Lived Assets to be Disposed of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the assets' carrying amounts and related goodwill exceed the
undiscounted cash flows estimated to be generated by those assets. SFAS No.
121 also requires impairment losses to be recorded when the carrying amount of
long-lived assets that are expected to be disposed of exceeds their fair
values, net of disposal costs. SFAS No. 121 did not have a material impact on
NES's financial position or results of operations for the period from
inception (June 4, 1996) through December 31, 1996 or year ended December 31,
1997.
REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. The Statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. The Statement is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements
for earlier periods provided for comparative purposes is required. The Company
intends to adopt SFAS No. 130 in 1998.
LOAN ORIGINATION COSTS
Loan origination costs are stated at cost and amortized to interest expense
using the effective interest method over the life of the loan. Amortization
expense related to loan origination costs aggregated $392,000 for the year
ended December 31, 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash,
trade accounts receivable, accounts payable and other liabilities approximate
fair value due to the immediate to short-term maturity of these financial
instruments. The fair value of the Senior Subordinated Notes is based on
quoted market prices and approximates the carrying value at December 31, 1997.
The carrying value of bank debt approximates fair value as the interest on the
bank debt is reset every 30 to 90 days to reflect current market rates.
S-5
<PAGE>
INCOME TAXES
Provisions are made to record deferred income taxes in recognition of items
reported differently for financial reporting purposes than for federal and
state income tax purposes. NES records deferred income taxes using the
liability method in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. The Company and its
subsidiaries will file a consolidated tax return for the year ended December
31, 1997.
RELATED PARTY TRANSACTIONS
As disclosed in these financial statements, NES has participated in certain
transactions with related parties.
2. ACQUISITIONS
In 1997, NES purchased the following rental equipment companies:
<TABLE>
<CAPTION>
PURCHASE
ACQUISITION DATE COMPANY LOCATION PRICE
----------------- ----------------------------- ---------------- -----------
<C> <S> <C> <C>
January 6, 1997 Brazos Rental & Tool, Inc.,
Industrial Crane Maintenance
Systems, Inc., and Safe Load
Work Products, Inc. Brazoria, TX $ 5,000,000
February 18, 1997 Aerial Platforms, Inc. Atlanta, GA $ 4,150,000
March 17, 1997 Lone Star Rentals, Inc. Houston, TX $10,950,000
April 1, 1997 BAT Rentals, Inc. Las Vegas, NV $15,900,000
July 1, 1997 Sprintank Houston, TX $25,300,000
July 18, 1997 MST Enterprises, Inc. Harrisonburg, VA $ 6,000,000
</TABLE>
The purchase prices above are subject to a customary purchase price
adjustment mechanism and assumption of certain seller liabilities.
The following pro forma financial information represents the unaudited pro
forma results of operations as if the aforementioned acquisitions had been
completed on January 1, 1996 and January 1, 1997, after giving effect to
certain adjustments including increased depreciation and amortization of
property and equipment and other assets and interest expense for acquisition
debt. These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which would
have been achieved had these acquisitions been completed as of these dates,
nor are the results indicative of NES's future results of operations.
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
(UNAUDITED) (UNAUDITED)
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Revenues....................................... $48,040 $56,858
Operating income............................... 9,012 10,382
Net income..................................... 158 1,143
</TABLE>
S-6
<PAGE>
3. DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Senior subordinated notes, interest at 10% payable semi-
annually, due November 30, 2004............................ $98,782
Revolving credit facility loans, interest at the federal
funds rate plus 0.5% or prime rate both plus 1.0%, or the
eurodollar rate plus 2.5%, due no later than July 1, 2002.. --
Term loan, interest at the federal funds rate plus 0.5% or
prime rate both plus 1.0%, or the eurodollar rate plus
2.5%, principal payments due quarterly of $625 through June
1, 1998, $875 through June 1, 1999 and $1,125 through June
1, 2001.................................................... --
-------
$98,782
=======
</TABLE>
On November 20, 1997, NES issued $100 million of Senior Subordinated Notes
(the "Notes") at a discount netting proceeds of $98,767,000. NES accretes the
original issue discount over the term of the Notes using the effective
interest method. The Notes mature on November 30, 2004. Interest on the Notes
accrues at a rate of 10% per year and is payable semi-annually in arrears on
May 30 and November 30 commencing on May 30, 1998.
The Notes are redeemable at the option of the Company at any time after
November 30, 2001 at a redemption price of 105% of the principal amount from
November 30, 2001 to November 29, 2002, at 102.5% from November 30, 2002 to
November 29, 2003 and 100% after November 30, 2003, plus accrued and unpaid
interest. The Company may at any time prior to November 30, 2000 on any one or
more occasions redeem up to 33% of the aggregate principal amount of the Notes
at a redemption price of 110% of the principal amount plus accrued and unpaid
interest with the net cash proceeds of a public offering of common stock of
NES within 45 days of the closing of such public offering. In addition, at any
time prior to November 30, 2001, the Notes may be redeemed as a whole, at the
option of NES, upon the occurrence of or in connection with a change of
control. Upon certain changes in control, the noteholders will have the right
to require redemption at a cash price of 101% of the principal amount plus
accrued and unpaid interest.
All of the Company's wholly-owned subsidiaries make full, unconditional,
joint and several guarantees of the notes. The separate financial statements
of each of these wholly-owned subsidiaries are not presented as management
believes they are not individually meaningful for presentations.
On July 1, 1997, NES entered into a credit facility agreement with First
Union Commercial Corporation (the "Credit Agreement"). The Credit Agreement
provides for a secured revolving line of credit of $100 million and a term
loan of $15 million. Interest accrues at rates of the greater of the annual
Federal Funds Rate plus 0.5% or the prime rate both plus 0.5% to 1.25% based
on NES's leverage ratio or at a rate of LIBOR/(1- eurodollar reserve
percentage) plus 2.0% to 2.75% based on NES's leverage ratio. Principal
payments for credit facility loans (to be applied first to the term loan and
if necessary to revolving loans) are due annually at the lesser of 25% of
excess cash flow or $1 million. Principal payments for the term loan are due
quarterly at $625,000 for the first four quarters, $875,000 for the next four
quarters and $1,125,000 for the next eight quarters. Substantially all assets
and stock of NES are pledged as collateral for the credit facility. NES pays
commitment fees of 0.5% to 0.375% on the unused portion of the outstanding
line of credit balance based on NES's leverage ratio. The term loan was repaid
as of December 31, 1997.
The Indenture for the Notes and the Credit Agreement contain a number of
covenants that, among other things, require NES to maintain certain financial
ratios and set certain limitations on the granting of liens, assets sales,
additional indebtedness, transactions with affiliates, restricted payments,
investments and issuances of stock. NES is in compliance with all covenants.
S-7
<PAGE>
The average interest rate for the year ended December 31, 1997 was 9.8%. NES
incurred interest expense of $76,000 on borrowings from related parties for
the year ended December 31, 1997.
4. INCOME TAXES
The income tax provision is comprised of current federal and state income
tax benefit of $(137,100) for the period from inception (June 4, 1996) through
December 31, 1996. Deferred tax benefit for this period was immaterial.
The provision for income taxes differs from the amount of income tax
determined by applying the U.S. statutory federal income tax rate of 34% to
income before income taxes as a result of the following (in thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JUNE 4, 1996) FOR THE YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
-------------- ------------
<S> <C> <C>
Federal income taxes.......................... $(113) $654
State income taxes, net of federal benefit.... (16) 94
Other......................................... (8) 70
----- ----
$(137) $818
===== ====
</TABLE>
For the year ended December 31, 1997, the income tax provision was recorded
at the subsidiary level.
5. COMMON STOCK
On June 4, 1996, in connection with the formation of NES, NES authorized
25,000 shares of Class A Common stock (24,250 of which were reserved for
issuance to NES's majority stockholder), par value $0.01, and 150,000 shares
of Class B Common stock (75,000 of which were reserved for issuance to NES's
majority stockholder), par value $0.01. On October 28, 1997, the authorized
shares of Class A Common stock were increased to 50,000.
Each calendar quarter, each share of Class A Common is entitled to a yield
in the amount of 10% per year of the sum of such share's unreturned original
cost plus the unpaid yield for all prior quarters. As of December 31, 1997,
the unpaid yield on the Class A Common aggregated $1,608,000. Class A Common
stockholders, as a class, are entitled to a number of votes equal to 10% of
the number of votes allocable to all Common Stock. Upon any distribution,
Class A Common stockholders are entitled to (i) the unpaid yield, (ii) any
unreturned original cost of the shares and (iii) 10% of any remaining
distribution. Class B Common stockholders are entitled to 90% of any remaining
distribution after payment to the Class A Common stockholders of all payments
under clauses (i) and (ii) set forth in the preceding sentence. Additionally,
only in the event of a successful initial public offering can the Class A
Common stockholders require a mandatory redemption of any or all of the shares
attributable to the unpaid yield and original cost of the shares.
NES may not declare additional distributions or dividends other than the
amounts described above for Class A Common shares, issue any debt securities
containing equity features, sell or dispose of more than 5% of the
consolidated assets of the Company in any transaction or series of related
transactions, acquire an interest in a business, acquire a business outside of
the rental equipment industry, or enter into certain related party
transactions, without the consent of a majority of the Class A Common and
Class B Common stockholders.
Class B Common stock sold to executives of NES vests over a 5 year period.
Unpaid notes receivable of $1,000 and $102,000 as of December 31, 1996 and
December 31, 1997, respectively, from executives of NES for shares of Class B
Common stock are classified as stock subscriptions receivable.
S-8
<PAGE>
6. COMMITMENTS AND CONTINGENCIES
NES is party to legal proceedings and potential claims arising in the
ordinary course of its business. In the opinion of management, the ultimate
resolution of these matters will have no material adverse effect on NES's
financial position, results of operations or cash flows.
7. EMPLOYEE BENEFIT PLANS
The Company sponsors a profit sharing and 401(k) plan (the "Plan") in which
employees over 21 years of age with greater than one-half year of service are
eligible. Under the Plan, NES contributes a discretionary percentage (2.5% for
the year ended December 31, 1997) of each eligible employee's base annual
wages to a trust out of its net profits. In addition, eligible employees can
defer up to 15% of their salary with a partially matching contribution by NES
of 50% of the first 5% of the employee contribution. The employer
contributions vest over a five year period. Contributions to the Plan were
made by the Company's subsidiaries.
8. RELATED PARTY TRANSACTIONS
Pursuant to a Professional Services Agreement dated January 6, 1997, NES
pays management fees of $200,000 per year and investment fees of 1% of all
debt and equity financings of NES to an affiliate of NES's majority
stockholder, who owns 95.0% of the Class A Common stock and 83% of the Class B
Common stock. Total fees paid during the year ended December 31, 1997 were
$417,000 and fees owed at December 31, 1997 were $630,000.
In connection with several of the acquisitions, NES entered into lease
agreements for certain facilities with employees of NES who were prior owners
of the acquired companies. Amounts due under these leases are included in the
future minimum rental commitments under noncancelable operating leases
schedule in Note 10 above.
Stock subscriptions receivable of $1,000 and $102,000 as of December 31,
1996 and 1997, respectively, relate to notes due from officers of NES related
to purchases of Class B Common Stock and are secured by the purchased Class B
Common shares. Interest on the notes accrues at the federal funds rate and is
payable in full at maturity on June 4, 2006 or upon termination of employment.
Accrued interest on these notes was $0 and $8,000 for the period from
inception (June 4, 1996) through December 31, 1996 and the year ended December
31, 1997, respectively.
9. SUBSEQUENT EVENTS
Subsequent to year end, NES purchased the following rental equipment
companies:
<TABLE>
<CAPTION>
PURCHASE
ACQUISITION DATE COMPANY LOCATION PRICE
---------------- --------------------------- ---------------- -----------
<C> <S> <C> <C>
January 12, 1998 Genpower Pump and Deer Park, TX $ 8,000,000
Equipment Co.
January 16, 1998 Eagle Scaffolding and
Equipment Co. Las Vegas, NV $ 3,290,000
January 23, 1998 Grand Hi-Reach, Inc. Byron Center, MI $ 8,120,000
February 4, 1998 Work Safe Supply Company, Grandville, MI $ 7,845,000
Inc.
March 2, 1998 Dragon Rentals (division of Beaumont, TX $23,000,000
The Modern Group, Inc.)
March 4, 1998 Cormier Equipment Oakland, ME $27,500,000
Corporation
March 30, 1998 Albany Ladder Albany, NY $43,454,000
</TABLE>
S-9
<PAGE>
The purchase prices above are subject to a customary purchase price
adjustment mechanism and assumption of certain seller liabilities. These
acquisitions will be accounted for under the purchase method based on the
purchase prices. Under the purchase method of accounting NES will allocate the
costs of these acquisitions, as of the respective closing dates, to the assets
acquired and liabilities assumed based on their respective fair values.
The operating results of these acquisitions will be included in NES's
consolidated results of operations from the date of acquisition. The following
pro forma financial information represents the unaudited pro forma results of
operations as if the aforementioned acquisitions had been completed on January
1, 1996 and January 1, 1997, after giving effect to certain adjustments
including increased depreciation and amortization of property and equipment
and intangible assets and interest expense for acquisition debt. These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations which would have been
achieved had these acquisitions been completed as of these dates, nor are the
results indicative of NES's future results of operations.
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
(UNAUDITED) (UNAUDITED)
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Revenues........................................ $120,475 $146,000
Operating income................................ 19,234 26,821
Net income...................................... 751 5,439
</TABLE>
Additionally, subsequent to year end, NES entered into a definitive purchase
agreement to acquire Falconite, Inc., a rental equipment company with
operations in nine southern and midwestern states for $171.25 million and
$3.75 million of 8% convertible subordinated promissory notes. This pending
acquisition is planned to close in 1998 in connection with an initial public
offering of the Company's stock.
S-10
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(AMOUNTS IN THOUSANDS OF DOLLARS)*
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
---------------------------------- -------
(1) (2)
BALANCE AT CHARGED TO COST CHARGED TO OTHER WRITE- BALANCE AT
DESCRIPTION JANUARY 1, 1997 AND EXPENSES ACCOUNTS--DESCRIBE OFFS DECEMBER 31, 1997
- ------------------------ --------------- --------------- ------------------ -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts............... $ 0 $479 $ 0 $225 $254
Reserve for obsolete
inventory.............. $ 0 $732 $ 0 $242 $490
</TABLE>
- --------
* There were no valuation and qualifying accounts and reserves as of December
31, 1996 or during the period then ended.
S-11
<PAGE>
Exhibit 3.13(i)
---------------
ARTICLES OF INCORPORATION
OF
FALCONITE, INC.
---------------
Pursuant to the provisions of The Illinois Business Corporation Act of
1983, the undersigned incorporator hereby adopts the following Articles of
Incorporation:
ARTICLE I
---------
The name of the Corporation is Falconite, Inc.
ARTICLE II
----------
The address, including street and number, of the Corporation's initial
registered office in this State is 208 S. LaSalle Street, Chicago, Illinois
60607, County of Cook, and the name of its initial registered agent at such
address is CT Corporation System.
ARTICLE III
-----------
The Corporation is formed for the purpose of transacting any or all lawful
businesses which may be conducted by corporations incorporated under The
Illinois Business Corporation Act of 1983.
ARTICLE IV
----------
4.1 The Corporation shall have authority to issue the following shares:
(1) Fifty Million (50,000,000) shares of Common Stock having a par value of
One Cent ($0.01) per share; and
(2) One Million (1,000,000) shares of Preferred Stock having a par value of
One Cent ($0.01) per share ("Preferred Stock").
<PAGE>
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the Common Stock with respect to the same
dividend period. Upon any voluntary or involuntary dissolution or liquidation
of the Corporation, the rights of the holders of the Common Stock shall be
junior and subordinate to the rights of the holders of the Preferred Stock.
(a) The Board of Directors, by adoption of an authorizing resolution,
may cause Preferred Stock to be issued from time to time in one or more series.
(b) The Board of Directors, by adoption of an authorizing resolution
with regard to the shares of any series of Preferred Stock, may:
(1) Fix the distinctive serial designation of the shares;
(2) Fix the dividend rate, if any;
(3) Fix the date from which dividends on shares issued before the
date for payment of the first dividend shall cumulate, if any:
(4) Fix the redemption price and terms of redemption, if any;
(5) Fix the amount payable per share in the event of dissolution
or liquidation of the Corporation, if any;
(6) Fix the terms and amounts of any sinking fund to be used for
the purchase or redemption of shares, if any;
(7) Fix the terms and conditions under which the shares may be
converted, if any;
(8) Provide whether such shares shall be nonvoting, or shall have
full or limited voting rights or voting rights contingent upon the
occurrence of specified events, and the rights, if any, of such shares
to vote as a class on some or all matters on which such shares may be
entitled to vote; and
(9) Establish any other preferences, qualifications, limitations,
restrictions and special or relative rights with respect to such
series not required by law.
-2-
<PAGE>
4.2 Except as otherwise required by The Illinois Business Corporation Act
of 1983, whenever the holders of shares of stock of the Corporation shall be
entitled to vote as a class with respect to any matter, the affirmative vote of
the holders of a majority of the outstanding shares of such class shall be
required to constitute the act of such class. There shall be no right to
cumulative voting in the election of directors.
ARTICLE V
---------
No holder of shares of any class of stock of the Corporation, either now or
hereafter authorized or issued, shall have any preemptive or preferential right
of subscription to any shares of any class of stock of the Corporation, either
now or hereafter authorized, or to any securities convertible into stock of any
class of the Corporation, issued or sold, nor any right of subscription to any
such security, other than such, if any, as the Board of Directors in its
discretion may from time to time determine and at such prices as the Board of
Directors may from time to time determine and at such prices as the Board of
Directors may from time to time fix, pursuant to the authority, conferred by
these Articles of Incorporation.
ARTICLE VI
----------
The class and number of shares which the Corporation proposes to issue
initially, and the consideration to be received by the Corporation therefor,
are:
<TABLE>
<CAPTION>
Total consideration
to be received
Class Number of Shares therefor
- ----- ---------------- -------------------
<S> <C> <C>
Common 100 $1,000
</TABLE>
-3-
<PAGE>
ARTICLE VII
-----------
7.1 The number of Directors to constitute the Board of Directors
shall be fixed, from time to time, at not less than three (3) nor more than ten
(10), by, or in the manner provided in, the By-Laws of the Corporation. The
Directors shall be divided into three classes: Class I, Class II and Class III.
The number of Directors in any such class shall not exceed the number of
Directors in any other class by more than one (1). The term of office of the
initial Class I Directors shall expire at the annual meeting of shareholders of
the Corporation in 1998; the term of office of the initial Class II Directors
shall expire at the annual meeting of shareholders of the Corporation in 1999;
and the term of office of the initial Class III Directors shall expire at the
annual meeting of shareholders of the Corporation in 2000; or in each case
thereafter until their respective successors are duly elected and qualified. At
each annual meeting beginning in 1998 the Directors elected to succeed those
whose terms then expire shall be identified as being of the same class as the
Directors they succeed and shall be elected for a term of three (3) years
expiring at the third succeeding annual shareholder meeting or thereafter until
their respective successors are duly elected and qualified. If the number of
Directors is changed, any increase or decease in the number of Directors shall
be apportioned among the classes so as to maintain the number of Directors in
each class as nearly as possible. Directors need not be residents of the State
of Illinois or shareholders of the Corporation.
7.2 Any vacancy of the Board (whether such vacancy is caused by
death, resignation, or removal for cause or is the result of a newly created
directorship) shall be filled by a majority of the Directors then in office.
Any Director elected to fill a vacancy in any class (whether such vacancy is
caused by death, resignation, or removal with cause, or is the result of an
increase in the number of Directors in such class) shall hold office for a term
which shall expire with the term of the Directors in such class.
-4-
<PAGE>
7.3 No Director may be removed without cause from office during such
Director's term of office. At a meeting called expressly for that purpose, any
Director may be removed by the shareholders for cause by the affirmative vote of
the holders of a majority of the shares entitled to vote at an election of
Directors.
ARTICLE VIII
------------
The duration of the Corporation is perpetual.
ARTICLE IX
----------
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation. Amendments to the
Articles of Incorporation shall be made in the manner prescribed by The Illinois
Business Corporation Act of 1983, provided that any amendment to these Articles
of Incorporation which has not been approved by the Board of Directors of the
Corporation shall be effective only upon the affirmative vote of the holders of
at least two-thirds (2/3) of the outstanding shares of Common Stock, and two-
thirds (2/3) of the outstanding shares of each other class or series of stock
entitled to vote as a class or series (if any) with respect to such amendment.
The power to make, alter, amend, or repeal the By-Laws of the Corporation shall
be vested in the Board of Directors, unless otherwise provided in such By-Laws.
The Board of Directors shall have and exercise such further powers as are
provided it under present or future laws of the State of Illinois.
ARTICLE X
---------
A director shall have no personal liability to the Corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director,
provided that the foregoing shall have no effect on a director's liability (i)
for any breach of the director's duty of loyalty to the Corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or
-5-
<PAGE>
a knowing violation of law, (iii) under Section 8.65 of the Illinois Business
Corporation Act of 1983, or (iv) for any transaction from which the director
derived an improper personal benefit.
ARTICLE XI
----------
11.1 The Corporation shall indemnify any person who was or is a
party, or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, if such person acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contenders or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interests of the
Corporation or, with respect to any criminal action or proceeding, that the
person had reasonable cause to believe that his or her conduct was unlawful.
11.2 The Corporation shall indemnify any person who was or is a
party, or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the
-6-
<PAGE>
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, if such person
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to the best interests of the Corporation, provided that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his or her duty to the Corporation, unless, and
only to the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper.
11.3 To the extent that a director, officer, employee or agent of the
Corporation has been successful, on the merits or otherwise, in the defense of
any action, suit or proceeding referred to in Section 11.1 and 11.2, or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
11.4 Any indemnification under Section 11.1 and 11.2 (unless ordered
by a court) shall be made by the Corporation only as authorized in the specific
case, upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Section 11.1 or 11.2 Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or even if obtainable, if
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or (3) by the shareholders.
-7-
<PAGE>
11.5 Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding, as authorized by the Board of Directors in
the specific case, upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount, unless it shall
ultimately be determined that he or she is entitled to be indemnified by the
Corporation as authorized in this Article.
11.6 This Article is intended to provide for indemnification to the
fullest extent permitted by law, as in effect on the date hereof or as hereafter
adopted or amended. The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any other By-Law, agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent, and shall inure to the benefit of the heirs, executors and
administrators of such a person.
11.7 The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or who is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of his
or her status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
Article.
-8-
<PAGE>
11.8 If the Corporation has paid indemnification or has advanced
expenses to a director, officer, employee or agent, the Corporation shall report
the indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders meeting.
11.9 For purposes of this Article, references to "the Corporation"
shall include, in addition to the surviving corporation, any merging corporation
(including any corporation having merged with a merging corporation) absorbed in
a merger which, if its separate existence had continued, would have had the
power and authority to indemnify its directors, officers, and employees or
agents, so that any person who was a director, officer, employee or agent of
such merging corporation, or was serving at the request of such merging
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article with respect to the surviving
corporation as such person would have with respect to such merging corporation
if its separate existence had continued.
11.10 For purposes of this Article, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries. A person who acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.
* * *
-9-
<PAGE>
The undersigned incorporator hereby declares, under penalties of
perjury, that the statements made in the foregoing Articles of Incorporation are
true.
Dated December 24, 1996
/s/ RONALD E. HAGLOF
--------------------------------------------
Ronald E. Haglof, Incorporator
One Mercantile Center
St. Louis, Missouri 63101
-10-
<PAGE>
Exhibit 3.13 (ii)
-----------------
Form BCA-10.30 ARTICLES OF AMENDMENT File # 5920-634-6
(Rev. Jan. 1995)
- -------------------------------------------------------------------------------
George H. Ryan
Secretary of State
Department of Business Services
Springfield, IL 62756
Telephone (217) 782-1832
- --------------------------------- ----------------------
THIS SPACE FOR USE BY
SECRETARY OF State
Date 07-17-98
Franchise Tax $
Filing Fee* $25.00
Penalty $
Approved:
- ---------------------------------- -----------------------
Remit payment in check or
money order, payable to
"Secretary of State."
*The filing fee for articles of
amendment - $25.00
- -------------------------------------------------------------------------------
1. CORPORATE NAME: Falconite, Inc.
------------------------------------------------------------
(Note 1)
2. MANNER OF ADOPTION OF AMENDMENT:
The following amendment of the Articles of Incorporation was adopted on
July 17, 1998 in the manner indicated below. ("X" one box only)
[_] By a majority of the incorporators, provided no directors were named in
the articles of incorporation and no directors have been elected;
(Note 2)
[_] By a majority of the board of directors, in accordance with Section
10.10, the corporation having issued no shares as of the time of adoption
of this amendment; (Note 2)
[_] By a majority of the board of directors, in accordance with the Section
10.15, shares having been issued but shareholder action not being
required for the adoption of the amendment; (Note 3)
[_] By the shareholders, in accordance with Section 10.20, a resolution of
the board of directors having been duly adopted and submitted to the
shareholders. At a meeting of shareholders, not less than the minimum
number of votes required by statute and by the articles of incorporation
were voted in favor of the amendment; (Note 4)
[_] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed by
shareholders having not less than the minimum number of votes required by
statute and by the articles of incorporation. Shareholders who have not
consented in writing have been given notice in accordance with Section
7.10; (Notes 4&5)
[X] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed by
all the shareholders entitled to vote on this amendment. (Note 5)
3. TEXT OF AMENDMENT:
a. When amendment effects a name change, insert the new corporate name
below. Use Page 2 for all other amendments.
Article I: The name of the corporation is:
_______________________________________________________________________________
(NEW NAME)
All changes other than name, include on page 2
(over)
<PAGE>
TEXT OF AMENDMENT
b. (If amendment affects the corporate purpose, the amended purpose is required
to be set forth in its entirety. If there is not sufficient space to do so,
add one or more sheets of this size.)
The Articles of Incorporation of the Corporation are hereby amended by deleting
ARTICLE VII thereof in its entirety and substituting therefor ARTICLE VII as
- ----------- -----------
follows:
"ARTICLE VII
-----------
7.1 The number of Directors to constitute the Board of Directors
shall be fixed, from time to time, at not less than three (3) nor more
than ten (10), by, or in the manner provided in, the By-Laws of the
Corporation.
7.2 Any vacancy on the Board (whether such vacancy is caused by
death, resignation or removal, or is the result of a newly created
directorship) shall be filled by a majority of the Directors then in
office.
7.3 At any properly called meeting of the shareholders, any Director
may be removed by the shareholders with or without cause by the
affirmative vote of the holders of a majority of the shares entitled
to vote at an election of Directors."
Page 2
<PAGE>
4. The manner, if not set forth in Article 3b, in which any exchange,
reclassification or cancellation of issued shares, or a reduction of the
number of authorized shares of any class below the number of issued shares
of that class, provided for or effected by this amendment, is as follows:
(if not applicable, insert "No change")
No Change
5. (a) The manner, if not set forth in Article 3b, in which said amendment
effects a change in the amount of paid-in capital (Paid-in capital replaces
the terms Stated Capital and Paid-in Surplus and is equal to the total of
these accounts) is as follows: (If not applicable, insert "No change")
No Change
(b) The amount of paid-in capital (Paid-in Capital replaces the terms Stated
Capital and Paid-in Surplus and is equal to the total of these accounts) as
changed by this amendment is as follows: (If not applicable, insert "No
change")
No Change
Before Amendment After Amendment
Paid-in Capital $ $
________________ _______________
(COMPLETE EITHER ITEM 6 OR 7 BELOW. ALL SIGNATURES MUST BE IN BLACK INK.)
---------
6. The undersigned corporation has caused this statement to be signed by its
duly authorized officers, each of whom affirms, under penalties of perjury,
that the facts stated herein are true.
Dated July 17 , 1998 Falconite, Inc.
----------- -------------------------------------
(Exact Name of Corporation at date of
execution)
attested by /s/ PAUL R. INGERSOLL by /s/ KEVIN P. RODGERS
--------------------- ---------------------------------
(Signature of Secretary (Signature of President or Vice
or Assistant Secretary) President
Paul Ingersoll, Secretary Kevin Rodgers, President
------------------------- ------------------------------------
(Type or Print Name and (Type or Print Name and Title)
Title)
7. If amendment is authorized pursuant to Section 10.10 by the incorporation,
the incorporators must sign below, and type or print name and title.
OR
If amendment is authorized by the directors pursuant to Section 10.10 and
there are no officers, then a majority of the directors or such directors as
may be designated by the board, must sign below, and type or print name and
title.
The undersigned affirms, under the penalties of perjury, that the facts
stated herein are true.
Dated ______________________ , 19 ____
______________________________________ ______________________________
______________________________________ ______________________________
______________________________________ ______________________________
______________________________________ ______________________________
Page 3
<PAGE>
EXHIBIT 3.15
------------
Form No. 1
Section 48-202
For Profit
CHARTER
OF
Carl's Mid South Rent-All Center Incorporated
The undersigned natural person or persons, having capacity to contract and
acting as the incorporator or incorporators of a corporation under the Tennessee
General Corporation Act, adopt the following charter for such corporation:
1. The name of the corporation is Carl's Mid South Rent-All Center
--------------------------------
Incorporated.
------------
2. The duration of the corporation is Perpetual .
--------------------------------
3. The address of the principal office of the corporation in the State of
Tennessee shall be _________; County of Montgomery, Tennessee .
-------------------------
4. The corporation is for profit.
5. The purpose or purposes for which the corporation is organized are:
6. The maximum number of shares which the corporation shall have the
authority to issue is one thousand (1000) shares, with $1.00 par value.
------------ ------
7. The corporation will not commence business until consideration of one
---
thousand Dollars ($1,000 ) has been received for the issuance of shares
--------
(not less than $1,000).
8. Other provisions
Dated April 2, 1985
/s/ JOSEPH C. WELCH
-------------------------------
(Incorporator or Incorporators)
<PAGE>
EXHIBIT 3.14
------------
AMENDED AND RESTATED
BY-LAWS
OF
FALCONITE, INC.
Effective As Of:
July 17, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. OFFICES........................................................... 1
ARTICLE II. SHAREHOLDERS..................................................... 1
Section 2.1. Annual Meeting........................................... 1
Section 2.2. Special Meetings......................................... 1
Section 2.3. Place of Meeting......................................... 1
Section 2.4. Notice of Meeting........................................ 2
Section 2.5. Meetings, How Convened................................... 2
Section 2.6. Fixing of Record Date.................................... 2
Section 2.7. Voting Lists............................................. 2
Section 2.8. Quorum................................................... 2
Section 2.9. Proxies.................................................. 3
Section 2.10. Voting of Shares; No Cumulative Voting................... 3
Section 2.11. Voting of Shares by Certain Holders...................... 3
Section 2.12. Shareholder Action Without a Meeting..................... 4
Section 2.13. Notice of Shareholder Business and Nominations........... 4
Section 2.14. Inspectors............................................... 6
Section 2.15. Books and Records -- Examination by Shareholders......... 6
ARTICLE III. BOARD OF DIRECTORS.............................................. 6
Section 3.1. General Powers........................................... 6
Section 3.2. Number, Term and Qualifications.......................... 6
Section 3.3. Regular Meetings......................................... 7
Section 3.4. Special Meetings......................................... 7
Section 3.5. Notice................................................... 7
Section 3.6. Quorum; Participation by Telephone....................... 7
Section 3.7. Manner of Acting......................................... 7
Section 3.8. Action Without a Meeting................................. 7
Section 3.9. Resignations............................................. 8
Section 3.10. Compensation............................................. 8
Section 3.11. Presumption of Assent.................................... 8
Section 3.12. Committees............................................... 8
ARTICLE IV. OFFICERS......................................................... 9
Section 4.1. Number................................................... 9
Section 4.2. Election and Term of Office.............................. 9
Section 4.3. Removal.................................................. 9
Section 4.4. Resignations............................................. 9
Section 4.5. Vacancies................................................ 9
Section 4.6. INTENTIONALLY OMITTED.................................... 9
Section 4.7. President................................................ 9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4.8. The Vice Presidents...................................... 10
Section 4.9. The Secretary............................................ 10
Section 4.10. The Treasurer............................................ 10
Section 4.11. Salaries................................................. 10
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS............................. 11
Section 5.1. Contracts................................................ 11
Section 5.2. Loans.................................................... 11
Section 5.3. Checks, Drafts, etc...................................... 11
Section 5.4. Deposits................................................. 11
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER....................... 11
Section 6.1. Certificates for Shares.................................. 11
Section 6.2. Transfer of Shares....................................... 12
ARTICLE VII. FISCAL YEAR..................................................... 12
ARTICLE VIII. DIVIDENDS...................................................... 12
ARTICLE IX. INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS............................................. 12
Section 9.1. General Action........................................... 12
Section 9.2. Action by Corporation.................................... 13
Section 9.3. Success on Merits........................................ 13
Section 9.4. Determination to Indemnify............................... 13
Section 9.5. Time of Payment.......................................... 13
Section 9.6. Non-Exclusive Right...................................... 13
Section 9.7. Insurance................................................ 14
Section 9.8. Report to Shareholders................................... 14
Section 9.9. Definition of Corporation................................ 14
Section 9.10. Other Definitions........................................ 14
ARTICLE X. CORPORATE SEAL.................................................... 14
ARTICLE XI. WAIVER OF NOTICE................................................. 15
ARTICLE XII. AMENDMENTS...................................................... 15
</TABLE>
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
FALCONITE, INC.
---------------
ARTICLE I. OFFICES
---------- -------
The principal office of the Corporation shall be located at 2525 Wayne
Sullivan Blvd., Paducah, Kentucky. The Corporation may have such other offices,
either within or without the State of Illinois, as the Board of Directors may
designate or as the business of the Corporation may require from time to time.
The registered office of the Corporation required by The Business
Corporation Act of Illinois to be maintained in the State of Illinois may be
changed from time to time by the Board of Directors.
ARTICLE II. SHAREHOLDERS
----------- ------------
Section 2.1. Annual Meeting. The annual meeting of the shareholders
shall be held on the third Thursday in the month of May, in each year, beginning
with the year 1998, at the hour of 10:00 a.m., or at such other date and time as
the Board of Directors may determine, for the purpose of electing Directors and
for the transaction of such other business as may come before the meeting. If
the day fixed for the annual meeting shall be a legal holiday in the State of
Illinois, such meeting shall be held on the next succeeding business day.
Section 2.2. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by
statute, may be called by the President, by the Board of Directors, or by the
holders of not less than two-thirds of all outstanding shares of the Corporation
entitled to vote at a meeting.
Section 2.3. Place of Meeting. The Board of Directors may designate
any place, either within or without the State of Illinois, as the place of
meeting for any annual meeting of the shareholders or for any special meeting of
the shareholders called by the Board of Directors, except that a meeting called
expressly for the purpose of removal of directors shall be held at the
registered office or principal business office of the Corporation in the State
of Illinois or in the city or county of the State of Illinois in which the
principal business office of the Corporation is located. A waiver of notice
signed by all shareholders entitled to vote at a meeting may designate any
place, either within or without the State of Illinois, as the place for the
holding of such meeting unless such meeting is called expressly for the purpose
of removal of directors, in which event the place for the holding of such
meeting shall be at the registered office or principal business office of the
Corporation in the State of Illinois or in the city or county of the State of
Illinois in which the principal business office of the Corporation is located.
If no designation is made, or if a special meeting be otherwise called, the
place of meeting shall be the registered office of the Corporation in the State
of Illinois.
1
<PAGE>
Section 2.4. Notice of Meeting. Written notice stating the place,
day and hour of the meeting and the purpose or purposes for which the meeting is
called, shall, unless otherwise allowed or prescribed by statute, be delivered
not less than ten nor more than sixty days before the date of the meeting, or in
the case of a merger or consolidation not less than twenty nor more than sixty
days before the date of the meeting, either personally or by mail, by or at the
direction of the President, or the Secretary, or the officer or persons calling
the meeting, to each shareholder of record entitled to vote at such meeting.
Section 2.5. Meetings, How Convened. Every meeting, for whatever
purpose, of the shareholders in the Corporation shall be convened by its
President, Secretary or other officer or any of the persons calling the meeting
by notice given as herein provided.
Section 2.6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders, or
shareholders entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the Board of
Directors of the Corporation may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than sixty days and, for a meeting of shareholders, not less than ten days, or
in the case of a merger, consolidation, share exchange, dissolution or sale,
lease or exchange of assets, not less than twenty days, immediately preceding
such meeting. If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
Section 2.7. Voting Lists. The officer or agent having charge of
the transfer books for shares of the Corporation shall make, within twenty days
after the record date for a meeting of shareholders or ten days before such
meeting, whichever is earlier, a complete list of the shareholders entitled to
vote at such meeting, arranged in alphabetical order, with the address of and
the number of shares held by each, which list, for a period of ten days prior to
such meeting, shall be kept on file at the registered office of the Corporation
and shall be subject to inspection by any shareholder, and to copying at the
shareholder's expense, at any time during usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original share ledger or transfer books, or a duplicate thereof
kept in the State of Illinois, shall be prima facie evidence as to who are the
shareholders entitled to examine such list or share ledger or transfer book or
to vote at any meeting of the shareholders.
Section 2.8. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at any meeting of shareholders. If a quorum is present, the
affirmative vote of a majority of the shares represented at the meeting shall be
the act of the shareholders, unless the vote of a greater number or voting by
classes is required by law, the Articles of Incorporation, or these By-Laws.
2
<PAGE>
Section 2.9. Proxies. At all meetings of shareholders, a
shareholder may vote in person or by proxy executed in writing by the
shareholder or by his or her duly authorized attorney in fact. Such proxy shall
be filed with the Secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy. A duly executed proxy shall
be irrevocable only if it states that it is irrevocable and otherwise complies
with The Business Corporation Act of Illinois. If any instrument of proxy
designates two or more persons to act as proxy, in the absence of any provisions
in the proxy to the contrary, the persons designated may represent and vote the
shares in accordance with the vote or consent of the majority of the persons
named as proxies. If only one such proxy is present, the proxy may vote all of
the shares, and all the shares standing in the name of the principal or
principals for whom such proxy acts shall be deemed represented for the purpose
of obtaining a quorum. The foregoing provisions shall apply to the voting of
shares by proxies for any two or more administrators, executors, trustees or
other fiduciaries, unless an instrument or order of court appointing them
otherwise directs.
Section 2.10. Voting of Shares; No Cumulative Voting. Each
outstanding share shall be entitled to one vote upon each matter submitted to a
vote at a meeting of the shareholders. There shall be no right to cumulative
voting in the election of directors.
Section 2.11. Voting of Shares by Certain Holders. Shares standing
in the name of another corporation may be voted by any officer, agent, proxy or
other legal representative authorized to vote such shares under the law of
incorporation of such corporation. The Corporation may treat the president or
other person holding the position of chief executive officer of such other
corporation as authorized to vote such shares, together with any other person
indicated and any other holder of an office indicated by the corporate
shareholder to the Corporation as a person or an office authorized to vote such
shares. Such persons and offices indicated shall be registered by the
Corporation on the transfer books for shares and included in any voting list
prepared in accordance with Section 2.7.
Shares standing in the name of a deceased person, a minor ward or a
person under legal disability, may be voted by his or her administrator,
executor or court appointed guardian, either in person or by proxy without a
transfer of such shares into the name of such administrator, executor or court
appointed guardian.
Shares standing in the name of a trustee may be voted by such trustee,
either in person or by proxy.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into such receiver's name if
authority so to do is contained in an appropriate order of the court by which
such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
3
<PAGE>
Shares of its own stock held by the Corporation in a fiduciary
capacity may be voted and shall be counted in determining the total number of
outstanding shares entitled to vote at any given time.
Section 2.12. Shareholder Action Without a Meeting. Any action
required to be taken at a meeting of the shareholders, or any action which may
be taken at a meeting of the shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof.
If the action consented to requires the filing of a certificate under
the Illinois Business Corporation Act of 1983, the certificate filed under such
Act shall state, in lieu of any statement required concerning any vote of
shareholders, that written consent has been given in accordance with the
provisions of such Act.
Section 2.13. Notice of Shareholder Business and Nominations.
(A) Annual Meetings of Shareholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the shareholders may be made at an annual meeting
of shareholders (a) pursuant to the Corporation's notice of meeting, (b) by or
at the direction of the Board of Directors or (c) by any shareholder of the
Corporation who was a shareholder of record at the time of giving of notice
provided for in this By-Law, who is entitled to vote at the meeting and who has
complied with the notice procedures set forth in this By-Law.
(2) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (c) of paragraph (A)(1) of
this Section 2.13, the shareholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a shareholder's
notice shall be delivered to the Secretary at the principal executive offices of
the Corporation not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date, notice by the
shareholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made by
the Corporation. Such shareholder's notice shall set forth (a) as to each
person whom the shareholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the shareholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the shareholder giving the
4
<PAGE>
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such shareholder, as they appear on
the Corporation's books, and of such beneficial owner and (ii) the class and
number of shares of the Corporation which are owned beneficially and of record
by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Section 2.13 of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the Corporation
at least 70 days prior to the first anniversary of the preceding year's annual
meeting, a shareholder's notice required by this Section 2.13 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
made by the Corporation.
(B) Special Meetings of Shareholders. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of shareholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) by any shareholder of the Corporation who is a shareholder of
record at the time of giving of notice provided for in this Section 2.13, who
shall be entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 2.13 Board of Directors may be made at such
a special meeting of shareholders if the shareholder's notice required by
paragraph (A)(2) of this Section 2.13 principal executive offices of the
Corporation not earlier than the 90th day prior to such special meeting and not
later than the close of business on the later of the 60th day prior to such
special meeting or the 10th day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting.
(C) General. (1) Only such persons who are nominated in accordance
with the procedures set forth in this Section 2.13 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of shareholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 2.13. Except as otherwise provided by law, the
Articles of Incorporation or these By-Laws, the Chairman of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in accordance with the
procedures set forth in this Section 2.13 and, if any proposed nomination or
business is not in compliance with this Section 2.13, to declare that such
defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 2.13, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 of 15(d) of the Exchange Act.
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(3) Notwithstanding the foregoing provisions of this Section 2.13, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this Section 2.13 shall be deemed to affect
any rights of shareholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 2.14. Inspectors. At any meeting of the shareholders, the
Chairman of the meeting may, or upon the request of any shareholder shall,
appoint one or more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares
represented at the meeting, based upon their determination of the validity and
effect of proxies; count all votes and report the results; and do such other
acts as are proper to conduct the election and voting with impartiality and
fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or
her or by a majority of them if there be more than one inspector at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
Section 2.15. Books and Records -- Examination by Shareholders. This
Corporation shall keep correct and complete books and records of account, as
well as minutes of the proceedings of the shareholders and Board of Directors
and committees thereof. A record of the names and addresses of the
Corporation's shareholders, and the number and class of the shares held by each
shall be kept at the Corporation's registered office or principal place of
business in Illinois, or at the office of a transfer agent or registrar in
Illinois. Any person who is a shareholder of record shall have the right to
examine, in person or by agent, at any reasonable time or times, for any proper
purpose, the Corporation's books and records of account, minutes, voting trust
agreements filed with the Corporation and record of shareholders, and to make
extracts therefrom. Upon the written request of any shareholder, this
Corporation shall mail to such shareholder, within fourteen days after receipt
of such request, a balance sheet as of the close of the fiscal year most
recently ended and a profit and loss statement for such fiscal year; provided
that if such request is received by the Corporation before such financial
statements are available, the Corporation shall mail such financial statements
within fourteen days after they become available, but in any event within one
hundred twenty days after the close of said fiscal year.
ARTICLE III. BOARD OF DIRECTORS
------------ ------------------
Section 3.1. General Powers. The business and affairs of the
Corporation shall be managed by a Board of Directors.
Section 3.2. Number, Term and Qualifications. The number of
directors of the Corporation shall consist of such number of directors, not less
than three (3) nor more than ten (10), as shall be fixed from time to time by
resolution of the Board of Directors.
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Any vacancy on the Board (whether such vacancy is caused by death,
resignation or removal, or is the result of a newly created directorship) shall
be filled by a majority of the directors then in office.
At any properly called meeting of the shareholders, any director may
be removed by the shareholders with or without cause by the affirmative vote of
the holders of a majority of the shares entitled to vote at an election of
directors.
Section 3.3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this Section 3.3, immediately
after, and at the same place as, the annual meeting of shareholders. The Board
of Directors may provide, by resolution, the time and place, either within or
without the State of Illinois, for the holding of additional regular meetings
without other notice than such resolution.
Section 3.4. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman, the President or
any three directors. The person or persons authorized to call special meetings
of the Board of Directors may fix any place, either within or without the State
of Illinois, as the place for holding any special meeting of the Board of
Directors called by them.
Section 3.5. Notice. Notice of any special meeting shall be given
at least two business days prior to such meeting by written notice delivered
personally or mailed to each director at his or her business address, or by
telegram. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, so addressed, with postage thereon prepaid. If
notice be given by telegram, such notice shall be deemed to be delivered when
the telegram is delivered to the telegraph company. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a Director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
Section 3.6. Quorum; Participation by Telephone. A majority of the
full Board of Directors shall constitute a quorum for the transaction of
business. Members of the Board of Directors may participate in and act at any
meeting of such Board through the use of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in such a meeting shall constitute
attendance and presence in person at the meeting of the person or persons so
participating.
Section 3.7. Manner of Acting. The act of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors, unless the act of a different number is required by
statute, the Articles of Incorporation or these By-Laws.
Section 3.8. Action Without a Meeting. Any action which may be
taken at a meeting of the Board of Directors may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors. Such written consent shall be
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filed with the minutes of the proceedings of the Board of Directors. Such action
by consent shall have the same force and effect as a unanimous vote of such
Directors.
Section 3.9. Resignations. Any director may resign at any time by
giving written notice to the Board of Directors, the President or the Secretary
of the Corporation. Written notice shall be delivered by certified or registered
mail, with postage thereon prepaid and a return receipt requested. Such
resignation shall take effect at the date of the receipt of such notice which
date of receipt shall be deemed to be the date indicated upon the registered or
certified mail return receipt, or at any later time specified therein; unless
otherwise specified, acceptance of such resignation shall not be necessary to
make it effective.
Section 3.10. Compensation. By resolution of the Board of Directors,
each director may be paid his or her expenses, if any, of attendance at each
meeting of the Board of Directors, and may be paid a stated salary as director
or a fixed sum for attendance at each meeting of the Board of Directors or both.
No such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
Section 3.11. Presumption of Assent. A director of the Corporation
who is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be conclusively presumed to have assented to the
action taken unless his or her dissent shall be entered in the minutes of the
meeting or unless he or she shall file a written dissent to such action with the
person acting as secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 3.12. Committees. The Board of Directors, by resolution
adopted by a majority of the directors, may create one or more committees. Each
committee shall consist of two or more directors and, to the extent specified by
the Board of Directors in the resolution establishing the committee, shall have
and exercise all of the authority of the Board of Directors in the management of
the Corporation, provided, such committee may not authorize distributions with
respect to shares of stock of the Company; amend the Corporation's Articles of
Incorporation; approve a plan of merger; approve or recommend to the
shareholders any act required by law to be approved by them; adopt, amend or
repeal the By-Laws of the Corporation; elect or remove officers of the
Corporation or fix the compensation of any member of the committee; authorize or
approve reacquisition of shares of the Corporation, except according to a
general formula or method prescribed by the Board of Directors; authorize or
approve the issuance or sale, or contract for sale, of shares or determine the
designation and relative rights, preferences, and limitations of a series of
shares, except that the Board of Directors may direct a committee to fix the
specific terms of the issuance or sale or contract for sale or the number of
shares to be allocated to particular employees under an employee benefit plan;
fill vacancies on the Board of Directors or on any of its committees; amend,
alter, repeal or take action inconsistent with any resolution or action of the
Board of Directors which by its terms provides that it shall not be amended,
altered or repealed by action of a committee.
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ARTICLE IV. OFFICERS
----------- --------
Section 4.1. Number. The officers of the Corporation shall be a
President, one or more Vice Presidents (the number thereof to be determined by
the Board of Directors), a Secretary, and a Treasurer, each of whom shall be
elected by the Board of Directors. Such other officers and assistant officers
as may be deemed necessary may be elected or appointed by the Board of
Directors. Any two or more offices may be held by the same person.
Section 4.2. Election and Term of Office. The officers of the
Corporation to be elected by the Board of Directors shall be elected annually by
the Board of Directors at the first meeting of the Board of Directors held after
each annual meeting of the shareholders. If the election of officers shall not
be held at such meeting, such election shall be held as soon thereafter as
conveniently may be arranged. Each officer shall serve at the pleasure of the
Board of Directors and shall hold office until his or her successor shall have
been duly elected and shall have qualified or until his or her death or until he
or she shall resign or shall have been removed in the manner hereinafter
provided.
Section 4.3. Removal. Any officer or agent may be removed by the
Board of Directors whenever in its judgment the best interests of the
Corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
Section 4.4. Resignations. Any officer may resign at any time by
giving written notice to the Board of Directors, the President or the Secretary
of the Corporation. Written notice shall be delivered by certified or
registered mail, with postage thereon prepaid and a return receipt requested.
Such resignation shall take effect at the date of the receipt of such notice
which date of receipt shall be deemed to be the date indicated upon the
registered or certified mail return receipt, or at any later time specified
therein; unless otherwise specified herein. The acceptance of such resignation
shall not be necessary to make it effective.
Section 4.5. Vacancies. A vacancy in any office because of death,
incapacity, resignation, removal, disqualification or otherwise, may be filled
by the Board of Directors for the unexpired portion of the term.
Section 4.6. INTENTIONALLY OMITTED.
Section 4.7. President. The President shall be the chief executive
officer of the Corporation and shall in general supervise and control all of the
business and affairs of the Corporation. The President may sign, with the
Secretary or any other proper officer of the Corporation thereunto authorized by
the Board of Directors, certificates for shares of the Corporation, any deeds,
mortgages, bonds, contracts, or other instruments which the Board of Directors
has authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these By-
Laws to some other officer or agent of the Corporation, or shall be required by
law to be otherwise signed or executed. The President may vote in person or by
proxy shares in other corporations standing in the name of this Corporation.
The President shall in general perform all duties incident to the office of
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President and such other duties as may be prescribed by the Board of Directors
from time to time.
Section 4.8. The Vice Presidents. In the absence of the President,
whether due to resignation, incapacity or any other cause, or in the event of
the President's death, inability or refusal to act, the Vice President (or in
the event there be more than one Vice President, the Vice Presidents in the
order designated by the Board of Directors, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President, and when so acting, shall have all the powers of, and be subject
to all the restrictions upon, the President. The Vice President shall exercise
such powers only so long as the President remains absent or incapacitated, or
until the Board of Directors elects a new President. Any Vice President may
sign, with the Secretary, an Assistant Secretary, Treasurer or an Assistant
Treasurer, certificates for shares of the Corporation; and shall perform such
other duties as from time to time may be assigned to him or her by the President
or by the Board of Directors. The Board may affix qualifying titles in
conjunction with the election or appointment of a Vice President, such as
"Executive," "Senior," "Junior" and the like.
Section 4.9. The Secretary. The Secretary shall (a) keep the
minutes of the proceedings of the shareholders and of the Board of Directors in
one or more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these By-Laws or as required by law;
(c) be custodian of the corporate records and of the seal of the Corporation and
see that the seal of the Corporation is affixed to all documents the execution
of which on behalf of the Corporation under its seal is duly authorized; (d)
keep a register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (e) sign with the President, or
a Vice President, certificates for shares of the Corporation, the issuance of
which shall have been authorized by resolution of the Board of Directors; (f)
have general charge of the stock transfer books of the Corporation; (g) have the
authority to certify these By-Laws, resolutions of the shareholders and Board of
Directors and committees thereof, and other documents of the Corporation as true
and correct copies thereof; and (h) in general perform all duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to the Secretary by the President or by the Board of Directors.
Section 4.10. The Treasurer. The Treasurer shall: (a) have charge
and custody of and be responsible for all funds and securities of the
Corporation; (b) receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever, and deposit all such moneys in the name
of the Corporation in such banks, trust companies or other depositories as shall
be selected in accordance with the provisions of Article V of these By-Laws; and
(c) in general perform all of the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to the Treasurer by the
President or by the Board of Directors. If required by the Board of Directors,
the Treasurer shall give a bond for the faithful discharge of the Treasurer's
duties in such sum and with such surety or sureties as the Board of Directors
shall determine.
Section 4.11. Salaries. The salaries of the officers shall be fixed
from time to time by the Board of Directors and no officer shall be prevented
from receiving such salary by
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reason of the fact that the officer is also a director of the Corporation and
participated in determining and voting upon the salary.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
---------- -------------------------------------
Section 5.1. Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
Section 5.2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 5.3. Checks, Drafts, etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation, shall be signed by such officer or officers,
agent or agents of the Corporation and in such manner as shall from time to time
be determined by resolution of the Board of Directors.
Section 5.4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
----------- ------------------------------------------
Section 6.1. Certificates for Shares. Certificates representing
shares of the Corporation shall be in such form as shall be determined by the
Board of Directors. The shares of the Corporation represented by certificates
shall be signed by the President or a Vice President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, and may be
sealed with the seal, or a facsimile of the seal, of the Corporation. In case
the seal of the Corporation is changed after the certificate is sealed with the
seal or a facsimile of the seal of the Corporation, but before it is issued, the
certificate may be issued by the Corporation with the same effect as if the seal
had not been changed. If a certificate is countersigned by a transfer agent or
registrar, other than the Corporation itself or its employee, any other
signatures or countersignature on the certificate may be facsimiles. If the
Corporation is authorized to issue shares of more than one class, a notice shall
be set forth upon the face or the back of each certificate representing shares
issued by the Corporation which shall state that a full summary or statement of
all of the designations, preferences, qualifications, limitations, restrictions,
and special or relative rights of the shares of each class authorized to be
issued, and, if the Corporation is authorized to issue any preferred or special
class in series, the variations in the relative rights and preferences between
the shares of each series so far as the same have been fixed and determined and
the authority of the Board of Directors to fix and determine the relative rights
and preferences of subsequent series, will be furnished by the Corporation upon
request and without charge. Each certificate representing shares shall also
state: (a) that the Corporation is organized under the laws of Illinois; (b)
the name of the person to whom issued;
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(c) the number and class of shares, and the designation of the series, if any,
which such certificate represents. No certificate shall be issued for any share
until such share is fully paid.
All certificates surrendered to the Corporation for transfer shall be
cancelled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and cancelled, except
that in case of a lost, destroyed or mutilated certificate a new one may be
issued therefor upon such terms and indemnity to the Corporation as the Board of
Directors may prescribe.
Section 6.2. Transfer of Shares. Transfer of shares of the
Corporation shall be made only on the stock transfer books of the Corporation by
the holder of record thereof or by his or her legal representative, or by his or
her attorney thereunto authorized by power of attorney duly executed and filed
with the Secretary of the Corporation, and on surrender for cancellation of the
certificate for such shares. The person in whose name shares stand on the books
of the Corporation shall be deemed by the Corporation to be the owner thereof
for all purposes.
ARTICLE VII. FISCAL YEAR
------------ -----------
The fiscal year of the Corporation shall be as fixed from time to time
by the Board of Directors.
ARTICLE VIII. DIVIDENDS
------------- ---------
The Board of Directors may, from time to time, declare and the
Corporation may pay dividends on its outstanding shares in the manner, and upon
the terms and conditions provided by law and the Articles of Incorporation of
the Corporation.
ARTICLE IX. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
----------- ------------------------------------------------------------
Section 9.1. General Action. This Corporation shall indemnify any
person who was or is a party, or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the Corporation, or who is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, if such person acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the
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Corporation or, with respect to any criminal action or proceeding, that the
person had reasonable cause to believe that his or her conduct was unlawful.
Section 9.2. Action by Corporation. This Corporation shall
indemnify any person who was or is a party, or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, if such person acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to the best interests of the
Corporation, provided that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his or her duty to the
Corporation, unless, and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper.
Section 9.3. Success on Merits. To the extent that a director,
officer, employee or agent of the Corporation has been successful, on the merits
or otherwise, in the defense of any action, suit or proceeding referred to in
Section 9.1 and 9.2, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
Section 9.4. Determination to Indemnify. Any indemnification under
Section 9.1 and 9.2 (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case, upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Section 9.1 or 9.2. Such determination shall be made (1) by the Board
of Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
shareholders.
Section 9.5. Time of Payment. Expenses incurred in defending a
civil or criminal action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding, as
authorized by the Board of Directors in the specific case, upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount, unless it shall ultimately be determined that he or she is entitled
to be indemnified by the Corporation as authorized in this Article.
Section 9.6. Non-Exclusive Right. This Article is intended to
provide for indemnification to the fullest extent permitted by law, as in effect
on the date hereof or as hereafter adopted or amended. The indemnification
provided by this Article shall not be deemed
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exclusive of any other rights to which those seeking indemnification may be
entitled under any other By-Law, agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent, and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 9.7. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of his or her status as such, whether or not the Corporation
would have the power to indemnify such person against such liability under the
provisions of this Article.
Section 9.8. Report to Shareholders. If the Corporation has paid
indemnification or has advanced expenses to a director, officer, employee or
agent, the Corporation shall report the indemnification or advance in writing to
the shareholders with or before the notice of the next shareholders meeting.
Section 9.9. Definition of Corporation. For purposes of this
Article, references to "the Corporation" shall include, in addition to the
surviving corporation, any merging corporation (including any corporation having
merged with a merging corporation) absorbed in a merger which, if its separate
existence had continued, would have had the power and authority to indemnify its
directors, officers, and employees or agents, so that any person who was a
director, officer, employee or agent of such merging corporation, or was serving
at the request of such merging corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article with respect to the surviving corporation as such person would have with
respect to such merging corporation if its separate existence had continued.
Section 9.10. Other Definitions. For purposes of this Article,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves services by
such director, officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries. A person who acted in good faith and
in a manner he or she reasonably believed to be in the best interests of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article.
ARTICLE X. CORPORATE SEAL
---------- --------------
The Board of Directors shall provide a corporate seal in the form of a
circle with the name of the Corporation inscribed thereon.
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ARTICLE XI. WAIVER OF NOTICE
----------- ----------------
Whenever any notice is required to be given under the provisions of
these By-Laws or of the Articles of Incorporation or of The Business Corporation
Act of Illinois, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice.
ARTICLE XII. AMENDMENTS
------------ ----------
These By-Laws may be altered, amended or repealed and new By-Laws
adopted by action of the shareholders or the Board of Directors.
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Exhibit 3.15
------------
Form No. 1
Section 48-202
For Profit
CHARTER
OF
Carl's Mid South Rent-All Center Incorporated
The undersigned natural person or persons, having capacity to contract and
acting as the incorporator or incorporators of a corporation under the Tennessee
General Corporation Act, adopt the following charter for such corporation:
1. The name of the corporation is Carl's Mid South Rent-All Center
Incorporated.
2. The duration of the corporation is Perpetual.
3. The address of the principal office of the corporation in the State of
Tennessee shall be 1044 South Riverside Drive, Clarksville, Tennessee;
County of Montgomery, Tennessee.
4. The corporation is for profit.
5. The purpose or purposes for which the corporation is organized are:
6. The maximum number of shares which the corporation shall have the
authority to issue is one thousand (1000) shares, with $1.00 par
value.
7. The corporation will not commence business until consideration of one
thousand Dollars ($1,000) has been received for the issuance of shares
(not less than $1,000).
8. Other provisions
Dated April 2, 1985
/s/ JOSEPH C. WELCH
------------------------------
(Incorporator or Incorporators)
<PAGE>
Exhibit 3.16
------------
BY-LAWS OF
CARLS MIDSOUTH RENT ALL CENTER, INC.
(Incorporated under the laws of Tennessee)
1044 South Riverside Drive
Clarksville, Tennessee 37040
<PAGE>
I
PRINCIPAL OFFICE
The principal office of this corporation shall be in Clarksville,
Montgomery County, Tennessee. All meetings of stockholders or directors shall
be held at the principal office of the corporation or at such other place as may
be fixed in the notice calling the meeting.
II
STOCKHOLDERS' MEETINGS
1. An annual meeting of the stockholders shall be held at 10.00 o'clock
A.M. on the second Tuesday in February of each year.
2. The holders of a majority of the common stock of the corporation
issued and outstanding and present in person or represented by proxy shall
constitute a quorum at all meetings of the stockholders, except as otherwise
provided by law.
3. At each meeting of the stockholders each stockholder having the right
to vote shall be entitled to one vote for each share of stock having voting
power and registered in his name on the books of the corporation. All elections
shall be held and all questions decided by vote of a majority of the stock
present and represented at the meeting.
4. Written notice of each and every meeting of the stockholders shall be
mailed by the President or Secretary to each stockholder entitled to vote at
such meeting at the address of the stockholder as it appears upon the stock
books of the corporation not less than ten (10) days prior to the date of such
meeting.
<PAGE>
5. Special meeting of the stockholders may be called by the President or
Secretary or Board of Directors upon due written notice to the stockholders.
The notice for such special meeting shall state the purpose or purposes for
which the meeting is called.
III
BOARD OF DIRECTORS
1. The Board of Directors of the corporation shall consist of at least
three members who may or may not be stockholders in the corporation. Vacancies
in the Board of Directors caused by death, resignation or inability or refusal
to act of any of the members of the Board shall be filled by the Board of
Directors. At each annual meeting of the stockholders a Board of Directors
shall be elected who shall serve for the term of one year or until their
successors shall be elected and qualified.
2. The Board of Directors shall have management and control of the
business of the corporation, and shall elect the officers provided for in these
By-Laws, and may remove any officer at any time.
3. The President, Vice President or Secretary may call a special meeting
of the Board of Directors whenever, in their opinion, such meetings are
advisable, giving written notice of such meeting at least ten (10) days prior to
the date of the meeting so called. An annual meeting of the Board of Directors
shall be held immediately after the annual stockholders' meeting. No all or
notice of such annual meeting of the Board of Directors is required unless the
same is to be held at some place other than at the principal office of the
corporation. At all meetings of the board a majority of the Board of Directors
shall constitute a quorum for the
- 2 -
<PAGE>
transaction of business and a majority of those present at any meeting shall be
sufficient to determine any proposition before the Board.
IV
OFFICERS
1. The officers of the corporation shall be a President, one or more Vice
Presidents, a Secretary and a Treasurer, and such other officers as the Board of
Directors say from time to time determine. Each of the above named officers
shall serve for the term of one year or until his successor is elected and
qualified. Any two offices may be combined in one person except the offices of
President and Vice President or President and Secretary or Assistant Secretary.
2. The duties of the officers of this corporation shall be such as
usually appertain to such officers of private corporations.
V
CAPITAL STOCK
1. The authorized capital stock of this corporation shall be such as is
authorized by the Certificate of Incorporation or any amendment thereto. All
stock not subscribed for shall be held as . . .
- 3 -
<PAGE>
VI
SEAL
The corporation shall have a seal in appropriate form, which seal shall be
kept by the Secretary and which shall be affixed to all stock certificates and
all other formal documents executed in the name of the corporation and to which
by law the corporate seal is required to be affixed.
VII
AMENDMENT
These By-Laws may be altered, amended or repealed by the stockholders at
any regular meeting or at any special meeting called for that purpose, provided
however, that notice in writing of the proposed amendment, alteration or repeal
shall be given to each stockholder at least ten days prior to the date of the
meeting at which the By-Laws are to be altered, amended or repealed.
- 4 -
<PAGE>
EXHIBIT 3.17
------------
CERTIFICATE OF INCORPORATION
OF
FALCONITE AVIATION, INC.
FIRST: The name of the Corporation is Falconite Aviation, Inc.
SECOND: The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, Wilmington, County of New Castle,
Delaware 19805. The name of the Corporation's registered agent at such address
is Corporation Service Company.
THIRD: The nature of the business to be conducted or promoted and the
purposes of the Corporation are to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is one thousand (1,000) shares of
Common Stock, having a par value of one cent ($.01) per share (the "Common
Stock").
The holders of the Common Stock shall be entitled to receive dividends
out of any funds of the Corporation at the time legally available for the
purpose, if, as and when declared by the Board of Directors. Each holder of the
Common Stock shall be entitled to one vote for each share of the Common Stock
held by such holder, on any matter submitted for the vote or written consent of
stockholders of the Corporation. There shall be no cumulative voting in the
election of directors.
FIFTH: The name and mailing address of the incorporator of the
Corporation is as follows: Andrew J. Klinghammer, Esq., One Mercantile Center,
St. Louis, Missouri 63101.
SIXTH: No stockholder of the Corporation shall have any preemptive
right to acquire any shares of any class of stock of the Corporation, whether
now or hereinafter authorized, or any securities or obligations (including, but
not limited to, securities or obligations convertible into any class of stock
issued by the Corporation), whether issued or sold for cash, property, services
or otherwise.
SEVENTH: The Corporation is to have a perpetual existence.
EIGHTH: In furtherance and not in limitation of the powers conferred
by law, the Board of Directors is expressly authorized to make, adopt, alter,
amend and repeal the By-Laws of the Corporation, subject to the power of the
stockholders of the Corporation to alter, amend or repeal the By-Laws.
<PAGE>
NINTH: The following provisions shall apply with respect to the
liability of the Corporation's directors and the Corporation's power to
indemnify its officers, directors, employees and agents for certain actions
taken by them:
A. Elimination of Certain Liability of Directors.
---------------------------------------------
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (3) under Section 174 of the General Corporation Law of the
State of Delaware (the "General Corporation Law"), or (4) for any transaction
from which the director derived an improper personal benefit.
B. Indemnification and Insurance.
-----------------------------
(1) Right to Indemnification.
------------------------
Each person who was or is made a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a director or officer of the Corporation or is or was a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized or permitted by the General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than the General Corporation Law permitted to the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees and expenses, judgments, fines, ERISA excise
taxes and penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors, and administrators; provided, however, that, except as provided in
-------- -------
paragraph (2) of this Section B, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section B shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
--------
however, that, if the General Corporation Law requires, the payment of such
- -------
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service is or was rendered by
such
-2-
<PAGE>
person while a director or officer, including, without limitation, served to an
employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it
ultimately shall be determined that such director or officer is not entitled to
be indemnified under this Section B or otherwise. The Corporation may, by action
of its Board of Directors, provide indemnification to employees and agents of
the Corporation with the same scope and effect as the foregoing indemnification
of directors and officers.
(2) Right of Claimant to Bring Suit.
-------------------------------
If a claim under paragraph (1) of this Section B is not paid in full by the
Corporation within thirty days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the General
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(3) Non-Exclusivity of Rights.
-------------------------
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Section B shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certification of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
(4) Insurance.
---------
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against such
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
General Corporation Law.
-3-
<PAGE>
TENTH: The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors, and the directors need not be
elected by written ballot unless required by the By-Laws of the Corporation.
ELEVENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, and any
other provision authorized by the law of the State of Delaware at the time in
force may be added or inserted, in the manner now or hereafter provided herein
or by statute, and all rights, preferences and privileges of whatsoever nature
conferred upon stockholders, directors or any other persons whomsoever by and
pursuant to this Certificate of Incorporation in its present form or as amended
are granted subject to the rights reserved in this Article.
IN WITNESS WHEREOF, I, the undersigned, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this certificate and do certify that the facts herein stated are true and I have
accordingly set my hand as of this 12th day of November, 1996.
/s/ ANDREW J. Klinghammer
-----------------------------
Andrew J. Klinghammer
Incorporator
-4-
<PAGE>
EXHIBIT 3.18
------------
BY-LAWS
OF
FALCONITE AVIATION, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I.
OFFICES............................................................ 1
ARTICLE II.
STOCKHOLDERS....................................................... 1
ARTICLE III.
BOARD OF DIRECTORS................................................. 4
ARTICLE IV.
OFFICERS........................................................... 5
ARTICLE V.
CONTRACTS, LOANS, CHECKS AND DEPOSITS.............................. 7
ARTICLE VI.
CERTIFICATES FOR SHARES AND THEIR TRANSFER......................... 8
ARTICLE VIII.
FINANCIAL INTEREST OF CORPORATE OFFICERS; EFFECT ON
CONTRACTS.......................................................... 9
ARTICLE IX.
WAIVER OF NOTICE................................................... 9
ARTICLE X.
AMENDMENTS......................................................... 9
</TABLE>
<PAGE>
BY-LAWS
OF
FALCONITE AVIATION, INC.
ARTICLE I.
OFFICES
The principal office of the Corporation in the State of Delaware shall be
located at 1013 Centre Road, Wilmington, Delaware 19805. The Corporation may
have such other office(s), either within or without the State of Delaware, as
the Board of Directors may designate or as the business of the Corporation may
require from time to time.
The registered office of the Corporation required by the General
Corporation Law of Delaware, as amended, to be maintained in the State of
Delaware may be, but need not be, identical with its principal office in the
State of Delaware, and the address of the registered office may be changed from
time to time by the Board of Directors.
ARTICLE II.
STOCKHOLDERS
Section 2.1. Annual Meeting. The annual meeting of the stockholders
--------------
shall be held on the last Tuesday in the month of March, in each year, beginning
with the year 1997, at the hour of 10:00 A.M., or at such other date or time as
shall be designated by resolution of the Board of Directors, for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting.
Section 2.2. Special Meeting. A special meeting of the stockholders,
---------------
for any purpose or purposes, unless otherwise prescribed by statute, may be
called by the President, by the Board of Directors, or by the holders of not
less than one-third of all the outstanding shares of the Corporation entitled to
vote at such meeting.
Section 2.3. Place of Meeting. The Board of Directors may designate any
----------------
place, either within or without the State of Delaware, as the place of meeting
for any annual or special meeting of the stockholders.
Section 2.4. Notice of Meeting. Unless a different manner of giving
-----------------
notice is prescribed by statute, written or printed notice stating the place,
day and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall, unless otherwise allowed or
prescribed by statute, be delivered not less than ten (10) nor more than sixty
(60) days before the date of the meeting, either personally or by mail, by or at
the direction of the President, or the Secretary, or the persons calling the
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, addressed to the Stockholder at his or her address as
it appears on the records of the Corporation, with postage thereon prepaid.
-1-
<PAGE>
Section 2.5. Meetings, How Convened. Every meeting, for whatever
----------------------
purpose, of the stockholders of the Corporation shall be convened by its
President, Secretary or other officer, or any of the persons calling the meeting
by notice given as herein provided.
Section 2.6. Fixing Date of Record.
---------------------
(a) In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) or less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
(b) If no record date is fixed:
(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 2.7. Quorum. Unless a greater portion shall he required by
------
statute for a specified action, a majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at any meeting of stockholders. If less than a quorum is
present, those present may adjourn the meeting until a specified date, not
longer than ninety (90) days after such adjournment, and no notice need be given
of such adjournment to stockholders not present at the meeting. Every decision
of a majority of such quorum shall be valid as a corporate act unless a
different vote is required by law, the Certificate of Incorporation or the
By-Laws of the Corporation.
Section 2.8. Proxies. At all meetings of stockholders, a Stockholder may
-------
vote in person or by proxy executed in writing by the Stockholder or by the
Stockholder's duly authorized attorney in fact. Such proxy shall be filed with
the meeting. No proxy shall be valid after three (3) years from the date of its
execution, unless otherwise provided in the proxy. A
-2-
<PAGE>
duly executed proxy shall be irrevocable only if it states that it is
irrevocable and if, and only so long as, it is coupled with an interest
sufficient in law to support an irrevocable power of attorney. The interest with
which it is coupled need not be an interest in the shares themselves. If any
instrument of proxy designates two or more persons to act as proxy, in the
absence of any provisions in the proxy to the contrary, the persons designated
may represent and vote the shares in accordance with the vote or consent of the
majority of the persons named as proxies, If only one such proxy is present, the
proxy may vote all of the shares, and all the shares standing in the name of the
principal or principals for whom such proxy acts shall be deemed represented for
the purpose of obtaining a quorum. The foregoing provisions shall apply to the
voting of shares by proxies for any two or more personal representatives,
trustees or other fiduciaries, unless an instrument or order of court appointing
them otherwise directs.
Section 2.9. Voting of Shares. Subject to the provisions of law and the
-----------------
Certificate of Incorporation, each outstanding share entitled to vote shall be
entitled to one vote upon each matter submitted to a vote at a meeting of the
stockholders.
Section 2.10. Voting of Shares by Certain Holders. Shares standing in
------------------------------------
the name of another corporation may be voted by such officer, agent or proxy as
the by-laws of such corporation may prescribe, or, in the absence of such
provision, as the Board of Directors of such corporation may determine.
Shares standing in the name of a deceased person may be voted by his or her
personal representative, either in person or by proxy. Shares standing in the
name of a conservator or trustee may be voted by such fiduciary, either in
person or by proxy, but no conservator or trustee shall be entitled, as a
fiduciary to vote shares held by him or her without a transfer of such shares
into his or her name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his or her name if authority so to do
be contained in an appropriate order of the court by which such receiver was
appointed.
A Stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither shares of its own stock held by the Corporation, nor those held by
another corporation if a majority of the shares entitled to vote for the
election of directors of such other corporation are owned beneficially and of
record (and not in trust) by this Corporation, shall be voted at any meeting or
counted in determining the total number of outstanding shares at any given time.
Section 2.11. Stockholder Action Without a Meeting. Any action required
------------------------------------
to be taken at a meeting of the stockholders, or any action which may be taken
at a meeting of the stockholders, may be taken without a meeting if consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which
-3-
<PAGE>
all shares entitled to vote thereon were present and voted; provided that each
consent shall bear the date of signature of each Stockholder and no written
consent shall be effective to take the corporate action referred to therein
unless, within sixty (60) days of the earliest dated consent, written consents
signed by a sufficient number of holders to take action are delivered in the
manner provided by law to the corporation or the officer of the corporation
having custody of the corporate minute book. Such consents shall have the same
force and effect as a unanimous vote of the stockholders at a meeting duly held.
The Secretary of the Corporation shall file such consents with the minutes of
the meetings of the stockholders.
ARTICLE III.
BOARD OF DIRECTORS
Section 3.1. General Powers. The business and affairs of the Corporation
--------------
shall be managed by its Board of Directors.
Section 3.2. Number, Term and Qualifications. The number of directors
-------------------------------
shall be three (3), as fixed from time to time by the Board of Directors or
stockholders. Each director shall hold office until the next annual meeting of
stockholders or until his successor is elected.
Section 3.3. Regular Meetings. A regular meeting of the Board of
----------------
Directors shall be held without other notice than this By-Law immediately after,
and at the same place as, the annual meeting of stockholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of Delaware, for the holding of additional regular meetings
without other notice than such resolution.
Section 3.4. Special Meetings. A special meeting of the Board of
----------------
Directors may be called by, or at the request of, the President or any two
directors. The person or persons authorized to call such special meeting of the
Board of Directors may fix any time and place, either within or without the
State of Delaware, at the time and place for holding such special meeting.
Section 3.5. Notice. Notice of any special meeting shall be delivered
-------
at least three (3) days prior thereto by written notice delivered personally or
left at or mailed to each director at his or her business or residence address,
or by telegram. if mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, so addressed, with postage thereon paid. If
notice be given by telegram, such notice shall be deemed to be delivered when
the text of the telegram is delivered to the telegraph company. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors need be specified in the notice or waiver of notice of
such meeting.
Section 3.6. Quorum Participation by Telephone. A majority of the full
---------------------------------
Board of Directors shall constitute a quorum for the transaction of business,
but if less than a majority are present at a meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice. Members of the Board of Directors may participate in a meeting of the
Board of Directors, whether regular or special, by means of conference telephone
or similar communications equipment whereby all persons participating in the
meeting can hear each other, and participation in a meeting in this manner shall
constitute presence in person at the meeting.
-4-
<PAGE>
Exhibit 3.19(i)
---------------
FORM B C A-47
BEFORE ATTEMPTING TO EXECUTE THESE BLANKS BE SURE TO READ
CAREFULLY THE INSTRUCTIONS ON THE BACK THEREOF
(THESE ARTICLES MUST BE FILED IN DUPLICATE)
------------------------------
STATE OF ILLINOIS, ) (Do not write in this space)
) ss. Date Paid 12/30/74
ALEXANDER COUNTY ) Initial License Fee: $ .50
Franchise Tax: $14.58
TO MICHAEL J. HOWLETT, Filing Fee: $75.00
SECRETARY OF STATE ------
Clerk: $90.08
------------------------------
The undersigned,
- --------------------------------------------------------------------------------
NAME NUMBER STREET ADDRESS CITY, STATE, ZIP CODE
- --------------------------------------------------------------------------------
Joseph A. Falconite 505--26th Street Cairo, Illinois 62914
Robert L. Lansden 909-911 Washington Ave Cairo, Illinois 62914
Darrell L. Gustafson 811--26th Street Cairo, Illinois 62914
being one or more natural persons of the age of twenty-one years or more or a
corporation, and having subscribed to shares of the corporation to be organized
pursuant hereto, for the purpose of forming a corporation under "The Business
Corporation Act" of the State of Illinois, do hereby adopt the following
Articles of Incorporation:
ARTICLE ONE
The name of the corporation hereby incorporated is:_____________________________
Falconite, Inc.
- --------------------------------------------------------------------------------
ARTICLE TWO
The address of its initial registered office in the State of Illinois is: 505--
26th Street, in the City of Cario (62914) County of Alexander and the name of
---- ------------- ---------
its initial Registered Agent at said address is: Joseph A. Falconite
--------------------------
<PAGE>
ARTICLE THREE
The duration of the corporation is: perpetual
--------------------------------------------
ARTICLE FOUR
The purpose or purposes for which the corporation is organized are:
To buy and sell, at wholesale and retail, goods, wares and merchandise
of every kind, nature and description.
To buy, sell, lease and rent construction equipment of every kind,
nature and description.
To construct, repair, install and remove any and all types of
industrial, commercial and residential equipment, machinery and
fixtures.
To acquire, own, use, convey and otherwise dispose of and deal in real
property or any interest therein.
To do and perform any and all acts necessary and proper to effectuate
and carry out the foregoing purposes.
ARTICLE FIVE
PARAGRAPH 1: The aggregate number of shares which the corporation is authorized
to issue is ________ divided into one classes. The designation of each class,
the number of shares of each class, and the par value, if any, of the shares of
each class, or a statement that the shares of any class are without par value,
are as follows:
Par value per share or
statement that shares
Class Series (if any) Number of Shares are without par value
Common None 25,000 $10.00
PARAGRAPH 2: The preferences, qualifications, limitations, restrictions and the
special or relative rights in respect of the shares of each class are:
None
<PAGE>
ARTICLE SIX
The class and number of shares which the corporation proposes to issue
without further report to the Secretary of State, and the consideration
(expressed in dollars) to be received by the corporation therefor, are:
Total consideration to be
Class of Shares Number of Shares received therefor:
Common 1,000 $1,000.00
ARTICLE SEVEN
The corporation will not commence business until at least one thousand
dollars has been received as consideration for the issuance of shares.
ARTICLE EIGHT
The number of directors to be elected at the first meeting of the
shareholders is: three (3)
---------
ARTICLE NINE
PARAGRAPH 1: It is estimated that the value of all property to be owned by the
corporation for the following year wherever located will be $___________.
PARAGRAPH 2: It is estimated that the value of the property to be located
within the State of Illinois during the following year will be $__________.
PARAGRAPH 3: It is estimated that the gross amount of business which will be
transacted by the corporation during the following year will be $______________.
PARAGRAPH 4: It is estimated that the gross amount of business which will be
transacted at or from places of business in the State of Illinois during the
following year will be $_____________.
NOTE: If all the property of the corporation is to be located in this
State and all of its business is to be transacted at or from places of business
in this State, or if the incorporators elect to pay the initial franchise tax on
the basis of its entire stated capital and paid-in surplus, then the information
called for in Article Nine need not be stated.
<PAGE>
/s/ JOSEPH A. FALCONITE
--------------------------- )
/s/ ROBERT HANSON
--------------------------- )
/s/ DARRELL GUSTAFSON
--------------------------- )
--------------------------- ) Incorporators
--------------------------- )
--------------------------- )
--------------------------- )
NOTE: There may be one or more incorporators. Each incorporator shall
be either a corporation, domestic or foreign, or a natural person of the age of
twenty-one years or more. If a corporation acts as incorporator, the name of
the corporation and state of incorporation shall be shown and the execution must
be by its President or Vice-President and verified by him, and the corporate
seal shall be affixed and attested by its Secretary or an Assistant Secretary.
OATH AND ACKNOWLEDGMENT
STATE OF ILLINOIS )
) ss.
ALEXANDER COUNTY )
I, Linda Watson, a Notary Public, do hereby certify that on the 28th
day of Dec., 1974 Joseph A. Falconite, Robert L. Lansden and Darrell L.
Gustafson personally appeared before me and being first duly sworn by me
acknowledged the signing of the foregoing document in the respective capacities
therein set forth and declared that the statements therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and
year above written.
Place
(NOTARIAL SEAL)
Here /s/ LINDA WATSON
-------------------------------
Notary Public
<PAGE>
Exhibit 3.19(ii)
<TABLE>
Form BCA-10.30 ARTICLES OF AMENDMENT
<S> <C>
(Rev. Jan. 1995) File # 5057-431-8
- ------------------------------------- ------------------------------------------------ ------------------------------
George H. Ryan
Secretary of State
Department of Business Services THIS SPACE FOR USE BY
Springfield, IL 62756 SECRETARY OF STATE
Telephone (217) 782-1832
- -------------------------------------
Date 12/31/96
Remit payment in check or Franchise Tax $
money order, payable to Filing Fee* $25.00
"Secretary of State." *The Penalty $
filing fee for articles of
amendment - $25.00 Approved:
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
1. CORPORATE NAME: Falconite, Inc.
_________________________________________________________
2. MANNER OF ADOPTION OF AMENDMENT:
(Note 1)
The following amendment of the Articles of Incorporation was adopted
on December 23, 1996 in the manner indicated below. ("X" one box
only)
[_] By a majority of the incorporators, provided no directors were named
in the articles of incorporation and no directors have been elected;
(Note 2)
[_] By a majority of the board of directors, in accordance with Section
10.10, the corporation having issued no shares as of the time of
adoption of this amendment; (Note 2)
[_] By a majority of the board of directors, in accordance with the
Section 10.15, shares having been issued but shareholder action not
being required for the adoption of the amendment; (Note 3)
[_] By the shareholders, in accordance with Section 10.20, a resolution
of the board of directors having been duly adopted and submitted to
the shareholders. At a meeting of shareholders, not less than the
minimum number of votes required by statute and by the articles of
incorporation were voted in favor of the amendment; (Note 4)
[_] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed
by shareholders having not less than the minimum number of votes
required by statute and by the articles of incorporation.
Shareholders who have not consented in writing have been given
notice in accordance with Section 7.10; (Notes 4&5)
[X] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed
by all the shareholders entitled to vote on this amendment.
(Note 5)
3. TEXT OF AMENDMENT:
a. When amendment effects a name change, insert the new corporate name
below. Use Page 2 for all other amendments.
Article I: The name of the corporation is:
Falconite Equipment, Inc.
_______________________________________________________________________________
(NEW NAME)
All changes other than name, include on page 2
over
<PAGE>
TEXT OF AMENDMENT
b. (If amendment affects the corporate purpose, the amended
purpose is required to be set forth in its entirety. If there
is not sufficient space to do so, add one or more sheets of
this size.)
Page 2
<PAGE>
4. The manner, if not set forth in Article 3b, in which any exchange,
reclassification or cancellation of issued shares, or a reduction of the
number of authorized shares of any class below the number of issued shares
of that class, provided for or effected by this amendment, is as follows:
(if not applicable, insert "No change")
No Change
5. (a) The manner, if not set forth in Article 3b, in which said amendment
effects a change in the amount of paid-in capital (Paid-in capital replaces
the terms Stated Capital and Paid-in Surplus and is equal to the total of
these accounts) is as follows: (If not applicable, insert "No change")
No Change
(b) The amount of paid-in capital (Paid-in Capital replaces the terms Stated
Capital and Paid-in Surplus and is equal to the total of these accounts) as
changed by this amendment is as follows: (If not applicable, insert "No
change")
No Change
<TABLE>
<S> <C> <C>
Before Amendment After Amendment
Paid-in Capital $ $
---------------------------- -----------------------
</TABLE>
(Complete either item 6 or 7 below. All signatures must be
in BLACK INK.)
---------
6. The undersigned corporation has caused this statement to be signed by its
duly authorized officers, each of whom affirms, under penalties of perjury,
that the facts stated herein are true.
<TABLE>
<S> <C>
Dated December 13, 1996 Falconite, Inc
____________________________________________________________
(Exact Name of Corporation at date of execution)
attested by /s/ ANGIE GRIMM by /s/ MIKE FALCONITE
______________________________________________ ________________________________________________________
(Signature of Secretary or Assistant Secretary) (Signature of President or Vice President)
Angie Grimm Mike Falconite, President
_______________________________________________ _______________________________________________________
(Type or Print Name and Title) (Type or Print Name and Title)
</TABLE>
7. If amendment is authorized pursuant to Section 10.10 by the incorporation,
the incorporators must sign below, and type or print name and title.
OR
If amendment is authorized by the directors pursuant to Section 10.10 and
there are no officers, then a majority of the directors or such directors as
may be designated by the board, must sign below, and type or print name and
title.
The undersigned affirms, under the penalties of perjury, that the facts
stated herein are true.
Dated
_________________,19 _____
_______________________________ ______________________________
_______________________________ ______________________________
_______________________________ ______________________________
_______________________________ ______________________________
Page 3
<PAGE>
Exhibit 3.20
------------
BY-LAWS
-------
OF
FALCONITE EQUIPMENT, INC.
ARTICLE I
---------
OFFICES
The corporation shall continuously maintain in the State of Illinois a
registered office and a registered agent whose office is identical with such
registered office, and may have other offices within or without the state.
ARTICLE II
----------
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. An annual meeting of the shareholders shall be
held on the 2nd Tuesday in February starting of each year for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday, such meeting shall be held on the next succeeding business day.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be
called either by the president, by the board of directors or by the holders of
not less than one-fifth of all the outstanding shares of the corporation, for
the purpose or purposes stated in the call of the meeting.
SECTION 3. PLACE OF MEETING. The board of directors may designate any
place, as the place of meeting for any annual meeting or for any special meeting
called by the board of directors. If no designation is made, or if a special
meeting be otherwise called, the place of meeting shall be at
<PAGE>
SECTION 4. NOTICE OF MEETINGS. Written notice stating the place, date,
and hour of the meeting, and in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than forty days before the date of the meeting, or in the case of a
merger or consolidation not less than twenty nor more than forty days before the
meeting, either personally or by mail, by or at the direction of the president,
or the secretary, or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the records of the
corporation, with postage thereon prepaid. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken.
SECTION 5. FIXING OF RECORD DATE. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend, or other distribution
or allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of shares or for the purpose of any other lawful action,
the board of directors of the corporation may fix in advance a record date which
shall not be more than forty days and, for a meeting of shareholders, not less
than ten days, or in the case of a merger or consolidation not less than twenty
days, before the date of such meeting. If no record date is fixed, the record
date for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders shall be the date on which notice of the meeting is
mailed, and the record date for the determination of shareholders for any other
purpose shall be the date on which the board of directors adopts the resolution
relating thereto. A determination of shareholders of record entitled to notice
of or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting.
SECTION 6. VOTING LISTS. The officer or agent having charge of the
transfer books for shares of the corporation shall make, at least ten days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting, arranged in alphabetical order, showing the
address of and the number of shares registered in the name of the shareholder,
which list, for a period of ten days prior to such meeting, shall be kept on
file at the registered office of the corporation and shall be open to inspection
by any shareholder for any purpose germane to the meeting, at any time during
usual business hours. Such list shall also be produced and kept open at the time
and place of the meeting and may be inspected by any shareholder during the
whole time of the meeting. The original share ledger or transfer book, or a
duplicate thereof kept in this State, shall be prima facie evidence as to who
are the shareholders entitled to examine such list or share ledger or transfer
book, or to vote at any meeting of shareholders.
SECTION 7. QUORUM. The holders of a majority of the outstanding shares of
the corporation, present in person or represented by proxy, shall constitute a
quorum at any meeting of shareholders; provided that if less than a majority of
the outstanding shares are represented at said meeting, a majority of the shares
so represented may adjourn the meeting at any time without further notice. If a
quorum is present, the affirmative vote of the majority of the shares
represented at the meeting shall be the act of the shareholders, unless the vote
of a greater number or voting by classes is required by The Business Corporation
Act, the articles of incorporation or these by-laws. At any adjourned meeting
at which a quorum shall be present,
<PAGE>
any business may be transacted which might have been transacted at the original
meeting. Withdrawal of shareholders from any meeting shall not cause failure of
a duly constituted quorum at that meeting.
SECTION 8. PROXIES. Each shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
SECTION 9. VOTING OF SHARES. Each outstanding share, regardless of class,
shall be entitled to one vote upon each matter submitted to vote at a meeting of
shareholders.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent, or proxy as the by-laws of such corporation may prescribe, or, in the
absence of such provision, as the board of directors of such corporation may
determine.
Shares standing in the name of a deceased person, a minor ward or an
incompetent person, may be voted by his administrator, executor, court appointed
guardian, or conservator, either in person or by proxy without a transfer of
such shares into the name of such administrator, executor, court appointed
guardian, or conservator. Shares standing in the name of a trustee may be voted
by him, either in person or by proxy.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Any number of shareholders may create a voting trust for the purpose of
conferring upon a trustee or trustees the right to vote or otherwise represent
their share, for a period not to exceed ten years, by entering into a written
voting trust agreement specifying the terms and conditions of the voting trust,
and by transferring their shares to such trustee or trustees for the purpose of
the agreement. Any such trust agreement shall not become effective until a
counterpart of the agreement is deposited with the corporation at its registered
office. The counterpart of the voting trust agreement so deposited with the
corporation shall be subject to the same right of examination by a shareholder
of the corporation, in person or by agent or attorney, as are the books and
records of the corporation, and shall be subject to examination by any holder of
a beneficial interest in the voting trust, either in person or by agent or
attorney, at any reasonable time for any proper purpose.
Shares of its own stock belonging to this corporation shall not be voted,
directly or indirectly, at any meeting and shall not be counted in determining
the total number of outstanding shares at any given time, but shares of its own
stock held by it in a fiduciary capacity
<PAGE>
may be voted and shall be counted in determining the total number of outstanding
shares at any given time.
SECTION 11. CUMULATIVE VOTING. In all elections for directors, every
shareholder shall have the right to vote, in person or by proxy, the number of
shares owned by him, for as many persons as there are directors to be elected,
or to cumulate said shares, and give one candidate as many votes as the number
of directors multiplied by the number of his shares shall equal, or to
distribute them on the same principle among as many candidates as he shall see
fit.
SECTION 12. INSPECTORS. At any meeting of shareholders, the presiding
officer may, or upon the request of any shareholder shall appoint one or more
persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares represented
at the meeting, based upon their determination of the validity and effect of
proxies; count all votes and report the results; and do such other acts as are
proper to conduct the election and voting with impartiality and fairness to all
the shareholders.
Each report of an inspector shall be in writing and signed by him or by a
majority of them if there be more than one inspector acting at such meeting. If
there is more than one inspector, the report of a majority shall be the report
of the inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be prima
facie evidence thereof.
SECTION 13. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
SECTION 14. VOTING BY BALLOT. Voting on any question or in any election
may be by voice unless the presiding officer shall order or any shareholder
shall demand that voting be by ballot.
ARTICLE III
-----------
DIRECTORS
SECTION 1. GENERAL POWERS. The business of the corporation shall be
managed by its board of directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of
the corporation shall be three. Each director shall hold office until the next
annual meeting of shareholders or until his successor shall have been elected
and qualified. Directors need not be residents of Illinois or shareholders of
the corporation. The number of directors may
<PAGE>
be increased or decreased from time to time by the amendment of this section;
but no decrease shall have the effect of shortening the term of any incumbent
director.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of directors
shall be held without other notice than this by-law, immediately after the
annual meeting of shareholders. The board of directors may provide, by
resolution, the time and place for the holding of additional regular meetings
without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the president or any two directors. The
person or persons authorized to call special meetings of the board of directors
may fix any place as the place for holding any special meeting of the board of
directors called by them.
SECTION 5. NOTICE. Notice of any special meeting shall be given at least
2 days previous thereto by written notice to each director at his business
address. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail so addressed, with postage thereon prepaid. If notice
be given by telegram, such notice shall be deemed to be delivered when the
telegram is delivered to the telegram company. The attendance of a director at
any meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the number of directors fixed by these
by-laws shall constitute a quorum for transaction of business at any meeting of
the board of directors, provided that if less than a majority of such number of
directors are present at said meeting, a majority of the directors present may
adjourn the meeting at any time without further notice.
SECTION 7. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless the act of a greater number is required by statute, these
by-laws, or the articles of incorporation.
SECTION 8. VACANCIES. Any vacancy occurring in the board of directors and
any directorship to be filled by reason of an increase in the number of
directors, may be filled by election at an annual meeting or at a special
meeting of shareholders called for that purpose.
SECTION 9. ACTION WITHOUT A MEETING. Unless specifically prohibited by
the articles of incorporation or by-laws, any action required to be taken at a
meeting of the board of directors, or any other action which may be taken at a
meeting of the board of directors, or of any committee thereof may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all the directors entitled to vote with respect to the
subject matter thereof, or by all the members of such committee, as the case may
be. Any such consent signed by all the directors or all the members of the
committee shall have the same effect as a unanimous vote, and may be stated as
such in any document filed with the Secretary of State or with anyone else.
<PAGE>
SECTION 10. COMPENSATION. The board of directors, by the affirmative vote
of a majority of directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the corporation as directors,
officers, or otherwise. By resolution of the board of directors the directors
may be paid their expenses, if any, of attendance at each meeting of the board.
No such payment previously mentioned in this section shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
SECTION 11. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
SECTION 12. EXECUTIVE COMMITTEE. The board of directors, by resolution
adopted by a majority of the number of directors fixed by the by-laws or
otherwise, may designate two or more directors to constitute an executive
committee, which committee, to the extent provided in such resolution, shall
have and exercise all of the authority of the board of directors in the
management of the corporation, except as otherwise required by law. Vacancies in
the membership of the committee shall be filled by the board of directors at a
regular or special meeting of the board of directors. The executive committee
shall keep regular minutes of its proceedings and report.
ARTICLE IV
----------
OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall be a president,
one or more vice-presidents (the number thereof to be determined by the board of
directors), a treasurer, a secretary, and such assistant treasurers, assistant
secretaries or other officers as may be elected by the board of directors. Any
two or more offices may be held by the same person, except the offices of
president and secretary.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as conveniently may be. Vacancies may be filled or new
offices created and filled at any meeting of the board of directors. Each
officer shall hold office until his successor shall have been duly elected and
shall have qualified or until his death or until he shall resign or shall have
been removed in the manner hereinafter provided. Election of an officer shall
not of itself create contract rights.
SECTION 3. REMOVAL. Any officer elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interests of the
<PAGE>
corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
SECTION 4. PRESIDENT. The president shall be the principal executive
officer of the corporation. Subject to the direction and control of the board of
directors, he shall be in charge of the business of the corporation; he shall
see that the resolutions and directions of the board of directors are carried
into effect except in those instances in which that responsibility is
specifically assigned to some other person by the board of directors; and, in
general, he shall discharge all duties incident to the office of president and
such other duties as may be prescribed by the board of directors from time to
time. He shall preside at all meetings of the shareholders and of the board of
directors. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the corporation or a
different mode of execution is expressly prescribed by the board of directors or
these by-laws, he may execute for the corporation certificates for its shares,
and any contracts, deeds, mortgages, bonds, or other instruments which the board
of directors has authorized to be executed, and he may accomplish such execution
either under or without the seal of the corporation and either individually or
with the secretary, any assistant secretary, or any other officer thereunto
authorized by the board of directors, according to the requirements of the form
of the instrument. He may vote all securities which the corporation is entitled
to vote except as and to the extent such authority shall be vested in a
different officer or agent of the corporation by the board of directors.
SECTION 5. THE VICE-PRESIDENTS. The vice-president (or in the event there
be more than one vice-president, each of the vice-presidents) shall assist the
president in the discharge of his duties as the president may direct and shall
perform such other duties as from time to time may be assigned to him by the
president or by the board of directors. In the absence of the president or in
the event of his inability or refusal to act, the vice-president (or in the
event there be more than one vice-president, the vice-presidents in the order
designated by the board of directors, or by the president if the board of
directors has not made such a designation, or in the absence of any designation,
then in the order of seniority of tenure as vice-president) shall perform the
duties of the president, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president. Except in those instances
in which the authority to execute is expressly delegated to another officer or
agent of the corporation or a different mode of execution is expressly
prescribed by the board of directors or these by-laws, the vice-president (or
each of them if there are more than one) may execute for the corporation
certificates for its shares and any contracts, deeds, mortgages, bonds or other
instruments which the board of directors has authorized to be executed, and he
may accomplish such execution either under or without the seal of the
corporation and either individually or with the secretary, any assistant
secretary, or any other officer thereunto authorized by the board of directors,
according to the requirements of the form of the instrument.
SECTION 6. THE TREASURER. The treasurer shall be the principal accounting
and financial officer of the corporation. He shall: (a) have charge of and be
responsible for the maintenance of adequate books of account for the
corporation; (b) have charge and custody of all funds and securities of the
corporation, and be responsible-therefor and for the receipt and disbursement
thereof; and (c) perform all the duties incident to the office of treasurer and
such other duties as from time to time may be assigned to him by the president
or by the board of directors. If required by the board of directors, the
treasurer shall give a bond for the faithful
<PAGE>
discharge of his duties in such sum and with such surety or sureties as the
board of directors may determine.
SECTION 7. THE SECRETARY. The secretary shall: (a) record the minutes of
the shareholders, and of the board of directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these by-laws or as required by law; (c) be custodian of
the corporate records and of the seal of the corporation: (d) keep a register of
the post-office address of each shareholder which shall be furnished to the
secretary by such shareholder; (e) sign with the president, or a vice-president,
or any other officer thereunto authorized by the board of directors,
certificates for shares of the corporation, the issue of which shall have been
authorized by the board of directors, and any contracts, deeds, mortgages,
bonds, or other instruments which the board of directors has authorized to be
executed, according to the requirements of the form of the instrument, except
when a different mode of execution is expressly prescribed by the board of
directors or these by-laws; (f) have general charge of the stock transfer books
of the corporation; (g) perform all duties incident to the office of secretary
and such other duties as from time to time may be assigned to him by the
president or by the board of directors.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The assistant
treasurers and assistant secretaries shall perform such duties as shall be
assigned to them by the treasurer or the secretary, respectively, or by the
president or the board of directors. The assistant secretaries may sign with the
president, or a vice-president, or any other officer thereunto authorized by the
board of directors, certificates for shares of the corporation, the issue of
which shall have been authorized by the board of directors, and any contracts,
deeds, mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, according to the requirements of the form of the
instrument, except when a different mode of execution is expressly prescribed by
the board of directors or these by-laws. The assistant treasurers shall
respectively, if required by the board of directors, give bonds for the faithful
discharge of their duties in such sums and with such sureties as the board of
directors shall determine.
SECTION 9. SALARIES. The salaries of the officers shall be fixed from
time to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V
---------
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The board of directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
<PAGE>
SECTION 2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the board of directors may
select.
ARTICLE VI
----------
CERTIFICATES FOR SHARES AND
THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
the corporation shall be signed by the president or a vice-president or by such
officer as shall be designated by resolution of the board of directors and by
the secretary or an assistant secretary, and shall be sealed with the seal or a
facsimile of the seal of the corporation. If both of the signatures of the
officers be by facsimile, the certificate shall be manually signed by or on
behalf of a duly authorized transfer agent or clerk. Each certificate
representing shares shall be consecutively numbered or otherwise identified, and
shall also state the name of the person to whom issued, the number and class of
shares (with designation of series, if any), the date of issue, that the
corporation is organized under Illinois law, and the par value or a statement
that the shares are without par value. If the corporation is authorized and
does issue shares of more than one class or of series within a class, the
certificate shall also contain such information or statement as may be required
by law.
The name and address of each shareholder, the number and class of shares
held and the date on which the certificates for the shares were issued shall be
entered on the books of the corporation. The person in whose name shares stand
on the books of the corporation shall be deemed the owner thereof for all
purposes as regards the corporation.
SECTION 2. LOST CERTIFICATES. If a certificate representing shares has
allegedly been lost or destroyed the board of directors may in its discretion,
except as may be required by law, direct that a new certificate be issued upon
such indemnification and other reasonable requirements as it may impose.
SECTION 3. TRANSFERS OF SHARES. Transfers of shares of the corporation
shall be recorded on the books of the corporation and, except in the case of a
lost or destroyed certificate, on surrender for cancellation of the certificate
for such shares. A certificate presented for transfer must be duly endorsed and
accompanied by proper guaranty of signature and other appropriate assurances
that the endorsement is effective.
<PAGE>
ARTICLE VII
-----------
FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors.
ARTICLE VIII
------------
DIVIDENDS
The board of directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its articles of incorporation.
ARTICLE IX
----------
SEAL
The corporate seal shall have inscribed thereon the name of the corporation
and the words "Corporate Seal, Illinois". The seal may be used by causing it or
a facsimile thereof to be impressed or affixed or in any manner reproduced.
ARTICLE X
---------
WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions of these
by-laws or under the provisions of the articles of incorporation or under the
provisions of The Business Corporation Act of the State of Illinois, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
ARTICLE XI
----------
AMENDMENTS
The power to make, alter, amend, or repeal the by-laws of the corporation
shall be vested in the board of directors, unless reserved to the shareholders
by the articles of incorporation. The by-laws may contain any provisions for
the regulation and management of the affairs of the corporation not inconsistent
with law or the articles of incorporation.
<PAGE>
EXHIBIT 3.21
------------
ARTICLES OF INCORPORATION
OF
FALCONITE REBUILD CENTER, INC.
------------------------------
The undersigned natural person of the age of eighteen (18) years or
more for the purpose of forming a corporation under the Kentucky Business
Corporation Act, as amended, adopts the following Articles of Incorporation:
ARTICLE I
---------
The name of the Corporation is Falconite Rebuild Center, Inc.
ARTICLE II
----------
The address, including street and number, if any, of the Corporation's
initial registered office in this State is 421 W. Main Street, Frankfort,
Kentucky 40601, and the name of its initial registered agent at such address is
Corporation Service Company d/b/a CSC-Lawyers Incorporating Service Company.
ARTICLE III
-----------
The aggregate number, class and par value, if any, of shares which the
Corporation shall have authority to issue shall be one thousand (1,000) shares
of Common Stock having a par value of one cent ($.01) per share.
ARTICLE IV
----------
The name and place of residence of the incorporator is Patrick T.
Purifoy, Thompson Coburn, One Mercantile Center, Suite 3400, St. Louis, Missouri
63101.
<PAGE>
ARTICLE V
---------
The duration of the Corporation is perpetual.
ARTICLE VI
----------
The Corporation is formed to engage in any lawful business.
ARTICLE VII
-----------
The mailing address of the Corporation's principal office is 2525
Wayne Sullivan Dr., Paducah, Kentucky 42003.
IN WITNESS WHEREOF, these Articles of Incorporation have been signed
this 28th day of January, 1997.
/s/ PATRICK T. PURIFOY
-----------------------------------
Patrick T. Purifoy, Incorporator
-2-
<PAGE>
Exhibit 3.22
------------
BY-LAWS
OF
FALCONITE REBUILD CENTER, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I OFFICES............................................................ 4
ARTICLE II Stockholders...................................................... 4
Section 2.01 Annual Meeting
Section 2.02 Special Meeting.......................................... 4
Section 2.03 Place of Meeting......................................... 4
Section 2.04 Notice of Meeting........................................ 4
Section 2.05 Meetings, How Convened................................... 5
Section 2.06 Fixing Date of Record.................................... 5
Section 2.07 Quorum................................................... 5
Section 2.08 Proxies.................................................. 6
Section 2.09 Voting of Shares......................................... 6
Section 2.10 Voting of Shares by Certain Holders...................... 6
Section 2.11 Stockholder Action Without a Meeting..................... 7
ARTICLE III BOARD OF DIRECTORS............................................... 7
Section 3.01 General Powers........................................... 7
Section 3.02 Number, Term and Qualifications.......................... 7
Section 3.03 Regular Meetings......................................... 7
Section 3.04 Special Meetings......................................... 7
Section 3.05 Notice................................................... 7
Section 3.06 Quorum; Participation by Telephone....................... 8
Section 3.07 Manner of Acting......................................... 8
Section 3.08 Action Without a Meeting................................. 8
Section 3.09 Vacancies................................................ 8
Section 3.10 Compensation............................................. 8
Section 3.11 Committees............................................... 8
ARTICLE IV OFFICERS.......................................................... 9
Section 4.01 Number................................................... 9
Section 4.02 Election and Term of Office.............................. 9
Section 4.03 Removal.................................................. 9
Section 4.04 Resignations............................................. 9
Section 4.05 Vacancies................................................ 9
Section 4.06 President................................................ 9
Section 4.07 Vice President(s)........................................10
Section 4.08 Secretary................................................10
Section 4.09 Treasurer................................................10
Section 4.10 Salaries................................................10
</TABLE>
- 2 -
<PAGE>
<TABLE>
<S> <C>
ARTICLE V CONTRACTS, LOANS, CHECKS AND DEPOSITS..............................11
Section 5.01 Contracts...................................................11
Section 5.02 Loans.......................................................11
Section 5.03 Checks, Drafts, etc.........................................11
Section 5.04 Deposits....................................................11
ARTICLE VI CERTIFICATES FOR SHARES AND THEIR TRANSFER.........................11
Section 6.01 Certificates for Shares.....................................11
ARTICLE VII FISCAL YEAR......................................................12
ARTICLE VIII FINANCIAL INTEREST OF CORPORATE
OFFICERS; EFFECT ON CONTRACTS............................................12
ARTICLE X AMENDMENTS..........................................................13
</TABLE>
- 3 -
<PAGE>
BY-LAWS
OF
FALCONITE REBUILD CENTER, INC.
ARTICLE I OFFICES
------------------
The principal office of the Corporation in the Commonwealth of
Kentucky shall be located at 2525 Wayne Sullivan Drive, Paducah, Kentucky 42003.
The corporation may have such other office(s), either within or without the
Commonwealth of Kentucky, as the Board of Directors may designate or as the
business of the corporation may require from time to time.
The registered office of the Corporation required by the Kentucky
Business Corporation Act, as amended, to be maintained in the commonwealth of
Kentucky may be, but need not be, identical with its principal office in the
Commonwealth of Kentucky, and the address of the registered office may be
changed from time to time by the Board of Directors.
ARTICLE II Stockholders
------------------------
Section 2.01 Annual Meeting. The annual meeting of the stockholder
be held on the last Tuesday in the month of March, in each year, beginning with
the year 1997, at the hour of 10:00 A.M., or at such other date or time as shall
be designated by resolution of the Board of Directors, for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting.
Section 2.02 Special Meeting. A special meeting of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute, may be called by the President, by the Board of Directors, or by the
holders of not less than one-third of all the outstanding shares of the
Corporation entitled to vote at such meeting.
Section 2.03 Place of Meeting. The Board of Directors may designate
any place, either within or without the Commonwealth of Kentucky, as the place
of meeting for any annual or special meeting of the stockholders.
Section 2.04 Notice of Meeting. Unless a different manner of giving
notice is prescribed by statute, written or printed notice stating the place,
day and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall, unless otherwise allowed or
prescribed by statute, be delivered not less than ten (10) nor more than sixty
(60) days before the date of the meeting, either personally or by mail, by or at
the direction of the President, or the Secretary, or the persons calling the
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, addressed to the Stockholder at his or her address as
it appears on the records of the Corporation, with postage thereon prepaid.
- 4 -
<PAGE>
Section 2.05 Meetings, How Convened. Every meeting, for whatever
purpose, of the stockholders of the Corporation shall be convened by its
President, Secretary or other officer, or any of the persons calling the meeting
by notice given as herein provided.
Section 2.06 Fixing Date of Record.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) or less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
(b) If no record date is fixed:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 2.07 Quorum. Unless a greater portion shall be required by
statute for a specified action, a majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at any meeting of stockholders. If less than a quorum is
present, those present may adjourn the meeting until a specified date, not
longer than ninety (90) days after such adjournment, and no notice need be given
of such adjournment to stockholders not present at the meeting. Every decision
of a majority of such quorum shall be valid as a corporate act unless a
different vote is required by law, the Certificate of Incorporation or the By-
Laws of the Corporation.
- 5 -
<PAGE>
Section 2.08 Proxies. At all meetings of stockholders, a
Stockholder may vote in person or by proxy executed in writing by the
Stockholder or by the Stockholder's duly authorized attorney in fact. Such
proxy shall be filed with the meeting. No proxy shall be valid after three (3)
years from the date of its execution, unless otherwise provided in the proxy. A
duly executed proxy shall be irrevocable only if it states that it is
irrevocable and if, and only so long as, it is coupled with an interest
sufficient in law to support an irrevocable power of attorney. The interest
with which it is coupled need not be an interest in the shares themselves. If
any instrument of proxy designates two or more persons to act as proxy, in the
absence of any provisions in the proxy to the contrary, the persons designated
may represent and vote the shares in accordance with the vote or consent of the
majority of the persons named as proxies. If only one such proxy is present,
the proxy may vote all of the shares, and all the shares standing in the name of
the principal or principals for whom such proxy acts shall be deemed represented
for the purpose of obtaining a quorum. The foregoing provisions shall apply to
the voting of shares by proxies for any two or more personal representatives,
trustees or other fiduciaries, unless an instrument or order of court appointing
them otherwise directs.
Section 2.09 Voting of Shares. Subject to the provisions of law and
the Certificate of Incorporation, each outstanding share entitled to vote shall
be entitled to one vote upon each matter submitted to a vote at a meeting of the
stockholders.
Section 2.10 Voting of Shares by Certain Holders. Shares standing
in the name of another corporation may be voted by such officer, agent or proxy
as the by-laws of such corporation may prescribe, or, in the absence of such
provision, as the Board of Directors of such corporation may determine.
Shares standing in the name of a deceased person may be voted by his
or her personal representative, either in person or by proxy. Shares standing
in the name of a conservator or trustee may be voted by such fiduciary, either
in person or by proxy, but no conservator or trustee shall be entitled, as a
fiduciary to vote shares held by him or her without a transfer of such shares
into his or her name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his or her name if authority so
to do be contained in an appropriate order of the court by which such receiver
was appointed.
A Stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither shares of its own stock held by the Corporation, nor those
held by another corporation if a majority of the shares entitled to vote for the
election of directors of such other
- 6 -
<PAGE>
corporation are owned beneficially and of record (and not in trust) by this
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time.
Section 2.11 Stockholder Action Without a Meeting. Any action
required to be taken at a meeting of the stockholders, or any action which may
be taken at a meeting of the stockholders, may be taken without a meeting if
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted; provided that each
consent shall bear the date of signature of each Stockholder and no written
consent shall be effective to take the corporate action referred to therein
unless, within sixty (60) days of the earliest dated consent, written consents
signed by a sufficient number of holders to take action are delivered in the
manner provided by law to the corporation or the officer of the corporation
having custody of the corporate minute book. Such consents shall have the same
force and effect as a unanimous vote of the stockholders at a meeting duly held.
The Secretary of the corporation shall file such consents with the minutes of
the meetings of the stockholders.
ARTICLE III BOARD OF DIRECTORS
-------------------------------
Section 3.01 General Powers. The business and affairs of the
Corporation shall be managed by its Board of Directors.
Section 3.02 Number, Term and Qualifications. The number of
directors shall be three (3), as fixed from time to time by the Board of
Directors or stockholders. Each director shall hold office until the next
annual meeting of stockholders or until his successor is elected.
Section 3.03 Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this By-Law immediately after,
and at the same place as, the annual meeting of stockholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the Commonwealth of Kentucky, for the holding of additional regular
meetings without other notice than such resolution.
Section 3.04 Special Meetings. A special meeting of the Board of
Directors may be called by, or at the request of, the President or any two
directors. The person or persons authorized to call such special meeting of the
Board of Directors may fix any time and place, either within or without the
Commonwealth of Kentucky, as the time and place for holding such special
meeting.
Section 3.05 Notice. Notice of any special meeting shall be
delivered at least three (3) days prior thereto by written notice delivered
personally or left at or mailed to each director at his or her business or
residence address, or by telegram, if mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, so addressed, with postage
thereon paid. If notice be given by telegram, such notice shall be deemed to be
delivered when the text of the
- 7 -
<PAGE>
telegram is delivered to the telegraph company. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
Section 3.06 Quorum; Participation by Telephone. A majority of the
full Board of Directors shall constitute a quorum for the transaction of
business, but if less than a majority are present at a meeting, a majority of
the directors present may adjourn the meeting from time to time without further
notice. Members of the Board of Directors may participate in a meeting of the
Board of Directors, whether regular or special, by means of conference telephone
or similar communications equipment whereby all persons participating in the
meeting can hear each other, and participation in a meeting in this manner shall
constitute presence in person at the meeting.
Section 3.07 Manner of Acting. The act of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors, unless the act of a different number is required by
statute, the Certificate of Incorporation or these By-Laws.
Section 3.08 Action Without a Meeting. Any action that may be taken
at a meeting of the Board of Directors or of a committee of directors may be
taken without a meeting if consents in writing, setting forth the action so
taken, are signed by all of the members of the Board of Directors or of the
committee, as the case may be. Such written consents shall be filed by the
Secretary with the minutes of the proceedings of the Board of Directors or of
the committee, as the case may be, and shall have the same force and effect as a
unanimous vote at a meeting duly held.
Section 3.09 Vacancies. In case of the death, removal,
disqualification, incapacity or resignation of one (1) or more of the directors,
or in the case of a newly created directorship resulting from any increase in
the number of directors to constitute the Board of Directors, a majority of the
directors then in office, although less than a quorum, or the sole remaining
director, may fill the vacancy or vacancies until the next election of directors
by the stockholders.
Section 3.10 Compensation. By resolution of the Board of Directors,
each director may be paid his or her expenses, if any, of the attendance at each
meeting of the Board of Directors, and may be paid a stated salary as director
or a fixed sum for attendance at each meeting of the Board of Directors or both.
No such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefore.
Section 3.11 Committees. The Board of Directors, by resolution
adopted by a majority of the Board, may designate two (2) or more directors to
constitute (a) an executive committee, which committee shall have and exercise
all of the authority of the Board of Directors in the management of the
Corporation, or (b) any other committee which shall have the name, purpose,
power and authority delegated to it by such resolution.
- 8 -
<PAGE>
ARTICLE IV OFFICERS
--------------------
Section 4.01 Number. The officers of the Corporation shall be the
President and a Secretary, each of whom shall be elected by the Board of
Directors. Such other officers (including one or more Vice Presidents and a
Treasurer) and assistant officers as may be deemed necessary may be elected or
appointed by the Board of Directors Any two (2) or more offices may be held by
the same person.
Section 4.02 Election and Term of Office. The officers of the
Corporation to be elected by the Board of Directors shall be elected annually by
the Board of Directors at the first meeting of the Board of Directors held after
the first annual meeting of the stockholders. If the election of officers shall
not be held at such meeting, such election shall be held as soon thereafter as
conveniently may be arranged. Each officer shall hold office until his or her
successor shall have been duly elected and shall have qualified or until his or
her death or until he or she shall resign or shall have been removed in the
manner hereinafter provided.
Section 4.03 Removal. Any officer, agent, or other employee elected
or appointed by the Board of Directors may be removed by the Board of Directors,
with or without cause, whenever in its judgment the best interests of the
Corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed, Election or
appointment of an officer or agent shall not of itself create contract rights.
Section 4.04 Resignations. Any officer may resign at any time by
giving written notice to the Board of Directors, the President or the Secretary
of the Corporation. Any written notice delivered in person to the President or
the Secretary shall be effective upon delivery unless otherwise provided
therein. Written notice may be delivered by certified or registered mail, with
postage thereon prepaid and a return receipt requested. Such resignation shall
take effect on the date of the receipt of such notice which date of receipt
shall be deemed to be the. date indicated upon the registered or certified mail
return receipt, or at any later time specified therein. Unless otherwise
specified herein, the acceptance of such resignation shall be not necessary to
make it effective.
Section 4.05 Vacancies. A vacancy in any office because of death,
incapacity, resignation, removal, disqualification or otherwise, may be filled
by the Board of Directors for the unexpired portion of the term.
Section 4.06 President. The President shall be the chief executive
officer of the Corporation and shall in general supervise and control all of the
business and affairs of the Corporation. The President shall preside at all
meetings of the stockholders and of the Board of Directors. The President may
sign, with the Secretary or any other proper officer of the Corporation
thereunto authorized by the Board of Directors, certificates for shares of the
Corporation, any deeds, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-Laws to some other officer or agent of the Corporation,
or
- 9 -
<PAGE>
shall be required by law to be otherwise signed or executed. The President may
vote in person or by proxy shares in other corporations standing in the name of
this Corporation. The President shall in general perform all duties incident to
the office of President and such other duties as may be prescribed by the Board
of Directors from time to time.
Section 4.07 Vice President(s). In the absence of the President,
whether due to resignation, incapacity or any other cause, or in the event of
the President's death, inability or refusal to act, and if there shall be at
least one Vice President, the Vice President (or in the event there be more than
one Vice President, the Vice Presidents in the order designated by the Board of
Directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Vice President shall exercise such powers only so long as the
President remains absent or incapacitated, or until the Board of Directors
elects a new President. Any Vice President may sign, with the Secretary, an
Assistant Secretary, Treasurer or an Assistant Treasurer, certificates for
shares of the Corporation; and shall perform such other duties as from time to
time may be assigned to him or her by the President or by the Board of
Directors.
Section 4.08 Secretary. The Secretary shall (a) keep the minutes of
the proceedings of the stockholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all documents the execution of
which on behalf of the Corporation under its seal is duly authorized; (d) keep a
register of the post office address of each stockholder which shall be furnished
to the Secretary by such Stockholder; (e) sign with the President, or a Vice
President, certificates for shares of the Corporation, the issuance of which
shall have been authorized by resolution of the Board of Directors; (f) have
general charge of the stock transfer books of the Corporation; and (g) in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to the Secretary by the President or
by the Board of Directors.
Section 4.09 Treasurer. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the Corporation;
(b) receive and give receipts for monies due and payable to the Corporation from
any source whatsoever, and deposit all such moneys in the name of the
Corporation in such banks, trust companies or other depositories as shall be
selected in accordance with the provisions of Article IV of these By-Laws; and
(c) in general perform all the duties incident to the office of Treasurer and
such other duties incident to the office of Treasurer and such other duties as
from time to time may be assigned to the Treasurer by the President or by the
Board of Directors, if required by the Board of Directors, the Treasurer shall
give a bond for the faithful discharge of the Treasurer's duties in such sum and
with such surety or sureties as the Board of Directors shall determine.
Section 4.10 Salaries. The salaries of the officers shall be fixed
from time to time by the Board of Directors and no officer shall be prevented
from receiving such salary by reason of
- 10 -
<PAGE>
the fact that the officer is also a director of the Corporation and participated
in determining and voting upon the salary.
ARTICLE V CONTRACTS, LOANS, CHECKS AND DEPOSITS
------------------------------------------------
Section 5.01 Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
Section 5.02 Loans. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 5.03 Checks, Drafts, etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation, shall be signed by such officer or officers,
agent or agents of the Corporation and in such manner as shall from time to time
be determined by resolution of the Board of Directors.
Section 5.04 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VI CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------------------
Section 6.01 Certificates for Shares. Certificates representing
shares of the Corporation shall be in such form as shall be determined by the
Board of Directors.
The shares of the Corporation shall be represented by certificates
signed by the President or a Vice President, and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer of the
Corporation and sealed with the seal of the Corporation. Such seal may be
facsimile, engraved or printed it such certificate is countersigned by a
transfer agent or registrar other than the Corporation or its employee, any
other signature on the certificate may be facsimile, engraved or printed. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be cancelled, and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefor under such terms as the Board of
Directors may prescribe.
Section 6.02 Transfer of Shares. Transfer of shares of the
Corporation shall be made only on the stock transfer books of the Corporation by
the holder of record thereof or by his or her legal representative, or by his
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<PAGE>
or her attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the Corporation, and on surrender for cancellation
of the certificate for such shares. The person in whose name shares stand on the
books of the Corporation shall be deemed by the Corporation to be the owner
thereof for all purposes.
ARTICLE VII FISCAL YEAR
------------------------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors from time to time.
ARTICLE VII FINANCIAL INTEREST OF CORPORATE
--------------------------------------------
OFFICERS; EFFECT ON CONTRACTS
-----------------------------
No contract or transaction between the corporation and one or more of
its directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board or
committee thereof which authorizes the contract or transaction, or solely
because his, her or their votes are counted for such purpose, if:
(1) The material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the Board of
Directors or committee, and the Board of Directors or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or
(2) The material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the Corporation as of
the time it is authorized or approved by the Board of Directors, a committee
thereof, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee which
authorizes the contract or transactions.
ARTICLE IX WAIVER OF NOTICE
----------------------------
Whenever any notice is required to be given to any Stockholder or
director of the Corporation under the provisions of these By-Laws or of the
Certificate of Incorporation or of the Kentucky Business Corporation Act as
amended, a waiver thereof in writing signed by the person
- 12 -
<PAGE>
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
ARTICLE X AMENDMENTS
---------------------
These By-Laws may be altered, amended or repealed and new By-Laws
adopted by action of a majority of the directors at any regular or special
meeting of the directors.
Adopted effective as of January 29, 1997.
/s/ Michael A. Falconite
__________________________________________
Michael A. Falconite
President
Attest:
/s/ Kevin S. Pugh
__________________________
Kevin S. Pugh
Secretary
- 13 -
<PAGE>
EXHIBIT 3.23
------------
ARTICLES OF INCORPORATION
OF
MCCURRY & FALCONITE EQUIPMENT CO., INC.
---------------------------------------
The undersigned, who is over the age of twenty one years, acting as an
incorporator of a corporation under the Code of Alabama, adopts the following
Articles of Incorporation for such corporation:
FIRST: The name of the corporation is McCurry & Falconite Equipment Co.,
Inc.
SECOND: The period of its duration is perpetual.
THIRD: The objects and purposes for which the corporation is formed are:
1. To buy, sell, rent, lease, install, repair, trade and generally deal in
machinery and equipment of all types and kind and to otherwise do and preform
such other things as are necessary to the accomplishment of the purposes set
forth therein.
2. To take, lease, purchase or otherwise acquire, and to own, use, hold,
sell, convey, exchange, lease, mortgage, work, improve, develop, divide, and
otherwise handle, deal in, and dispose of real estate, real property, and any
interest or right therein.
3. To erect, construct, maintain, improve, rebuild, enlarge, alter,
manage, and control, directly or through ownership of stock in any corporation,
any and all kinds of buildings, houses, stores, offices, shops, and plants, and
any and all other structures and erections which may, in the judgment of the
Board of Directors, at any time be necessary, useful, or advantageous, for the
purposes of the corporation, and which can lawfully be done under the laws of
the State of Alabama.
4. To acquire, organize, assemble, develop, build up and operate other
organizations and systems, and to hire, sell, lease, exchange, turn over,
deliver and dispose of such organizations, in whole or in part, and as going
organizations and systems and otherwise, and to enter into and perform
contracts, agreements, and undertakings of any kind in connection with any and
all of the foregoing purposes.
5. To transact any and all lawful business for which corporations may be
incorporated under the Alabama Business Corporation Act.
The foregoing enumeration of the purposes, object, and business of the
corporation is made in furtherance, and not in limitation, of the powers
conferred upon the corporation by law, and is not intended, by the mention of
any particular purposes, object, or business, to limit or restrict in any
<PAGE>
manner the generality of any other purpose, object, or business mentioned, or to
limit or restrict any of the powers of the corporation.
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is 10,000 shares of stock with a par value of One Dollar
($1.00) each.
FIFTH: Regulation of the internal affairs of the corporation shall be
provided for by By-Laws adopted for the corporation. The By-Laws of the
corporation shall be adopted by and may be amended by a majority of the Board of
Directors of the corporation.
SIXTH: The provisions limiting or denying to shareholders the preemptive
right to acquire additional or Treasury shares of the corporation are: None.
SEVENTH: The address of the initial registered office of the corporation is
8519 Highway 20 West, Madison, Alabama 35758 and the name of the initial
registered agent at such address is Ralph McCurry.
EIGHT: The Board of Director(s) shall have full power and authority to
manage and control the property and business affairs of the corporation. The
number of Directors constituting the initial Board of Directors of the
corporation is one and the name and address of the persons who are to serve as
Directors until the first annual meeting of Stockholders or until the first
annual meeting of Shareholders or until successors are elected and qualified
are:
NAME: ADDRESS:
Ralph McCurry 8519 Highway 20 West
Madison, Alabama 35758
Michael Falconite 8519 Highway 20 West
Madison, Alabama 35758
NINTH: The names and addresses of the incorporator is:
NAME: ADDRESS:
Ralph McCurry 8519 Highway 20 West
Madison, Alabama 35758
-2-
<PAGE>
DATED this the 9th day of March, 1995.
INCORPORATOR:
/s/ RALPH McCURRY
-----------------
Ralph McCurry
VERIFICATION
STATE OF ALABAMA )
COUNTY OF MADISON )
I, the undersigned, a Notary Public in and for said County and State,
hereby certify that on the 9th day of March, 1995, personally appeared before me
Ralph McCurry, being by me first duly sworn, declared that he is the
incorporator of McCurry & Falconite Equipment Co., Inc., and that he has signed
the foregoing document as incorporator of said corporation, and that the
statements therein contained are true and correct.
/s/ KIRSTEN DINATO
-----------------------------------
Notary Public
My Commission Expires: April 6, 1998
-3-
<PAGE>
EXHIBIT 3.24
------------
BY-LAWS
OF
MCCURRY & FALCONITE EQUIPMENT CO., INC.
ARTICLE I - OFFICES
-------------------
McCurry & Falconite Equipment Co., Inc., (hereinafter called
"Corporation"), shall maintain a principal office in the State of Alabama as
required by law. The Corporation may also have offices in such other places
either within or without the State of Alabama as the Board of Directors may from
time to time designate or as the business of the Corporation may require.
ARTICLE II - SEAL
-----------------
The seal of the Corporation shall be circular in form and shall have the
name of the Corporation on the circumference and the words and numerals
"Corporate Seal 1995 State of Alabama" in the center.
ARTICLE III - STOCKHOLDERS
--------------------------
1. Annual Meeting. The annual meeting of the stockholders of the
--------------
Corporation shall be held in each year on the second (2nd) Tuesday of March, if
not a holiday, and if a holiday, then on the next calendar day following, for
the purpose of electing directors and the transaction of such other business as
may be brought before the meeting.
2. Special Meetings. Special meetings of the stockholders may be called
----------------
by the President, and Vice President, or by a majority of the Board of
Directors, and shall be called by the President or Secretary upon the written
request of stockholders owning one-third or more of all outstanding shares of
stock entitled to vote at the meeting.
3. Place of Meeting. The Board of Directors may designate any place
----------------
either within or without the State of Alabama as the place of meeting for any
annual or special meeting. In the absence of any designation, all meetings shall
be held at the principal office of the Corporation.
4. Notice of Meetings. Written or printed notice stating the place, day
------------------
and hour of the meeting shall be given before the date of the meeting, either
personally or by mail, by or at the direction of the Secretary to each
stockholder of record entitled to vote at such meeting. Such notice shall be
delivered not less than ten (10) days before the date of the meeting.
Notwithstanding the provisions of this section, the stock or bonded indebtedness
of the Corporation shall not be increased at a meeting unless thirty (30) days'
notice of such meeting shall have been given in the manner prescribed in this
section. In case of a special meeting or an annual meeting at which special
action is to be taken, such notice shall also state the purpose(s) for which the
meeting is called or the special action which is proposed to be taken. If
mailed, such notice shall be deemed to have been delivered when deposited in the
United States mail, addressed to the stockholder at his address as it appears on
the stock transfer books
-1-
<PAGE>
of the Corporation with postage thereon prepaid. If given personally, such
notice shall be deemed to have been delivered when handed to the stockholder or
left at his place of business or his residence.
5. Quorum. A majority of the outstanding shares of the Corporation
------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of the stockholders. If less than a majority of the shares are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted at the meeting as originally notified. The stockholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
6. Proxies. A stockholder entitled to vote may vote either in person or
-------
by proxy executed in writing by the stockholder or by his duly authorized
attorney-in-fact. No proxy shall be valid after eleven (11) months from the date
of its execution, unless otherwise provided in the proxy.
7. Voting of Shares. Each outstanding share, regardless of class or
----------------
classes, shall be entitled to one vote on each matter submitted to a vote at a
meeting of stockholders, except to the extent that the voting rights of the
shares of any class or classes are limited or denied by the Certificate of
Incorporation.
8. Informal Action by Stockholders. Any action required to be taken at a
-------------------------------
meeting of the stockholders, or any action which may be taken at a meeting of
the stockholders, or any action which may be taken without a meeting if a
consent in writing, setting for the action so taken, shall be signed by all of
the stockholders entitled to vote with respect to the subject matter thereof.
Such consent shall have the same force and effect as a unanimous vote of
stockholders.
ARTICLE IV - BOARD OF DIRECTORS
-------------------------------
1. Management of Corporation. The business and affairs of the
-------------------------
Corporation shall be managed and controlled by the Board of Directors.
2. Number, Tenure and Qualifications. There shall be two directors of
---------------------------------
the Corporation. directors shall be elected at the annual meeting of the
stockholders and shall hold office for one year until the next annual meeting of
the stockholders and until their successors have been elected and qualified. The
number of directors may be increased or decreased from time to time by amendment
to the By-Laws, but no decrease shall have the effect of shortening the term of
any incumbent director. Directors need not be residents of the State of Alabama
or stockholders of the corporation.
3. Annual and Other Regular Meetings. The regular meeting of the Board
---------------------------------
shall be held immediately after and at the same place as the annual meeting of
the stockholders, without necessity of notice of such meeting. The Board may
provide for the holders of additional regular
-2-
<PAGE>
meetings at such places either within or without the State of Alabama and at
such time as the Board of Directors by resolution may determine, and if so
determined no further notice thereof need be given.
4. Special Meetings. Special meetings of the Board maybe called by the
----------------
Chairman of the Board, or by the President or any Vice President, or by any two
Directors. The person(s) authorized to call a special meeting of the Board shall
fix the place, either within or without the State of Alabama, and the date and
time for holding any such meeting.
5. Notice. Notice of any special meeting shall state the date, time and
------
place of the meeting and the purposes(s) for which the meeting is called and may
be given under any one of the following methods:
(a) By written notice at least forty-eight (48) hours in advance of such
meeting, delivered in person or by leaving such notice at the place of
business or residence of such Director, or by depositing such notice
in the United States mail, postage prepaid and addressed to the
Director at his address as it appears on the records of the Secretary
of the Corporation;
(b) Verbally in person or by telephone at least twenty-four (24) hours in
advance of such meeting by communication with the Director in person
or by telephone;
(c) By telegram delivered to the telegraph company at least twenty-four
(24) hours in advance of such meeting.
6. Quorum. A majority of the Directors shall constitute a quorum for the
------
transaction of business but if less than such majority is present at a meeting,
a majority of the Directors present may adjourn the meeting which may be held on
a subsequent date without further notice provided a quorum shall be present at
such deferred meeting.
7. Manner of Acting. The act of a majority of the Directors present at a
----------------
meeting at which a quorum is present shall be the act of the Board of Directors
unless the act of a greater number is required by the statute, Certificate of
Incorporation or the By-Laws.
8. Vacancies. Any vacancies occurring in the Board of Directors may be
---------
filled by the affirmative vote of the majority of the remaining Directors though
less than a Quorum of the Board. A Director elected to fill a vacancy shall be
elected to serve for the unexpired term of his predecessor. Any Directorship to
be filled by reason of an increase in the number of Directors shall be filled by
election at an annual meeting or at a special meeting of stockholders called for
that purpose. A director may be removed from the Board only for cause shown by a
majority vote of the stockholders.
ARTICLE V - WAIVER OF NOTICE
----------------------------
Any notice required to be given under the provisions of these By-Laws or
otherwise may be waived by the stockholder or Director to whom such notice is
required to be given.
-3-
<PAGE>
ARTICLE VI - OFFICERS
---------------------
1. Various Officers. The officers of the Corporation shall be elected by
----------------
the Board of Directors and shall be President, a Vice President, a Secretary and
a Treasurer. The Board of Directors may also choose a Chairman of the Board of
Directors, additional Vice Presidents, an Assistant Secretary and an Assistant
Treasurer. The Secretary of Treasurer may be the same person, and the President
or Vice President may hold at the same time, the off ice of the Treasurer.
2. Election and Term of Office. The officers shall be elected by the
---------------------------
Board of Directors at the annual meeting of the Board, except an officer elected
to fill a vacancy, shall be elected in the manner provided in section 4. If the
election of officers shall not be held at such annual meeting, such election
shall be held as soon thereafter as practicable. Each officer shall hold office
until his successor shall have been duly elected and qualified or until his
death, resignation or removal in the manner hereafter provided.
3. Removal. Any officer elected or appointed by the Board of Directors
-------
may be removed by the affirmative vote of the majority or all the Directors
whenever, in their judgment, the best interests of the corporation would be
served thereby.
4. Vacancies. A vacancy in any office on account of death, resignation,
---------
removal, disqualification or otherwise may, at any regular or special meeting,
be filled by the Board for the unexpired portion of the term.
5. Chairman of the Board of Directors. In the event the Board of
----------------------------------
Directors shall elect a Chairman of the Board of Directors, the Chairman shall
preside at all meetings of stockholders and Directors. Except where by law the
signature of the President is required to sign all contracts and other
instruments of the Corporation which may be authorized by the Board of
Directors.
6. President. The President shall be the chief executive officer of the
Corporation and shall have general supervision of all the business and affairs
of the Corporation; see that all orders and resolutions of the Board are carried
into effect; sign all stock certificates, contracts and other instruments of the
Corporation which may be authorized by the Board of Directors; and, perform all
other duties as are incident to the office of President or as may be assigned to
him by the Board of Directors. In the absence of or if there be no Chairman of
the Board, the President shall preside at all meetings of the stockholders and
directors. The President shall co-sign all checks in excess of $1,000.00.
7. Vice Presidents. The Vice Presidents, in the order designated by the
---------------
Board of Directors, shall exercise the functions of the President during the
absence or disability of the President. Each Vice President shall have such
powers and shall perform such duties as may be assigned to him by the Board of
Directors.
-4-
<PAGE>
8. Secretary.
---------
(a) The Secretary shall attend all sessions of the Board and all meetings
of the stockholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose; see that all the
notices are given in accordance with the provisions of these By-Laws
or as required by law; keep the seal of the Corporation in safe
custody and, when authorized by the Board of Directors, shall affix
the same to any instrument requiring it and, when so affixed, it shall
be attested by his signature; sign with the President, or any Vice
President, all stock certificates to be issued; and, perform such
other duties as may be assigned to him by the Board of Directors or
President. The office of Secretary and Treasurer may be held by one
and the same person.
(b) Any Assistant Secretary shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary
and shall perform such other duties as may be assigned to him by the
Board of Directors or President.
9. Treasurer.
---------
(a) The Treasurer shall be the chief financial officer of the Corporation;
have custody of all funds and securities of the Corporation; keep full
and accurate accounts of receipts and disbursements; deposit all
monies and valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors; disburse the funds of the Corporation as may be ordered by
the Board, taking proper vouchers for such disbursements; render to
the President and Board, whenever they may require it, an account of
his transactions as Treasurer and of the financial condition of the
Corporation; and perform such other duties as may be assigned to him
by the Board of Directors.
(b) Any Assistant Treasurer shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer
and shall perform such other duties as may be assigned to him by the
Board of Directors or President.
10. Delegation of Duties. In the event of the absence of any officer of
--------------------
the Corporation, or for any other reason that a majority of the Board of
Directors may deem necessary, advisable or appropriate, the Board may delegate
any or all of the powers or duties of any officer to any other person(s) for
such time and under such conditions as a majority of the Board shall concur.
ARTICLE VII - CERTIFICATES OF STOCK AND STOCK TRANSFERS
-------------------------------------------------------
1. Stock Certificates. Stock certificates shall be in such form as may
------------------
be determined by the Board of Directors and as will comply with the applicable
statutes. Stock certificates shall be signed by the President or any Vice
President and by the Secretary or Assistant Secretary. All stock certificates
shall be consecutively numbered.
-5-
<PAGE>
2. Stock Transfers. Transfers of stock shall be made on the books of the
---------------
Corporation only by the holder of record or by his legal representative, or by
his attorney lawfully constituted in writing, and upon surrender of the
certificates therefor.
3. Registered Stockholders. The Corporation shall be entitled to treat
-----------------------
the holder of record of any shares(s) of stock as the holder in fact thereof
and, accordingly, shall not be bound to recognize any equitable or other claim
to or interest in such share(s) on the part of any other person whether or not
it shall have express or other notice thereof, except as expressly provided by
the laws of the State of Alabama.
4. Lost Certificates. In case of a lost, destroyed or mutilated
-----------------
certificate, a new one may issue therefor upon such terms and indemnify to the
Corporation as the Board of Directors may prescribe.
ARTICLE VIII - DIVIDENDS
------------------------
Subject to the laws of the State of Alabama, the Board of Directors may
from time to time declare, and the Corporation may pay, dividends on its
outstanding shares in cash, property or its own shares, except when the
Corporation is insolvent or when the declaration or payment thereof would be
contrary to any restrictions contained in the Certificate of Incorporation.
ARTICLE IX - FISCAL YEAR
------------------------
The fiscal year shall begin on the date of incorporation and end on the
last day of any month, no longer than twelve (12) months from the first day of
the month in which the Corporation was organized, as the Board of Directors may
elect. Thereafter, the fiscal year shall cover a full twelve month period.
ARTICLE X - INDEMNIFICATION
---------------------------
1. Each director, officer, employee or agent of Corporation who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, administrative, criminal or
investigative (other than an act by or in the right of Corporation) by reason of
the fact he is or was a director, officer, employee or agent of Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee, or agent or another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorney's fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit or investigation proceeding if he acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interest of
Corporation or other organization above, and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or willful misconduct in
the performance of his duty to Corporation unless and only to the extent that
the Court in which such action or suit was brought shall determine upon
application there, despite the adjudication or liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnify for such expenses which such
-6-
<PAGE>
Court shall deem proper. The termination of any action, suit or proceeding by
judgment, order or settlement shall not, of itself, create a presumption that
the person did not act in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of Corporation.
2. In each specific case a determination that Corporation shall indemnify
the director, officer, employee or agent of Corporation, shall be made (a) by
the Board of Directors by a majority vote of a quorum consisting of Directors
who were not parties to such action, suit or proceeding, or (b) if such a quorum
is not obtainable, or even if obtainable, a quorum of disinterested Directors so
directs, by independent legal counsel in a written opinion, or (c) by the
Stockholders of Corporation.
3. Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of Corporation, or
is or was serving at the request of Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not Corporation
has the power to indemnify him against such liability under the Laws of the
State of Alabama.
ARTICLE XI - AMENDMENTS
-----------------------
The power to alter, amend or repeal the By-Laws or adopt new By-Laws shall
be vested in the Board of Directors unless reserved to the stockholders by the
Certificate of Incorporation; provided, however, that without first obtaining
the approval of the stockholders, the Board of Directors may not alter, amend or
repeal any By-Laws establishing the number of Directors, the time or place of
stockholders meetings, or what constitutes a quorum at such stockholders
meetings.
ADOPTED by the Stockholders on this the day _____ of March, 1995.
/s/ Ralph McCurry
___________________________________
Ralph McCurry,
Shareholder/Director
/s/ Michael Falconite
___________________________________
Michael Falconite,
Shareholder/Director
-7-
<PAGE>
EXHIBIT 3.25
------------
STATE OF ALABAMA
IN THE PROBATE COURT
MADISON COUNTY
ARTICLES OF INCORPORATION
-------------------------
The undersigned, desiring to form a body corporate under the laws of the
State of Alabama, does hereby certify as follows:
ARTICLE ONE
-----------
The name of said corporation shall be M & M PROPERTIES, INC.
ARTICLE TWO
-----------
The principal offices of this corporation shall be located at 2607 Newby
Road, Huntsville, Alabama 35805.
ARTICLE THREE
-------------
The general objects and purpose for which this corporation is organized is
to engage in the business of selling, developing and managing real estate
properties and personal properties incidental thereto, both as agent and
representative of others and on its own behalf, and as a general contractor for
the construction of improvements thereon. The specific objects and purposes of
this corporation is formed shall be:
a. To generally engage in the real estate business. To negotiate real
estate transactions, advertise real estate for sale, rent or lease; list, sell,
purchase, exchange, rent, lease, option or auction real estate and the
improvements situated thereon, and to improve any real estate either owned by it
or by others by erecting buildings and any other type of improvements or
developments thereon.
b. To act as agent for, or personal representative of, the owner of real
estate in and about the sale, lease, rental, exchange, option or auction of such
real estate.
c. To own, establish, construct, build, lease, buy or otherwise acquire,
sell, exchange, transfer, assign, or otherwise dispose of, maintain, operate, or
otherwise manage, separately or together, warehouses, offices, shops, buildings,
houses and other facilities in connection with the operation of the business as
above described.
d. To own, design, erect, build, construct, lease, buy or otherwise
acquire, sell, charter, exchange, transfer, assign, convey or otherwise dispose
of, equip, maintain, use, operate, or otherwise manage residential structures,
buildings, garages, warehouses and all other
<PAGE>
structures and facilities, including laboratories, stores, offices and any and
all facilities, equipment and appurtenances incidental, necessary, useful,
auxiliary to or convenient for the business and operations conducted, engaged in
and carried on by the corporation.
e. To transact any and all lawful business for which a corporation may be
organized under Chapter 2A, Title 10, Code of Alabama.
The foregoing shall be constructed as powers as well as objects and
purposes and the enumeration thereof shall not be held to limit and restrict in
any manner the general powers conferred by and under the said laws.
ARTICLE FOUR
------------
The location of the initial registered office and place of business of said
corporation shall be 2607 Newby Road, Huntsville, Alabama 35850, with the right
to establish, maintain and operate other offices, branches and places of
business elsewhere within or without the State of Alabama and the name of its
initial registered agent at such address is Steven D. McCurry.
ARTICLE FIVE
------------
The total authorized capital stock of this corporation shall be One
Thousand and No/100 ($1,000.00) Dollars, represented by One Thousand (1,000)
shares of common stock having a par value of One and No/100 ($1.00) Dollar per
share. The corporation may from time to time increase the amount of authorized
capital stock, create new types, rights, preferences and classes of stock as
authorized by the stockholders. The corporation shall begin business with the
initial issue of 1,000 shares of common stock having a par value of $1.00 per
share.
ARTICLE SIX
-----------
The duration of this corporation shall be without time limit, it being the
intent that it have a perpetual existence.
ARTICLE SEVEN
-------------
The Board of Directors shall be composed of not less than one nor more than
five members and shall be clothed with full power and authority to manage and
conduct the property and business of the corporation.
ARTICLE EIGHT
-------------
The stockholders shall have full and complete power to make, change, alter
and amend the By-Laws of the corporation in such a manner as they deem best,
provided the same shall not be in conflict with the laws and constitution of the
State of Alabama. The name and address of the incorporators and the number of
shares to be issued to each is:
-2-
<PAGE>
Steven D. McCurry 500 shares
2607 Newby Road
Huntsville, Alabama 35805
Ralph W. McCurry 500 shares
2607 Newby Road
Huntsville, Alabama 35805
ARTICLE NINE
------------
The names and post office addresses of the officers and directors chosen
for the first year and until their successors are duly elected and qualified
shall be as follows:
OFFICE NAME ADDRESS
- ------ ---- -------
President-Director Steven D. McCurry 2607 Newby Road
Huntsville, Alabama 35805
Secretary-Director Ralph W. McCurry 2607 Newby Road
Huntsville, Alabama 35805
The undersigned, desiring to form a corporation under the provisions of
Title 10, Chapter 2A, Code of Alabama, has hereunto set their hands and affixed
their seals on this the 22nd day of May, 1984.
/s/ STEVEN D. McCURRY (SEAL)
---------------------------
Steven D. McCurry
/s/ RALPH W. McCURRY (SEAL)
---------------------------
Ralph W. McCurry
-3-
<PAGE>
Exhibit 3.26
------------
BY-LAWS
OF
M & M PROPERTIES, INC.
ARTICLE I
---------
OFFICERS
--------
SECTION 1. NUMBER. Initially the officers of the corporation shall be a
President and Secretary. One person may hold more than one office.
SECTION 2. ELECTION, TERM OF OFFICER AND QUALIFICATIONS. The officers of
the corporation shall be chosen annually by the Board of Directors. Each
officer shall hold his office until his death, or until he shall resign or shall
have been removed in the manner hereinafter provided. The officers may be
chosen from among the Directors of the corporation.
SECTION 3. REMOVAL. The officers, specifically designated in Section 1
of this Article, may be removed, either with or without cause, by vote of the
majority of the whole Board of Directors at any regular meeting or at a special
meeting of the Board called for that purpose.
SECTION 4. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or the Secretary or the President of
the corporation. Any such resignation shall take effect at the time specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause, shall be filled for
the unexpired portion of the term by the Board of Directors.
SECTION 6. THE PRESIDENT. The President shall exercise detailed
supervision over the business of the corporation and over its several officers,
subject, however, to the control of the Board of Directors. He shall preside at
all meetings of the stockholders and in general shall perform all duties
Incident to the office of President and such other duties as from time to time
may be assigned to him by the Board of Directors.
SECTION 7. THE SECRETARY. The Secretary shall be chosen to the faithful
discharge of his duties. He shall:
(a) Keep the minutes of the meeting of the stockholders and of the Board of
Directors in books provided for the purpose.
<PAGE>
(b) See that all notices are duly given in accordance with the provisions
of the By-Laws or as required by law.
(c) Be custodian of the records and the seal of the corporation and see
that such seal is affixed to all documents, the execution of which on
behalf of the corporation under its seal is duly authorized in
accordance with these By-Laws.
(d) Have charge of the stock books of the corporation and keep or cause to
be kept the stock and transfer books in such a manner as to show at any
time the amount of the stock of the corporation issued and such
outstanding, the manner of which and the time when such stock was paid
for, the name, alphabetically arranged, and the addresses of the
holders of the record thereof, the number of shares held by each, and
the time when each became such holder of record, and exhibit at all
reasonable time to any director, upon application, the original and
duplicate stock ledger.
(e) Sign with the President certificates of stock of the corporation.
(f) See that the books, reports, statements, certificates and all other
documents and records of the corporation required by law are properly
kept and filed.
(g) In general, perform all duties incident to the office of Secretary and
such other duties as from time to time may be assigned to him by the
Board of Directors, or by the President.
SECTION 8. ADDITIONAL OFFICERS AND AGENTS. The Board of Directors, at its
discretion, may appoint a general manager, one or more assistant Secretaries,
and such other officers or agents as it may deem advisable, and prescribe the
duties thereof.
ARTICLE II
----------
DIRECTORS
---------
SECTION 1. NUMBER AND QUALIFICATIONS. The property interests, business
and transactions of the corporation shall be managed and conducted by a Board of
Directors of not less than one (1), nor more than five (5) members and Steven D.
McCurry and Ralph W. McCurry are hereby designated as Directors for a period of
one (1) year from and after the date of incorporation, unless he or she shall
sooner resign. Thereafter, the Board of Directors shall be elected annually by
a ballot of the holders of the common stock at the annual meeting of the
stockholders or any meeting held in place thereof as provided by law for the
term of one (1) year, and shall serve until the election and qualification of
their successors, unless they sooner resign.
- 2 -
<PAGE>
SECTION 2. VACANCIES. Any vacancy occurring in the Board of Directors
may be filled for the unexpired term by the Board of Directors attending a
stated or special meeting called for that purpose, even though less than a
quorum be present.
SECTION 3. MEETINGS. The regular meeting of the Board of Directors
shall be held immediately following the annual stockholders' meeting or the
first Monday of June of each year or the next following day which is not a legal
holiday.
The Board of Directors shall meet at such time or times as they may from
time to time determine. Special meetings of the Board of Directors may likewise
be held on the written call of the President, or two (2) members of the Board.
SECTION 4. PLACE OF MEETING. The Board of Directors may hold its meeting
at such place or places within or without the State of Alabama as the Board may
from time to time determine, or, with respect to its meeting as shall be
specified or fixed in the respective notices or waivers of notices of such
meetings.
SECTION 5. SPECIAL MEETING NOTICE. Special meetings of the Board of
Directors shall be held whenever called by the President or two (2) of the
Directors. Notice of each such meeting shall be mailed to each Director,
addressed to him at the address as it appears on the records of the corporation,
at least five (5) days before the day on which the meeting is to be held, or
shall be sent to him at such place by telegraph, or be delivered personally not
later than three (3) days before the day on which the meeting is to be held. The
notice of each such special meeting shall indicate briefly the objects thereof.
No notice of the time, place or purpose of any meeting of the Board of Directors
shall need to be given to any Director who attends in person or who, in writing,
executed and filed with the records of the meeting either before or after the
holding thereof, waives such notice. No notice need be given of an adjourned
meeting of the Board of Directors.
As to the Directors who shall sign the minutes of any Directors' meeting,
such meeting shall be deemed to have been legally and duly called, noticed, held
and conducted, and the action thereof approved, and for all purposes, and as to
such persons, the minutes of the Directors' meeting shall be construed as if all
the Directors were actually present at said meeting, and all who signed the
minutes were duly noticed and the signature of any Director of the minutes of a
meeting shall for all purposes and as to all persons be held to be an approval
of the action thereof.
SECTION 6. QUORUM AND MANNER OF ACTION. The sole member of a one member
Board of Directors and a two-thirds majority of members of a larger Board of
Directors shall constitute a quorum for the transaction of business at any
regular or special meeting of the Board of Directors. Except as otherwise
provided by law, by the Articles of Incorporation or by these By-Laws, the act
of a majority of the Directors present at any meeting at which a quorum is
- 3 -
<PAGE>
present shall be the act of the Board of Directors. In the absence of a quorum,
the Director or Directors present may adjourn the meeting from time to time
until a quorum be had.
SECTION 7. ELECTION OF OFFICERS. At the first meeting of the Board of
Directors after the annual election, a President and Secretary shall be elected
to serve for the ensuing year and until the election of their respective
successors, and an executive committee may be elected. Election shall be by
ballot, and a majority of the votes cast shall be necessary to elect. Any
vacancies that occur may be filled by the Board of Directors for the unexpired
term.
SECTION 8. DUTIES. The Board of Directors shall exercise a general
supervision over the affairs of the corporation, receive and pass upon the
reports of the Secretary, audit all bills and accounts against the corporation,
and direct the Secretary in correspondence. The Board of Directors may direct
any officer or officers of the corporation to transact any particular branch of
business which it may see fit to designate. The Board of Directors from time to
time may employ such persons as the Board may deem necessary for the carrying on
of the business of the corporation. No stated salary shall be paid Directors,
as such, for their services, but by resolution of the Board of Directors, a
fixed sum and expense of attendance, if any, may be allowed for attendance at
such regular or special meetings of such board, provided, that nothing herein
contained shall be construed to preclude any Director from serving the
corporation in any other capacity or standing committees may be allowed like
compensation for attending committee meetings.
SECTION 9. REMOVAL. Any Director may be removed from office, either
with or without cause, at any time, and another person may be elected to his
place, to serve for the remainder of his term, at any special meeting of the
stockholders called for that purpose, by vote of two-thirds (2/3rds) of all the
shares of stock outstanding and entitled to vote. In case any vacancy so
created shall not be filled by the stockholders at such meeting, such vacancy
may be filled by the Directors as provided hereinabove.
SECTION 10. VOTING. Each member of the Board of Directors shall cast one
(1) vote.
SECTION 11. FILLING VACANT BOARD MEMBERSHIP IN ONE MEMBER BOARD. In the
event the member of a one member Board of Directors shall die or shall resign,
the administrator or executor of his estate shall appoint a successor Director
who shall serve until the next meeting of the stockholders, whether same shall
be a regular annual or special called meeting.
- 4 -
<PAGE>
ARTICLE III
-----------
STOCK
-----
SECTION 1. CERTIFICATES. Each stockholder of the corporation whose
stock has been paid for in full shall be entitled to a certificate showing the
amount of stock of the corporation standing on the books in his name. The
certificates shall be in such form as shall be approved by the Board of
Directors. The certificates shall be numbered in order of their issue,
respectively, and shall be signed by the President and by the Secretary. A
record shall be made of each certificate for shares of stock issued, including
the numbers of the certificates, the names of the persons owning the shares
represented thereby, the number of shares and dates thereof.
Every certificate of each share of stock exchanged or returned to the
corporation shall be marked "Cancelled" with the date of cancellation by the
Secretary.
SECTION 2. TRANSFER OF STOCK. The transfer of shares of stock of the
corporation shall be made on the books of the corporation by the holder thereof
or by his attorney thereunto authorized by a power of attorney duly executed and
filed with the Secretary of the corporation, and under surrender of such
certificate or certificates properly endorsed. A person in whose name shares of
stock stand on the books of the corporation shall be deemed the owner thereof as
regards the corporation.
SECTION 3. REGULATIONS. The Board of Directors may make such
regulations and rules as it may deem expedient concerning the issue, transfer
and registration of certificates of shares of stock of the corporation.
SECTION 4. LOST CERTIFICATE. The Board of Directors may order a new
certificate of stock to be issued in the place of any certificate of the
corporation alleged to have been lost or destroyed. But in either case, the
owner of the lost certificate shall first cause to be given to the corporation a
bond in such sum as said Board may direct as indemnity against any loss or claim
that the corporation may incur by reason of the issuance of such certificate,
but the Board of Directors may, in its discretion, refuse to replace any lost
certificate, save upon the order of some Court having jurisdiction in such
matter.
SECTION 5. STOCK AND TRANSFER BOOKS. The stock and transfer books, and
all other books and records of the corporation shall be kept in its principal
office in the City of Huntsville, Alabama, and all such books and records shall
be open for inspection of the qualifying stockholders of the principal office of
the corporation in the City of Huntsville, State of Alabama, as provided by law;
provided, however, that the following limitation of such right of inspection and
making extracts shall and is hereby made, to-wit:
(a) Prior to any such inspection being made, the requesting party first
shall file written notice to the Secretary of the corporation of the
requesting party's desire to inspect and/or make extracts from such
books and records of the corporation, said written notice to identify
the particular books desired to be examined and to set forth the
purpose or purposes of such examination. Within fifteen (15) days after
receipt of such notice, the Secretary, in writing or orally, shall
inform the requesting party of the date, time and place the requested
books and/or records of the corporation may be examined by the
requesting party.
(b) The requesting party shall not remove any of the requested books and/or
records of the corporation from the place of examination indicated by
the Secretary, as set forth in paragraph (a) above.
- 5 -
<PAGE>
(c) The Secretary and/or person designated by the Secretary shall be
permitted to remain present with the requesting party at all times
during the examination of the books and/or records of the corporation
by the requesting party.
(d) All notes, memorandums or extracts of books and/or records of the
corporation made and/or taken by the requesting party shall be made in
duplicate by the requesting party and a copy thereof shall be delivered
forthwith by the requesting party to the Secretary or to the designated
representative of the Secretary, as the case may be.
(e) Before making any such examination of said books and/or records of the
corporation made and upon demand therefor by the Secretary or by the
designated representative and the Secretary, the requesting party shall
pay the corporation for all reasonable costs and/or expenses, if any,
to be itemized and set forth in a written statement to be furnished by
the Secretary or by the Secretary's designated representative to the
requesting party at the time of the aforesaid demand for reimbursement
therefor.
ARTICLE IV
----------
STOCKHOLDERS
------------
SECTION 1. ANNUAL MEETING. The regular annual meeting of the stockholders
of the corporation shall be held at the office of the corporation, or at such
other place as may be ordered by the President or by the Board of Directors, on
the first Monday of June of each year if it be not a legal holiday, and if it be
a legal holiday, then on the next succeeding day not a legal holiday. At such
meeting the Directors for the ensuing year shall be elected. The officers of the
corporation shall present their annual reports, and the Secretary of the
corporation shall have on file for inspection and reference an authentic list of
the stockholders, giving the amount of stock held by each as shown by the stock
books of the corporation ten (10) days before the annual meeting.
- 6 -
<PAGE>
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may be
called by the President or the Secretary or by resolution adopted at a meeting
of the Board of Directors or on call by the stockholders as provided by law.
Said meeting may be held either at the office of the corporation in
Huntsville, Alabama, or at such other place as may be indicated in the call.
Such calls for special meetings shall specify the time, place and objects
thereof and no other business shall be considered in any such meeting than that
specified in the call.
SECTION 3. NOTICE OF MEETING. Notice of the time and place of all
regular and special meetings shall be prepared by the Secretary, and may be
delivered personally, or deposited in the post office properly addressed, to
each stockholder as provided by law. If any stockholder shall fail to furnish
the Secretary with his correct post office address, he shall not be entitled to
the separate, personal notice referred to herein. Special meetings may be held
upon waiver duly signed by all stockholders of record, without notice thereof
being mailed. No notice of any stockholders' meeting shall be required when all
of the stockholders are present either in person or by proxy at such meeting.
SECTION 4. ELECTION OF DIRECTORS. At such annual meeting of the
stockholders of the corporation, Directors shall be elected or reelected who
shall serve until their successors are duly elected and qualified, unless they
sooner resign. Election of Directors shall be any such of the stockholders as
attended for the purpose, either by proxy or in person.
SECTION 5. QUORUM. A majority of the outstanding stock, exclusive of
treasury stock, shall be necessary to constitute a quorum at meetings of the
stockholders. If a quorum is present at any meeting, a majority of the stock
represented shall decide any question which is brought before the meeting,
except in those cases where it is otherwise provided by law, in the absence of a
quorum, those present may adjourn the meeting from day to day, but not to exceed
sixty (60) days.
SECTION 6. PROXIES. Any stockholders entitled to vote may be represented
at any regular or special meeting of stockholders by a duly executed proxy. The
proxy shall be in writing and properly signed, and no proxy shall be recognized
unless executed within two (2) months of the date of the meeting at which it is
presented.
SECTION 7. ORDER OF BUSINESS. The order of the business of the annual
meeting, and so far as it is practicable at all other meetings of the
stockholders, shall be as follows:
1. Calling of roll
2. Proof of due notice of meeting
3. Reading and disposal of any unapproved minutes
4. Annual reports of officers and committees
5. Election of Directors
- 7 -
<PAGE>
6. Unfinished business
7. New business
8. Adjournment
ARTICLE V
---------
MISCELLANEOUS PROVISIONS
------------------------
SECTION 1. CORPORATE SEAL. The corporate seal of the corporation shall
consist of two concentric circles, between which shall be the name of the
corporation, and in the center shall be inscribed corporate seal Alabama, which
seal as impressed below adopted as the seal of the corporation.
ARTICLE VI
----------
AMENDMENTS
----------
SECTION 1. AMENDMENTS. Any and all provisions of these By-Laws may be
altered, amended, repaired and repealed or added to at any annual or at any
special meeting of the stockholders called for the purpose.
We, the undersigned, being the incorporators and Directors of M & M
PROPERTIES, INC., hereby approve, ratify and adopt the foregoing By-Laws this
the 16th day of May, 1984.
/s/ Steven D. McCurry
_____________________________________
Steven D. McCurry
/s/ Ralph W. McCurry
_____________________________________
Ralph W. McCurry
- 8 -
<PAGE>
Exhibit 4.1(iii)
SUPPLEMENTAL INDENTURE
Supplemental Indenture (this "Supplemental Indenture"), dated as of July
23, 1998, by and among each Subsidiary Guarantor set forth on the signature page
hereto (each, a "New Subsidiary Guarantor"), each a direct or indirect
subsidiary of National Equipment Services, Inc., a Delaware corporation (the
"Company"), and Harris Trust and Savings Bank, as trustee under the indenture
referred to below (the "Trustee"). Capitalized terms used herein and not defined
herein shall have the meaning ascribed to them in the Indenture (as defined
below).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture (the "Indenture"), dated as of November 25, 1997, providing for the
issuance of an aggregate principal amount of $100,000,000 of 10% Senior
Subordinated Notes due 2004 (the "Senior Subordinated Notes");
WHEREAS, Sections 4.16 and 11.03 of the Indenture provide that under
certain circumstances the Company is required to cause certain of its
Subsidiaries to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Subsidiaries shall unconditionally guarantee all of the
Company's Obligations under the Senior Subordinated Notes pursuant to a
Subsidiary Guarantee on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, each New
Subsidiary Guarantor and the Trustee mutually covenant and agree for the equal
and ratable benefit of the Holders of the Senior Subordinated Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. Agreement to Subsidiary Guarantee. Each New Subsidiary Guarantor
hereby agrees, jointly and severally with all other Subsidiary Guarantors, to
guarantee the Company's Obligations under the Senior Subordinated Notes and the
Indenture on the terms and subject to the conditions set forth in Article 11 of
the Indenture and to be bound by all other applicable provisions of the
Indenture.
<PAGE>
3. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator, shareholder or agent of any Subsidiary
Guarantor, as such, shall have any liability for any obligations of the Company
or any Subsidiary Guarantor under the Senior Subordinated Notes, any Subsidiary
Guarantees, the Indenture or this Supplemental Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder by accepting a Senior Subordinated Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Senior Subordinated Notes.
4. New York Law to Govern. The internal law of the State of New York
shall govern and be used to construe this Supplemental Indenture.
5. Counterparts The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction hereof.
7. The Trustee. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the correctness of the recitals of fact
contained herein, all of which recitals are made solely by the New Subsidiary
Guarantors.
* * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first above written.
Dated: July 23, 1998
CARL'S MID SOUTH RENT-ALL CENTER
INCORPORATED
By: /s/ Paul R. Ingersoll
----------------------------
Name: Paul R. Ingersoll
Title: Vice President
FALCONITE AVIATION, INC.
By: /s/ Paul R. Ingersoll
----------------------------
Name: Paul R. Ingersoll
Title: Vice President
FALCONITE EQUIPMENT, INC.
By: /s/ Paul R. Ingersoll
----------------------------
Name: Paul R. Ingersoll
Title: Vice President
FALCONITE, INC.
By: /s/ Paul R. Ingersoll
----------------------------
Name: Paul R. Ingersoll
Title: Vice President
FALCONITE REBUILD CENTER, INC.
By: /s/ Paul R. Ingersoll
----------------------------
Name: Paul R. Ingersoll
Title: Vice President
<PAGE>
MCCURRY & FALCONITE EQUIPMENT CO., INC.
By: /s/ Paul R. Ingersoll
----------------------------
Name: Paul R. Ingersoll
Title: Vice President
M&M PROPERTIES, INC.
By: /s/ Paul R. Ingersoll
----------------------------
Name: Paul R. Ingersoll
Title: Vice President
Dated: July 24, 1998 HARRIS TRUST AND SAVINGS BANK,
AS TRUSTEE
By: /s/ C. Potter
----------------------------
Name: C. Potter
Title: Assistant Vice President
<PAGE>
Exhibit 4.6
-----------
CREDIT AGREEMENT
Dated as of July 17, 1998
among
NATIONAL EQUIPMENT SERVICES, INC.,
as Borrower,
AND
CERTAIN SUBSIDIARIES OF THE BORROWER
FROM TIME TO TIME PARTY HERETO,
as Guarantors,
THE SEVERAL LENDERS
FROM TIME TO TIME PARTY HERETO
AND
FIRST UNION NATIONAL BANK,
as Agent
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of July 17, 1998 (as amended, modified,
restated or supplemented from time to time, the "Credit Agreement"), is by and
among NATIONAL EQUIPMENT SERVICES, INC., a Delaware corporation (the
"Borrower"), the Subsidiary Guarantors (as defined herein), the Lenders (as
defined herein) and FIRST UNION NATIONAL BANK, as Agent for the Lenders (in such
capacity, the "Agent").
W I T N E S S E T H
WHEREAS, the Borrower has requested that the Lenders provide a $325,000,000
credit facility for the purposes hereinafter set forth; and
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
1.1 Definitions.
As used in this Credit Agreement, the following terms shall have the
meanings specified below unless the context otherwise requires:
"Additional Commitment" means, with respect to any Lender which executes a
New Commitment Agreement in accordance with Section 3.4(b), the commitment of
such Lender in an aggregate principal amount up to the amount specified in such
New Commitment Agreement to make Revolving Loans in accordance with the
provisions of Section 2.1(a).
"Account Designation Letter" has the meaning given to such term in Section
5.1(t) hereof
"Accounts Receivable" means all of each Credit Party's accounts, as such
term is defined in the UCC, whether now existing or existing in the future,
including, without limitation, all accounts (whether or not specifically listed
on schedules furnished to the Agent) created by or arising from all of each
Credit Party's sales or leases of goods or rendition of services made
1
<PAGE>
under any of each Credit Party's trade names or styles, or through any of each
Credit Party's divisions.
"Acquisition" means the purchase of a business unit as a going concern
which purchase may be of (i) the Capital Stock of a Person, (ii) the assets of
such Person through merger or consolidation with such Person or (iii) the plant,
property and equipment of such Person, or a portion thereof, together with the
related current assets and intangible assets of such Person.
"Acquired Company" means any Person (or assets thereof) which is acquired
pursuant to an Acquisition.
"Additional Credit Party" means each Person that becomes a Subsidiary
Guarantor after the Closing Date by execution of a Joinder Agreement.
"Adjusted Base Rate" means the Base Rate plus the Applicable Percentage for
Base Rate Loans.
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus the Applicable
Percentage for Eurodollar Loans.
"Affiliate" means, with respect to any Person, any other Person (i)
directly or indirectly controlling or controlled by or under direct or indirect
common control with such Person or (ii) directly or indirectly owning or holding
twenty percent (20%) or more of the Capital Stock in such Person. For purposes
of this definition, "control" when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agency and Custodian Agreement" means the Agency and Custodian Agreement,
of even date herewith, among the Agent, the Borrower, on behalf of itself and
the other Credit Parties, and Paul Ingersoll.
"Agency Services Address" means First Union National Bank, One First Union
Center, 301 South College Street, Charlotte, North Carolina 28288, Attn: Agency
Services, or such other address as may be identified by written notice from the
Agent to the Borrower.
"Agent" shall have the meaning assigned to such term in the heading hereof,
together with any successors or assigns.
"Agent's Commitment Letter" means that certain letter agreement, dated as
of June 29, 1998, between the Agent and the Borrower, as amended, modified,
restated or supplemented from time to time.
2
<PAGE>
"Agent's Fee Letters" means those certain letter agreements, dated as of
July 17, 1998, between the Agent and the Borrower, as amended, modified,
restated or supplemented from time to time.
"Agent's Fees" shall have the meaning assigned to such term in Section
3.5(c).
"Applicable Lending Office" means, for each Lender, the office of such
Lender (or of an Affiliate of such Lender) as such Lender may from time to time
specify to the Agent and the Borrower by written notice as the office by which
its Eurodollar Loans are made and maintained.
"Applicable Percentage" means for Base Rate Loans, Eurodollar Loans and
Unused Line Fees, the appropriate applicable percentages corresponding to the
Total Debt Leverage Ratio in effect as of the most recent Calculation Date as
shown below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Tier Total Debt Applicable Applicable Applicable
Level Leverage Ratio Percentage for Percentage for Base Percentage for
Eurodollar Loans Rate Loans Unused Line Fees
- --------------------------------------------------------------------------------------------------------------
Revolving Term Revolving Term
Loans Loan Loans Loan
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 greater than 4.25 to 1.0 2.50% 2.50% 1.25% 1.25% 0.50%
- --------------------------------------------------------------------------------------------------------------
2 greater than 3.75 to 1.0 but 2.25% 2.25% 1.00% 1.00% 0.50%
less than 4.25 to 1.0
- --------------------------------------------------------------------------------------------------------------
3 greater than 3.25 to 1.0 but 2.00% 2.00% 0.75% 0.75% 0.50%
less than 3.75 to 1.0
- --------------------------------------------------------------------------------------------------------------
4 greater than 2.75 to 1.0 but 1.75% 1.75% 0.50% 0.50% 0.375%
less than 3.25 to 1.0
- --------------------------------------------------------------------------------------------------------------
5 less than 2.75 to 1.0 1.50% 1.75% 0.25% 0.50% 0.3125%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The Applicable Percentages shall be determined and adjusted (a) quarterly on the
date five Business Days after the date on which the Agent has received from the
Borrower the quarterly officer's certificate required to be delivered to the
Agent and the Lenders in accordance with the provisions of Section 7.1(c) and
(b) upon the consummation of a Permitted Acquisition (each such date referred to
in clauses (a) and (b), a "Calculation Date"); provided, however, that (i) the
initial Applicable Percentages shall be based on the Total Debt Leverage Ratio
in effect on the Closing Date but in no event shall be less than Tier Level 3
(as shown above) and shall be greater than or equal to Tier Level 3 until the
first Calculation Date subsequent to December 31, 1998, and, thereafter, the
Tier Level shall be determined by the then current Total Debt Leverage Ratio,
and (ii) if the Borrower fails to provide the officer's certificate to the Agent
for any fiscal
3
<PAGE>
quarter as required by and within the time limits set forth in Section 7.1(c),
the Applicable Percentages from the applicable date of such failure shall be
based on Tier Level 1 until five Business Days after an appropriate officer's
certificate is provided to the Agent, whereupon the Tier Level shall be
determined by the Total Debt Leverage Ratio set forth in such certificate.
Except as set forth above, each Applicable Percentage shall be effective from
one Calculation Date until the next Calculation Date. Notwithstanding anything
to the contrary contained herein, if, at any time, the Senior Debt Leverage
Ratio shall be less than 2.5 to 1.0, the Borrower may elect to reduce the
Applicable Percentages for Revolving Loans (both Base Rate Loans and Eurodollar
Loans) at all Tier Levels by 0.25% provided that the Borrower shall have
delivered to the Agent financial projections for the period commencing with the
date of such election through the last day covered by the financial projections
delivered to the Agent on the Closing Date pursuant to Section 5.1(c)(iv) hereof
demonstrating that, on a Pro Forma Basis, the Senior Debt Leverage Ratio of the
Consolidated Parties shall be at least 0.25 lower than the maximum allowable
Senior Debt Leverage Ratio for the corresponding period as set forth in Section
7.11(c) (such election referred to as a "Price Reduction Election").
"Asset Disposition" means the disposition of any or all of the assets
(including without limitation the Capital Stock of a Subsidiary) of any
Consolidated Party whether by sale, lease, transfer or otherwise, but excluding
(i) dispositions of Equipment Held for Resale in the ordinary course of
business, (ii) dispositions of Rental Equipment by a Consolidated Party in any
calendar month to the extent that the aggregate Net Cash Proceeds from such
dispositions when combined with all other such dispositions previously made by
all the Consolidated Parties in such calendar month do not exceed 5% of the net
book value of all Rental Equipment of the Credit Parties, (iii) dispositions of
obsolete or worn equipment by a Credit Party, other than the sale or other
disposition of equipment described in clauses (i) or (ii) immediately above, in
any fiscal year to the extent that the aggregate Net Cash Proceeds from such
dispositions when combined with all other such dispositions previously made by
all the Consolidated Parties in such fiscal year do not exceed $1,000,000, (iv)
dispositions of Cash Equivalents and (v) dispositions of real estate assets by a
Consolidated Party during any fiscal year to the extent that the aggregate Net
Cash Proceeds from such dispositions when combined with all other such
dispositions previously made by all the Consolidated Parties in such fiscal year
do not exceed $5,000,000.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United
States Code, as amended, modified, succeeded or replaced from time to time.
"Bankruptcy Event" means, with respect to any Person, the occurrence of any
of the following with respect to such Person: (i) a court or governmental agency
having jurisdiction in the premises shall enter a decree or order for relief in
respect of such Person in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or ordering
the winding up or liquidation of its affairs; or (ii) there shall be commenced
against such Person an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or any case,
proceeding or
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other action for the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of such Person or for any
substantial part of its Property or for the winding up or liquidation of its
affairs, and such involuntary case or other case, proceeding or other action
shall remain undismissed, undischarged or unbonded for a period of sixty (60)
consecutive days; or (iii) such Person shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consent to the entry of an order for relief in an involuntary case
under any such law, or consent to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or make any
general assignment for the benefit of creditors; or (iv) such Person shall be
unable to, or shall admit in writing its inability to, pay its debts generally
as they become due.
"Base Rate" means, for any day, the rate per annum equal to the higher of
(a) the Federal Funds Rate for such day plus one-half of one percent (0.5%) and
(b) the Prime Rate for such day. Any change in the Base Rate due to a change in
the Prime Rate or the Federal Funds Rate shall be effective on the effective
date of such change in the Prime Rate or Federal Funds Rate.
"Base Rate Loan" means any Loan bearing interest at a rate determined by
reference to the Base Rate.
"Borrower" means the Person identified as such in the heading hereof,
together with any permitted successors and assigns.
"Borrowing Base" means, as of any day, (a) the sum of (i) 85% of Net
Accounts Receivable, (ii) 50% of net book value of Parts and Supplies Inventory,
(iii) 100% of the net book value of Rental Equipment and (iv) 80% of the net
book value of Equipment Held for Resale, in each case as set forth in the most
recent Borrowing Base Certificate delivered to the Agent and the Lenders in
accordance with the terms of Section 7.1(d) less (b) reserves established from
time to time by the Agent in its reasonable discretion.
"Borrowing Base Certificate" has the meaning given to such term in Section
7.1(d) hereof.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in Charlotte, North Carolina are authorized or required
by law to close, except that, when used in connection with a Eurodollar Loan,
such day shall also be a day on which dealings between banks are carried on in
U.S. dollar deposits in London, England.
"Capital Lease" means, as applied to any Person, any lease of any Property
(whether real, personal or mixed) by that Person as lessee which, in accordance
with GAAP, is or should be accounted for as a capital lease on the balance sheet
of that Person.
"Capital Stock" means (i) in the case of a corporation, capital stock, (ii)
in the case of an association or business entity, any and all shares, interests,
participations, rights or other
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equivalents (however designated) of capital stock, (iii) in the case of a
partnership, partnership interests (whether general or limited), (iv) in the
case of a limited liability company, membership interests and (v) any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than twelve months from the date of acquisition, (b) U.S. dollar denominated
time deposits and certificates of deposit of (i) any Lender, (ii) any domestic
commercial bank of recognized standing having capital and surplus in excess of
$500,000,000 or (iii) any bank whose short-term commercial paper rating from S&P
is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank being an "Approved Bank"), in each case with
maturities of not more than 270 days from the date of acquisition, (c)
commercial paper and variable or fixed rate notes issued by any Approved Bank
(or by the parent company thereof) or any variable rate notes issued by, or
guaranteed by, any domestic corporation rated A-1 (or the equivalent thereof) or
better by S&P or P-1 (or the equivalent thereof) or better by Moody's and
maturing within six months of the date of acquisition, (d) repurchase agreements
entered into by any Person with a bank or trust company (including any of the
Lenders) or recognized securities dealer having capital and surplus in excess of
$500,000,000 for direct obligations issued by or fully guaranteed by the United
States of America in which such Person shall have a perfected first priority
security interest (subject to no other Liens) and having, on the date of
purchase thereof, a fair market value of at least 100% of the amount of the
repurchase obligations and (e) Investments, classified in accordance with GAAP
as current assets, in money market investment programs registered under the
Investment Company Act of 1940, as amended, which are administered by reputable
financial institutions having capital of at least $500,000,000 and the
portfolios of which are limited to Investments primarily of the character
described in the foregoing subdivisions (a) through (d).
"Change of Control" means the occurrence of any of the following events:
(i) any Person or two or more Persons (other than Golder Thoma or any of its
Affiliates) acting in concert shall have acquired "beneficial ownership,"
directly or indirectly, of, or shall have acquired by contract or otherwise, or
shall have entered into a contract or arrangement that, upon consummation, will
result in its or their acquisition of, control over, Voting Stock of the
Borrower (or other securities convertible into such Voting Stock) representing
20% or more of the combined voting power of all Voting Stock of the Borrower, or
(ii) during any period of up to 12 consecutive months, commencing after the
Closing Date, individuals who at the beginning of such 12 month period were
directors of the Borrower (together with any new director whose election by the
Borrower's Board of Directors or whose nomination for election by the Borrower's
shareholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the directors of the Borrower then in
office. As
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used herein, "beneficial ownership" shall have the meaning provided in Rule 13d-
3 of the Securities and Exchange Commission under the Securities Act of 1934.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and any successor
statute thereto, as interpreted by the rules and regulations issued thereunder,
in each case as in effect from time to time. References to sections of the Code
shall be construed also to refer to any successor sections.
"Collateral" means a collective reference to the collateral which is
identified in, and at any time will be covered by, the Collateral Documents.
"Collateral Documents" means a collective reference to the Security Agreement,
the Pledge Agreement, the Agency and Custodian Agreement and such other
documents executed and delivered in connection with the attachment and
perfection of the Agent's security interests and liens arising thereunder,
including without limitation, UCC financing statements and intellectual property
filings.
"Commitment" means the Revolving Commitment, the Term Loan Commitment and the
LOC Commitment.
"Consolidated Capital Expenditures" means, for any period, all capital
expenditures of the Consolidated Parties on a consolidated basis for such
period, as determined in accordance with GAAP.
"Consolidated EBITDA" means, for any period, the sum of (i) Consolidated Net
Income for such period, but excluding therefrom all extraordinary or non-
recurring items of income or loss, plus (ii) an amount which, in the
determination of Consolidated Net Income for such period, has been deducted for
(A) Consolidated Interest Expense, (B) total federal, state, local and foreign
income, value added and similar taxes and (C) depreciation and amortization
expense, all as determined in accordance with GAAP.
"Consolidated Funded Indebtedness" means, as of the date of determination, all
Funded Indebtedness of the Consolidated Parties.
"Consolidated Interest Expense" means, for any period, interest expense
(including the amortization of debt discount and premium, the interest component
under Capital Leases and the implied interest component under Synthetic Leases)
of the Consolidated Parties on a consolidated basis for such period, as
determined in accordance with GAAP.
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"Consolidated Net Income" means, for any period, net income (excluding
extraordinary items) after taxes for such period of the Consolidated Parties on
a consolidated basis, as determined in accordance with GAAP.
"Consolidated Net Worth" means, as of any date, shareholders' equity or net
worth of the Consolidated Parties on a consolidated basis, as determined in
accordance with GAAP.
"Consolidated Parties" means a collective reference to the Borrower and its
Subsidiaries, and "Consolidated Party" means any one of them.
"Consolidated Senior Indebtedness" means, as of the date of determination,
Consolidated Funded Indebtedness less Subordinated Debt.
"Contractual Obligations" means, with respect to any Person, any term or
provision of any securities issued by such Person, or any indenture, mortgage,
deed of trust, contract, undertaking, document, instrument or other agreement to
which such Person is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject.
"Credit Documents" means a collective reference to this Credit Agreement, the
Notes, the LOC Documents, each Joinder Agreement, the Agent's Fee Letters, the
Collateral Documents and all other related agreements and documents issued or
delivered hereunder or thereunder or pursuant hereto or thereto (in each case as
the same may be amended, modified, restated, supplemented, extended, renewed or
replaced from time to time), and "Credit Document" means any one of them.
"Credit Parties" means a collective reference to the Borrower and the
Guarantors, and "Credit Party" means any one of them.
"Credit Party Obligations" means, without duplication, (i) all of the
obligations of the Credit Parties to the Lenders (including the Issuing Lender)
and the Agent, whenever arising, under this Credit Agreement, the Notes, the
Collateral Documents or any of the other Credit Documents (including, but not
limited to, any interest accruing after the occurrence of a Bankruptcy Event
with respect to any Credit Party, regardless of whether such interest is an
allowed claim under the Bankruptcy Code) and (ii) all liabilities and
obligations, whenever arising, owing from any Credit Party to any Lender, or any
Affiliate of a Lender, arising under any Hedging Agreement.
"Default" means any event, act or condition which with notice or lapse of
time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that (a) has failed to make
a Loan or purchase a Participation Interest required pursuant to the term of
this Credit Agreement within one Business Day of when due, (b) other than as set
forth in (a) above, has failed to pay to the Agent or any Lender an amount owed
by such Lender pursuant to the terms of this Credit Agreement
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within one Business Day of when due, unless such amount is subject to a good
faith dispute or (c) has been deemed insolvent or has become subject to a
bankruptcy or insolvency proceeding or with respect to which (or with respect to
any of assets of which) a receiver, trustee or similar official has been
appointed.
"Dollars" and "$" means dollars in lawful currency of the United States of
America.
"Domestic Subsidiary" means, with respect to any Person, any Subsidiary of
such Person which is incorporated or organized under the laws of any State of
the United States or the District of Columbia.
"Eligible Assets" means another business or any substantial part of another
business or other long-term assets, in each case, in, or used or useful in, the
same or a similar line of business as the Borrower and its Subsidiaries were
engaged in on the Closing Date, or any reasonable extensions or expansions
thereof.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a Lender; and
(iii) any other Person approved by the Agent and, unless an Event of Default has
occurred and is continuing at the time any assignment is effected in accordance
with Section 11.3, the Borrower (such approval not to be unreasonably withheld
or delayed by the Borrower and such approval to be deemed given by the Borrower
if no objection is received by the assigning Lender and the Agent from the
Borrower within five Business Days after notice of such proposed assignment has
been provided by the assigning Lender to the Borrower); provided, however, that
neither the Borrower nor an Affiliate of the Borrower shall qualify as an
Eligible Assignee.
"Environmental Laws" means any and all lawful and applicable Federal, state,
local and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, concessions, grants, franchises, licenses, agreements
or other governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"Equipment Held for Resale" means all of each Credit Party's Inventory
consisting of equipment less than one year old which is held for resale or held
for lease by such Credit Party; provided, however, such equipment held for lease
by such Credit Party shall become "Rental Equipment" and no longer be "Equipment
Held for Resale" upon the leasing of such equipment by such Credit Party.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute thereto, as interpreted by the rules and regulations
thereunder, all as the same may
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be in effect from time to time. References to sections of ERISA shall be
construed also to refer to any successor sections.
"ERISA Affiliate" means an entity which is under common control with any
Consolidated Party within the meaning of Section 4001(a)(14) of ERISA, or is a
member of a group which includes any Consolidated Party and which is treated as
a single employer under Sections 414(b) or (c) of the Code.
"ERISA Event" means (i) with respect to any Plan, the occurrence of a
Reportable Event or the substantial cessation of operations (within the meaning
of Section 4062(e) of ERISA); (ii) the withdrawal by any Consolidated Party or
any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it
was a substantial employer (as such term is defined in Section 4001(a)(2) of
ERISA), or the termination of a Multiple Employer Plan; (iii) the distribution
of a notice of intent to terminate or the actual termination of a Plan pursuant
to Section 4041(a)(2) or 4041A of ERISA; (iv) the institution of proceedings to
terminate or the actual termination of a Plan by the PBGC under Section 4042 of
ERISA; (v) any event or condition which might constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan; (vi) the complete or partial withdrawal of any
Consolidated Party or any ERISA Affiliate from a Multiemployer Plan; (vii) the
conditions for imposition of a lien under Section 302(f) of ERISA exist with
respect to any Plan; or (viii) the adoption of an amendment to any Plan
requiring the provision of security to such Plan pursuant to Section 307 of
ERISA.
"Eurodollar Loan" means any Loan that bears interest at a rate based upon
the Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by the Agent to be equal to the quotient obtained by
dividing (a) the Interbank Offered Rate for such Eurodollar Loan for such
Interest Period by (b) 1 minus the Eurodollar Reserve Requirement for such
Eurodollar Loan for such Interest Period.
"Eurodollar Reserve Requirement" means, at any time, the maximum rate at
which reserves (including, without limitation, any marginal, special,
supplemental, or emergency reserves) are required to be maintained under
regulations issued from time to time by the Board of Governors of the Federal
Reserve System (or any successor) by member banks of the Federal Reserve System
against "Eurodollar liabilities" (as such term is used in Regulation D). Without
limiting the effect of the foregoing, the Eurodollar Reserve Requirement shall
reflect any other reserves required to be maintained by such member banks with
respect to (i) any category of liabilities which includes deposits by reference
to which the Adjusted Eurodollar Rate is to be determined, or (ii) any category
of extensions of credit or other assets which include Eurodollar Loans. The
Adjusted Eurodollar Rate shall be adjusted automatically on and as of the
effective date of any change in the Eurodollar Reserve Requirement.
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"Event of Default" shall have the meaning as defined in Section 9.1.
"Executive Officer" of any Person means any of the chief executive officer,
chief operating officer, president, vice president, chief financial officer or
treasurer of such Person.
"Falconite" means Falconite, Inc., an Illinois corporation.
"Falconite Purchase Agreement" means that certain Stock Purchase Agreement
by and among Falconite, Inc., an Illinois corporation, the stockholders of
Falconite, Inc. and National Equipment Services, Inc., a Delaware corporation,
dated as of April 1, 1998, as it may be amended, modified or otherwise
supplemented on or prior to the Closing Date pursuant to the terms thereof and
hereof.
"Fees" means all fees payable pursuant to Section 3.5.
"Federal Funds Rate" means, for any day, the rate per annum (rounded upwards,
if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day; provided that (a) if such day is not a Business Day, the Federal Funds Rate
for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (b) if no
such rate is so published on such next succeeding Business Day, the Federal
Funds Rate for such day shall be the average rate charged to the Agent (in its
individual capacity) on such day on such transactions as determined by the
Agent.
"Foreign Subsidiary" means, with respect to any Person, any Subsidiary of
such Person which is not a Domestic Subsidiary of such Person.
"Funded Indebtedness" means, with respect to any Person, without duplication,
(a) all Indebtedness of such Person other than Indebtedness of the types
referred to in clause (e), (f), (g), (i), (l) and (m) of the definition of
"Indebtedness" set forth in this Section 1.1, (b) all Indebtedness of another
Person of the type referred to in clause (a) above secured by (or for which the
holder of such Funded Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on, or payable out of the proceeds of
production from, Property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (c) all Guaranty Obligations of
such Person with respect to Indebtedness of the type referred to in clause (a)
above of another Person and (d) Indebtedness of the type referred to in clause
(a) above of any partnership or unincorporated joint venture in which such
Person is a general partner or a joint venturer and is legally obligated or has
a reasonable expectation of being liable with respect thereto.
"GAAP" means generally accepted accounting principles in the United States
applied on a consistent basis and subject to the terms of Section 1.3.
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"Golder Thoma" means Golder, Thoma, Cressey, Rauner, Inc., and its
successors and permitted assigns.
"Governmental Authority" means any Federal, state, local or foreign court
or governmental agency, authority, instrumentality or regulatory body.
"Guarantors" means a collective reference to each of the Subsidiary
Guarantors, together with their successors and permitted assigns, and "Guarantor
" means any one of them.
"Guaranty Obligations" means, with respect to any Person, without
duplication, any obligations of such Person (other than endorsements in the
ordinary course of business of negotiable instruments for deposit or collection)
guaranteeing or intended to guarantee any Indebtedness of any other Person in
any manner, whether direct or indirect, and including without limitation any
obligation, whether or not contingent, (i) to purchase any such Indebtedness or
any Property constituting security therefor, (ii) to advance or provide funds or
other support for the payment or purchase of any such Indebtedness or to
maintain working capital, solvency or other balance sheet condition of such
other Person (including without limitation keep well agreements, maintenance
agreements, comfort letters or similar agreements or arrangements) for the
benefit of any holder of Indebtedness of such other Person, (iii) to lease or
purchase Property, securities or services primarily for the purpose of assuring
the holder of such Indebtedness, or (iv) to otherwise assure or hold harmless
the holder of such Indebtedness against loss in respect thereof. The amount of
any Guaranty Obligation hereunder shall (subject to any limitations set forth
therein) be deemed to be an amount equal to the outstanding principal amount (or
maximum principal amount, if larger) of the Indebtedness in respect of which
such Guaranty Obligation is made.
"Hedging Agreements" means any interest rate protection agreement or
foreign currency exchange agreement between Borrower and any Lender, or any
Affiliate of a Lender.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, or upon
which interest payments are customarily made, (c) all obligations of such Person
under conditional sale or other title retention agreements relating to Property
purchased by such Person (other than customary reservations or retentions of
title under agreements with suppliers entered into in the ordinary course of
business), (d) all obligations of such Person issued or assumed as the deferred
purchase price of Property or services purchased by such Person (other than
trade debt incurred in the ordinary course of business and due within six months
of the incurrence thereof) which would appear as liabilities on a balance sheet
of such Person, (e) all obligations of such Person under take-or-pay or similar
arrangements or under commodities agreements, (f) all Indebtedness of others
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on, or payable out of the
proceeds of production from, Property owned or acquired by such Person, whether
or not the obligations secured thereby have been assumed, (g) all Guaranty
Obligations of such Person, (h) the principal portion of all obligations of such
Person under Capital Leases, (i) all
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obligations of such Person under Hedging Agreements or other interest rate
protection agreements or other hedging agreements, (j) the maximum amount of all
standby letters of credit issued or bankers' acceptances facilities created for
the account of such Person and, without duplication, all drafts drawn thereunder
(to the extent unreimbursed), (k) all preferred Capital Stock issued by such
Person and required by the terms thereof to be redeemed or for which mandatory
sinking fund payments are due on or prior to the Maturity Date and all preferred
Capital Stock issued by a Person which has a current pay coupon, (l) the
principal portion of all obligations of such Person under Synthetic Leases and
(m) the Indebtedness of any partnership or unincorporated joint venture in which
such Person is a general partner or a joint venturer.
"Interbank Offered Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period; provided, however, if more
than one rate is specified on Telerate Page 3750, the applicable rate shall be
the arithmetic mean of all such rates (rounded upwards, if necessary, to the
nearest 1/100 of 1%). If for any reason such rate is not available, the term
"Interbank Offered Rate" means, for any Eurodollar Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank
offered rate for deposits in Dollars at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period; provided, however, if more than one rate is
specified on Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest
1/100 of 1%).
"Interest Coverage Ratio" means the ratio of Consolidated EBITDA (computed
for the four fiscal quarters then ending) to Consolidated Interest Expense
payable in cash (computed for the four fiscal quarters then ending.
"Interest Payment Date" means (a) as to Base Rate Loans, the last day of
each quarter, the date of repayment of principal of such Loan and the Maturity
Date, and (b) as to Eurodollar Loans, the last day of each applicable Interest
Period, the date of repayment of principal of such Loan and the Maturity Date,
and in addition where the applicable Interest Period for a Eurodollar Loan is
greater than three months, then also the date three months from the beginning of
the Interest Period and each three months thereafter.
"Interest Period" means, as to Eurodollar Loans, a period of one, two,
three or six months' duration, as the Borrower may elect, commencing, in each
case, on the date of the borrowing (including continuations and conversions
thereof); provided, however, (a) if any Interest Period would end on a day which
is not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day (except that where the next succeeding Business Day
falls in the next succeeding calendar month, then on the next preceding Business
Day), (b) no Interest Period shall extend beyond the Maturity Date, and (c)
where an Interest Period begins on a day for which
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there is no numerically corresponding day in the calendar month in which the
Interest Period is to end, such Interest Period shall end on the last Business
Day of such calendar month.
"Inventory" means all of each Credit Party's inventory, including without
limitation, (i) all raw materials, work in process, parts, components,
assemblies, supplies and materials used or consumed in the Credit Parties'
business; (ii) all goods, wares and merchandise, finished or unfinished, held
for sale or lease or leased or furnished or to be furnished under contracts of
service; and (iii) all goods returned to or repossessed by the Credit Parties.
"Investment" means (a) the acquisition (whether for cash, property,
services, assumption of Indebtedness, securities or otherwise) of assets,
Capital Stock, bonds, notes, debentures, partnership, joint ventures or other
ownership interests or other securities of any Person or (b) any deposit with,
or advance, loan or other extension of credit to, any Person (other than
deposits made in connection with the purchase of equipment or other assets in
the ordinary course of business) or (c) any other capital contribution to or
investment in any Person, including, without limitation, any Guaranty
Obligations (including any support for a letter of credit issued on behalf of
such Person) incurred for the benefit of such Person.
"Issuing Lender" means First Union National Bank.
"Issuing Lender Fees" shall have the meaning assigned to such term in
Section 3.5(b)(iii).
"Joinder Agreement" means a Joinder Agreement substantially in the form of
Exhibit 7.12 hereto, executed and delivered by an Additional Credit Party in
accordance with the provisions of Section 7.12.
"Lender" means any of the Persons identified as a "Lender" on the signature
pages hereto, and any Person which may become a Lender by way of assignment in
accordance with the terms hereof, together with their successors and permitted
assigns.
"Letter of Credit" means any letter of credit issued by the Issuing Lender
for the account of the Borrower in accordance with the terms of Section 2.2 and
the letters of credit issued and outstanding on the date hereof and listed on
Schedule 8.1.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, security interest, encumbrance, lien (statutory or otherwise),
preference, priority or charge of any kind (including any agreement to give any
of the foregoing, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the Uniform Commercial Code
as adopted and in effect in the relevant jurisdiction or other similar recording
or notice statute, and any lease in the nature thereof).
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"Loan" or "Loans" means the Revolving Loans and/or the Term Loan (or a
portion of any Revolving Loan or Term Loan) bearing interest at the Adjusted
Base Rate or the Adjusted Eurodollar Rate), individually or collectively, as
appropriate.
"LOC Commitment" means the commitment of the Issuing Lender to issue
Letters of Credit, and to honor payment obligations under, Letters of Credit
hereunder in an aggregate face amount at any time outstanding (together with the
amounts of any unreimbursed drawings thereon) of up to the LOC Committed Amount
and with respect to each Lender, the commitment of each Lender to purchase
participation interests in the Letters of Credit.
"LOC Committed Amount" shall have the meaning assigned to such term in
Section 2.2.
"LOC Documents" means, with respect to any Letter of Credit, such Letter of
Credit, any amendments thereto, any documents delivered in connection therewith,
any application therefor, and any agreements, instruments, guarantees or other
documents (whether general in application or applicable only to such Letter of
Credit) governing or providing for (i) the rights and obligations of the parties
concerned or at risk or (ii) any collateral security for such obligations.
"LOC Obligations" means, at any time, the sum of (i) the maximum amount
which is, or at any time thereafter may become, available to be drawn under
Letters of Credit then outstanding, assuming compliance with all requirements
for drawings referred to in such Letters of Credit plus (ii) the aggregate
amount of all drawings under Letters of Credit honored by the Issuing Lender but
not theretofore reimbursed by the Borrower.
"Material Adverse Effect" means a material adverse effect on (i) the
condition (financial or otherwise), operations, business, assets, liabilities or
prospects of the Consolidated Parties, taken as a whole, (ii) the ability of any
Credit Party to perform any obligation under the Credit Documents to which it is
a party, (iii) the material rights and remedies of the Lenders under the Credit
Documents or (iv) the Collateral taken as a whole, in each case determined by
the Agent in its reasonable discretion.
"Material Contract" means any contract or other arrangement (other than any
leases of real property or the Credit Documents), whether written or oral, to
which any Consolidated Party is a party as to which the breach, nonperformance,
cancellation or failure to renew by any party thereto could reasonably be
expected to have a Material Adverse Effect.
"Materials of Environmental Concern" means any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Laws, including, without limitation, asbestos,
polychlorinated biphenyls and urea-formaldehyde insulation.
"Maturity Date" means July 17, 2003.
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"Moody's" means Moody's Investors Service, Inc., or any successor or
assignee of the business of such company in the business of rating securities.
"Multiemployer Plan" means a Plan which is a multiemployer plan as defined
in Sections 3(37) or 4001(a)(3) of ERISA.
"Multiple Employer Plan" means a Plan which any Consolidated Party or any
ERISA Affiliate and at least one employer other than the Consolidated Parties or
any ERISA Affiliate are contributing sponsors.
"Net Accounts Receivable" means the aggregate Accounts Receivable of the
Credit Parties as determined in accordance with GAAP less any of such
receivables which remain unpaid more than 90 days from the original invoice
date.
"Net Cash Proceeds" means the aggregate cash proceeds received by the
Consolidated Parties in respect of any Asset Disposition, net of (a) direct
costs (including, without limitation, legal, accounting and investment banking
fees, and sales commissions), (b) taxes paid or payable as a result thereof and
(c) reasonable reserves established for indemnification obligations in
connection with such Asset Disposition; it being understood that "Net Cash
Proceeds" shall include, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received by the Consolidated
Parties in any Asset Disposition.
"New Commitment Agreement" has the meaning assigned to such term in Section
3.4(b).
"Note" or "Notes" means the Revolving Notes and/or the Term Notes,
individually or collectively, as appropriate.
"Notice of Borrowing" means a written notice of borrowing in substantially
the form of Exhibit 2.1(b)(i), as required by Section 2.1(b)(i).
"Notice of Extension/Conversion" means the written notice of extension or
conversion in substantially the form of Exhibit 3.2, as required by Section 3.2.
"Operating Lease" means, as applied to any Person, any lease (including,
without limitation, leases which may be terminated by the lessee at any time) of
any Property (whether real, personal or mixed) which is not a Capital Lease
other than any such lease in which that Person is the lessor.
"Other Taxes" has the meaning assigned to such term in Section 3.11.
"Participation Interest" means a purchase by a Lender of a participation in
Letters of Credit or LOC Obligations as provided in Section 2.2 or in any Loans
as provided in Section 3.14.
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"Parts and Supplies Inventory" means all of each Credit Party's Inventory
consisting of parts and supplies.
"PBGC" means the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA and any successor thereof.
"Permitted Acquisition" means an Acquisition by any Credit Party which
Acquisition complies with the following requirements (in each case to the
reasonable satisfaction of the Agent) (i) the Acquired Company shall be an
operating company that engages in a line of business substantially similar to
the line of business of the Consolidated Parties engaged in on the Closing Date
(or a holding company which owns such an operating company), (ii) the Purchase
Price for such Acquisition shall not exceed $40 million, and, the aggregate
Purchase Price paid for all Acquisitions during any 12-month period shall not
exceed $100 million, (iii) the Borrower shall have completed its due diligence
process with respect to such Acquisition, (iv) such Acquisition shall not be
hostile, (v) no Default or Event of Default shall exist immediately prior to or
immediately after the consummation of such Acquisition, (vi) the Agent shall
have received all items required by Sections 7.12, 7.14 and 7.15 in connection
with the Acquired Company if required to be delivered prior to the consummation
of the Permitted Acquisition, (vii) the Total Debt Leverage Ratio after giving
pro forma effect to such Acquisition must be 0.25 less than the maximum
allowable Total Debt Leverage Ratio as of the fiscal quarter ending immediately
preceding the date of such Acquisition and (viii) the Borrower shall have
delivered to the Agent: (A) a review of the financial condition of the Acquired
Company conducted by a firm of independent certified public accountants of
nationally recognized standing reasonably acceptable to the Agent, (B) the
"Board Paper" for the Acquired Company (i.e., a short memo prepared by the
Borrower with respect to the Acquired Company), (C) a description of such
Acquisition in reasonable detail and the corresponding documentation and
historical financial information of the Acquired Company, (D) financial
projections demonstrating that after giving effect to such Acquisition, the
Consolidated Parties shall be in compliance with all of the covenants set forth
in Section 7.11 for the period commencing with the date of such Acquisition
through the last day covered by the financial projections delivered to the Agent
on the Closing Date pursuant to Section 5.1(c)(iv), (E) a Pro Forma Compliance
Certificate with respect to such Acquisition demonstrating that, upon giving
effect to such Acquisition, the Consolidated Parties shall be in compliance on a
Pro Forma Basis with all of the covenants contained herein including, without
limitation, the covenants set forth in Section 7.11 hereof and (F) environmental
assessment reports and related documents of a recent date with respect to all
real property owned or leased by the Acquired Company. All information,
documents and financial data required in connection with any Permitted
Acquisition shall be furnished to the Agent at least 15 business days prior to
the closing of such proposed Acquisition.
"Permitted Investments" means Investments which are either (i) cash and
Cash Equivalents; (ii) accounts receivable created, acquired or made by any
Consolidated Party in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; (iii) Investments
consisting of Capital Stock, obligations, securities or other property received
by any Consolidated
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Party in settlement of accounts receivable (created in the ordinary course of
business) from bankrupt obligors; (iv) Investments existing as of the Closing
Date and set forth in Schedule 1.1(a), (v) Guaranty Obligations permitted by
Section 8.1; (vi) advances or loans to directors or officers that do not exceed
$500,000 in the aggregate at any one time outstanding for all of the
Consolidated Parties for the purchase of Capital Stock of the Borrower; (vii)
Investments in any Credit Party, (viii) advances to officers, directors and
employees for travel, entertainment or other business-related expenses incurred
or anticipated to be incurred in the ordinary course of business, (ix)
promissory notes and other instruments received by a Credit Party as
consideration in connection with asset sales permitted hereunder and (x)
Permitted Acquisitions.
"Permitted Liens" means:
(i) Liens in favor of the Agent to secure the Credit Party
Obligations;
(ii) Liens (other than Liens created or imposed under ERISA) for
taxes, assessments or governmental charges or levies not yet due or Liens
for taxes being contested in good faith by appropriate proceedings for
which adequate reserves determined in accordance with GAAP have been
established (and as to which the Property subject to any such Lien is not
yet subject to foreclosure, sale or loss on account thereof);
(iii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and suppliers and other Liens imposed
by law or pursuant to customary reservations or retentions of title arising
in the ordinary course of business, provided that such Liens secure only
amounts not yet due and payable or, if due and payable, are unfiled and no
other action has been taken to enforce the same or are being contested in
good faith by appropriate proceedings for which adequate reserves
determined in accordance with GAAP have been established (and as to which
the Property subject to any such Lien is not yet subject to foreclosure,
sale or loss on account thereof);
(iv) Liens (other than Liens created or imposed under ERISA) incurred
or deposits made by any Consolidated Party in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, or to secure the performance of
tenders, statutory obligations, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(v) Liens in connection with attachments or judgments (including
judgment or appeal bonds) provided that the judgments secured shall, within
30 days after the entry thereof, have been discharged or execution thereof
stayed pending appeal, or shall have been discharged within 30 days after
the expiration of any such stay;
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(vi) easements, rights-of-way, restrictions (including zoning
restrictions), minor defects or irregularities in title and other similar
charges or encumbrances not, in any material respect, impairing the use of
the encumbered Property for its intended purposes;
(vii) Liens on Property of any Person securing purchase money
Indebtedness (including Capital Leases and Synthetic Leases) of such Person
to the extent permitted under Section 8.1(c), provided that any such Lien
attaches to such Property concurrently with or within 90 days after the
acquisition thereof;
(viii) leases or subleases granted to others not interfering in any
material respect with the business of any Consolidated Party;
(ix) liens evidenced by precautionary filings of lessors under
operating leases;
(x) normal and customary rights of setoff upon deposits of cash in
favor of banks or other depository institutions; and
(xi) Liens existing as of the Closing Date and set forth on
Schedule 1.1(b); provided that (a) no such Lien shall at any time be
extended to or cover any Property other than the Property subject thereto
on the Closing Date and (b) the principal amount of the Indebtedness
secured by such Liens shall not be extended, renewed, refunded or
refinanced.
"Person" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
(whether or not incorporated) or any Governmental Authority.
"Plan" means any employee benefit plan (as defined in Section 3(3) of
ERISA) which is covered by ERISA and with respect to which any Consolidated
Party or any ERISA Affiliate is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" within the
meaning of Section 3(5) of ERISA.
"Pledge Agreement" means the pledge agreement dated as of the Closing Date
executed in favor of the Agent by each of the Credit Parties, as amended,
modified, restated or supplemented from time to time.
"Price Reduction Election" has the meaning assigned to such term in the
definition of "Applicable Percentage".
"Prime Rate" means the per annum rate of interest established from time to
time by First Union National Bank as its prime rate, which rate may not be the
lowest rate of interest charged by First Union National Bank to its customers.
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"Pro Forma Basis" shall mean, with respect to any Permitted Acquisition or
other transaction permitted hereunder, that such Permitted Acquisition or other
transaction shall be deemed to have occurred as of the first day of the four
fiscal-quarter period ending as of the most recent fiscal quarter end preceding
the date of such Permitted Acquisition or other transaction. In connection with
any calculation of the financial covenants set forth in Section 7.11, upon
giving effect to a Permitted Acquisition or other transaction on a Pro Forma
Basis, any Indebtedness of the Acquired Company which is retired in connection
with such transaction, any Indebtedness incurred by a Credit Party to finance
such Permitted Acquisition or other transaction and any other financial
statement components shall be adjusted in a manner mutually satisfactory to the
Agent and the Borrower. For purposes of any such calculation, the principles set
forth in the second paragraph of Section 1.3 shall be applicable.
"Pro Forma Compliance Certificate" means a certificate of an Executive Officer
of the Borrower delivered to the Agent in connection with a Permitted
Acquisition and containing reasonably detailed calculations, upon giving effect
to the applicable transaction on a Pro Forma Basis, of the financial covenants
set forth in Section 7.11 as of the most recent fiscal quarter end preceding the
date of such Permitted Acquisition.
"Property" means any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.
"Purchase Price" means all cash paid, notes issued and/or Indebtedness assumed
by a Credit Party as the consideration paid by such Credit Party in connection
with a Permitted Acquisition.
"Register" has the meaning given such term in Section 11.3(c).
"Regulation T, U, or X" means Regulation T, U or X, respectively, of the Board
of Governors of the Federal Reserve System as from time to time in effect and
any successor to all or a portion thereof.
"Release" means any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping or disposing into the
environment (including the abandonment or discarding of barrels, containers and
other closed receptacles) of any Materials of Environmental Concern.
"Rental Equipment" means all of each Credit Party's Inventory consisting of
equipment which is rented by such Credit Party in the ordinary course of
business or is held for lease by such Credit Party.
"Reportable Event" means any of the events set forth in Section 4043(c) of
ERISA, other than those events as to which the notice requirement has been
waived by regulation.
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"Required Lenders" means, at any time, Lenders which are then in compliance
with their obligations hereunder (as determined by the Agent) and holding in the
aggregate at least 51% of (i) the Revolving Commitments (and Participation
Interests therein) and the outstanding Term Loan Commitments or (ii) if the
Commitments have been terminated, the outstanding Loans and Participation
Interests (including the Participation Interests of the Issuing Lender in any
Letters of Credit).
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its material property is subject.
"Restricted Payment" means (i) any dividend or other payment or
distribution, direct or indirect, on account of any shares of any class of
Capital Stock of any Consolidated Party, now or hereafter outstanding (including
without limitation any payment in connection with any merger or consolidation
involving any Consolidated Party), or to the direct or indirect holders of any
shares of any class of Capital Stock of any Consolidated Party, now or hereafter
outstanding, in their capacity as such (other than dividends or distributions
payable in the same class of Capital Stock of the applicable Person or to any
Credit Party (directly or indirectly through Subsidiaries), (ii) any redemption,
retirement, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any shares of any class of Capital Stock of any
Consolidated Party, now or hereafter outstanding, (iii) any payment made to
retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire shares of any class of Capital Stock of any Consolidated
Party, now or hereafter outstanding and (iv) any payment to any Affiliate of any
Credit Party except to the extent expressly permitted in this Credit Agreement.
"Revolving Commitment" means, with respect to each Lender, the commitment
of such Lender in an aggregate principal amount at any time outstanding of up to
such Lender's Revolving Commitment Percentage of the Revolving Committed Amount,
(i) to make Revolving Loans in accordance with the provisions of Section 2.1(a)
and (ii) to purchase Participation Interests in Letters of Credit in accordance
with the provisions of Section 2.2(c).
"Revolving Commitment Percentage" means, for any Lender, the percentage
identified as its Revolving Commitment Percentage on Schedule 2.1(a), as such
percentage may be modified in connection with any assignment made in accordance
with the provisions of Section 11.3.
"Revolving Committed Amount" has the meaning given to such term in Section
2.1(a).
"Revolving Loans" has the meaning given to such term in Section 2.1(a).
"Revolving Note" or "Revolving Notes" means the promissory notes of the
Borrower in favor of each of the Lenders evidencing the Revolving Loans provided
pursuant to Section 2.1(e),
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individually or collectively, as appropriate, as such promissory notes may be
amended, modified, restated, supplemented, extended, renewed or replaced from
time to time.
"Revolving Obligations" means, collectively, the Revolving Loans and the LOC
Obligations.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc.,
or any successor or assignee of the business of such division in the business of
rating securities.
"Sale and Leaseback Transaction" means any direct or indirect arrangement with
any Person or to which any such Person is a party, providing for the leasing to
any Consolidated Party of any Property, whether owned by such Consolidated Party
as of the Closing Date or later acquired, which has been or is to be sold or
transferred by such Consolidated Party to such Person or to any other Person
from whom funds have been, or are to be, advanced by such Person on the security
of such Property.
"Security Agreement" means the security agreement dated as of the Closing Date
executed in favor of the Agent by each of the Credit Parties, as amended,
modified, restated or supplemented from time to time.
"Senior Debt Leverage Ratio" means, as of the last day of each fiscal quarter,
the ratio of Consolidated Senior Indebtedness (computed as of the last day of
each such fiscal quarter) to Consolidated EBITDA (computed for the four fiscal
quarters then ending).
"Senior Subordinated Notes" means the $100,000,000 10% Senior Subordinated
Notes of the Borrower issued by the Borrower on November 25, 1997 due in 2004.
"Single Employer Plan" means any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan or a Multiple Employer Plan.
"Solvent" or "Solvency" means, with respect to any Person as of a particular
date, that on such date (i) such Person is able to realize upon its assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (ii) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature in their ordinary course, (iii) such Person is not engaged in a business
or a transaction, and is not about to engage in a business or a transaction, for
which such Person's Property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in which
such Person is engaged or is to engage, (iv) the fair value of the Property of
such Person taken on a going concern basis is greater than the total amount of
liabilities, including, without limitation, contingent liabilities, of such
Person and (v) the present fair salable value of the assets of such Person taken
on a going concern basis is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured. In computing the amount of contingent liabilities at any time, it
is intended that such liabilities will be computed at the amount which, in
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light of all the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured liability.
"Standby Letter of Credit Fee" shall have the meaning assigned to such term in
Section 3.5(b)(i).
"Subordinated Debt" means (a) the Senior Subordinated Notes, (b) any other
publicly-issued unsecured Indebtedness incurred by the Borrower, which is
expressly subordinated and made junior to the payment and performance in full of
the Credit Party Obligations and contains terms and conditions reasonably
satisfactory to the Required Lenders and (c) any other unsecured Indebtedness
incurred by the Borrower in connection with a Permitted Acquisition, which is
expressly subordinated and made junior to the payment and performance in full of
the Credit Party Obligations and contains terms and conditions reasonably
satisfactory to the Required Lenders; provided that in the case of Indebtedness
referred to in clause (c) the Lenders acknowledge that subordination and other
terms and conditions substantially identical, in the sole judgment of the Agent,
to those contained in the form of Subordinated Note attached hereto as Exhibit 1
are satisfactory; and provided further, that the aggregate principal amount of
the Indebtedness referred to in clause (c) at any time outstanding shall not
exceed $5,000,000.
"Subordinated Payments" means any fees, expenses or other payments incurred or
owing by any Credit Party, which, in each case, are specifically subordinated in
right of payment to the prior payment of the Credit Party Obligations on terms
and conditions satisfactory to the Required Lenders.
"Subsidiary" means, as to any Person at any time, (a) any corporation more
than 50% of whose Capital Stock of any class or classes having by the terms
thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at such time, any class or classes
of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at such time owned by such Person directly or
indirectly through Subsidiaries, and (b) any partnership, association, joint
venture or other entity of which such Person directly or indirectly through
Subsidiaries owns at such time more than 50% of the Capital Stock.
"Subsidiary Guarantor" means each of the Persons identified as a "Subsidiary
Guarantor" on the signature pages hereto and each Subsidiary of a Credit Party
which may hereafter execute a Joinder Agreement, together with their successors
and permitted assigns, and "Subsidiary Guarantor" means any one of them.
"Synthetic Lease" means any synthetic lease, tax retention operating lease,
off-balance sheet loan or similar off-balance sheet financing product where such
transaction is considered borrowed money indebtedness for tax purposes but is
classified as an Operating Lease.
"Taxes" has the meaning assigned to such term in Section 3.11.
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"Term Loan" has the meaning assigned to such term in Section 2.3(a).
"Term Loan Commitment" means, with respect to each Lender, the commitment
of such Lender to make its portion of the Term Loan in a principal amount equal
to such Lender's Term Loan Commitment Percentage of the Term Loan Committed
Amount.
"Term Loan Commitment Percentage" means, for any Lender, the percentage
identified as its Term Loan Commitment Percentage on Schedule 2.1(a), as such
percentage may be modified in connection with any assignment made in accordance
with the provisions of Section 11.3.
"Term Loan Committed Amount" has the meaning assigned to such term in
Section 2.3(a).
"Term Note" or "Term Notes" means the promissory notes of the Borrower in
favor of each of the Lenders evidencing the Term Loan provided pursuant to
Section 2.3(f), individually or collectively, as appropriate, as such promissory
notes may be amended, modified, restated, supplemented, extended, renewed or
replaced from time to time.
"Total Debt Leverage Ratio" means, as of the last day of each fiscal
quarter of the Borrower, the ratio of Consolidated Funded Indebtedness to
Consolidated EBITDA (computed for the four fiscal quarters then ending).
"Trade Letter of Credit Fee" has the meaning assigned to such term in Section
3.5(b)(ii).
"Unused Line Fee" has the meaning assigned to such term in Section 3.5(a).
"Unused Line Fee Calculation Period" has the meaning assigned to such term in
Section 3.5(a).
"Unused Revolving Committed Amount" means, for any period, the amount by which
(a) the then applicable Revolving Committed Amount exceeds (b) the daily average
sum for such period of (i) the outstanding aggregate principal amount of all
Revolving Loans plus (ii) the outstanding aggregate principal amount of all LOC
Obligations.
"Voting Stock" means, with respect to any Person, Capital Stock issued by such
Person the holders of which are ordinarily, in the absence of contingencies,
entitled to vote for the election of directors (or persons performing similar
functions) of such Person, even though the right so to vote has been suspended
by the happening of such a contingency.
"Wholly Owned Subsidiary" of any Person means any Subsidiary 100% of whose
Voting Stock is at the time owned by such Person directly or indirectly through
other Wholly Owned Subsidiaries.
1.2 Computation of Time Periods.
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For purposes of computation of periods of time hereunder, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding."
1.3 Accounting Terms.
----------------
Unless otherwise defined or specified herein, all accounting terms shall be
construed herein and all accounting determinations for purposes of determining
compliance with Section 7.11 hereof and otherwise to be made under this Credit
Agreement shall be made in accordance with GAAP applied on a basis consistent in
all material respects with the financial statements delivered pursuant to
Section 5.1(c) (the "Financials"). All financial statements required to be
delivered hereunder from and after the Closing Date and all financial records
shall be maintained in accordance with GAAP as in effect as of the date of the
Financials. If GAAP shall change from the basis used in preparing the
Financials, the certificates required to be delivered pursuant to Section 7.1
demonstrating compliance with the covenants contained herein shall include
calculations setting forth the adjustments necessary to demonstrate how the
Consolidated Parties are in compliance with the financial covenants based upon
GAAP as in effect on the Closing Date. If the Credit Parties shall change their
method of inventory accounting, all calculations necessary to determine
compliance with the covenants contained herein shall be made as if such method
of inventory accounting had not been so changed.
Notwithstanding the above, the parties hereto acknowledge and agree that,
for purposes of all calculations made in determining compliance for any
applicable period with the financial covenants set forth in Section 7.11
(including without limitation for purposes of the definitions of "Applicable
Percentage" and "Pro Forma Basis" set forth in Section 1.1), any Indebtedness of
an Acquired Company which is retired in connection with a Permitted Acquisition
shall be excluded from such calculations and deemed to have been retired as of
the first day of such applicable period and income statement items and other
balance sheet items (whether positive or negative) attributable to the Acquired
Company acquired in such transaction shall be included in such calculations to
the extent relating to such applicable period, subject to adjustments mutually
acceptable to the Agent and the Borrower.
SECTION 2
CREDIT FACILITIES
2.1 Revolving Loans.
---------------
(a) Revolving Commitment. Subject to the terms and conditions hereof
and in reliance upon the representations and warranties set forth herein,
each Lender severally agrees to make available to the Borrower such
Lender's Revolving Commitment Percentage of revolving credit loans
requested by the Borrower in Dollars ("Revolving Loans") from time
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to time from the Closing Date until the Maturity Date, or such earlier date as
the Revolving Commitments shall have been terminated as provided herein;
provided, however, that (i) with regard to the Lenders collectively, the amount
of Revolving Obligations outstanding shall not exceed the lesser of (A) TWO
HUNDRED TWENTY-FIVE MILLION DOLLARS ($225,000,000) (as such aggregate maximum
amount may be reduced from time to time as provided in Section 3.4, the
"Revolving Committed Amount") and (B) the Borrowing Base less the outstanding
Term Loan less LOC Obligations outstanding; provided, further, (ii) with regard
to each Lender individually, the amount of such Lender's Revolving Commitment
Percentage of the sum of the Revolving Loans plus LOC Obligations outstanding
shall not exceed such Lender's Revolving Committed Amount. Revolving Loans may
consist of Base Rate Loans or Eurodollar Loans, or a combination thereof, as the
Borrower may request; provided, however, that no more than ten (10) Eurodollar
Loans shall be outstanding hereunder at any time, of which no more than seven
(7) of such Eurodollar Loans shall be Revolving Loans (it being understood that,
for purposes hereof, Eurodollar Loans with different Interest Periods shall be
considered as separate Eurodollar Loans, even if they begin on the same date,
although borrowings, extensions and conversions may, in accordance with the
provisions hereof, be combined at the end of existing Interest Periods to
constitute a new Eurodollar Loan with a single Interest Period). Revolving Loans
hereunder may be repaid and reborrowed in accordance with the provisions hereof.
(b) Revolving Loan Borrowings.
-------------------------
(i) Notice of Borrowing. The Borrower shall request a Revolving Loan
borrowing by written notice (or telephonic notice promptly confirmed in
writing) to the Agent not later than 12:00 A.M. (Charlotte, North Carolina
time) on the Business Day of the requested borrowing in the case of Base
Rate Loans, and on the third Business Day prior to the date of the
requested borrowing in the case of Eurodollar Loans. Each such request for
borrowing shall be irrevocable and shall specify (A) that a Revolving Loan
is requested, (B) the date of the requested borrowing (which shall be a
Business Day), (C) the aggregate principal amount to be borrowed, and (D)
whether the borrowing shall be comprised of Base Rate Loans, Eurodollar
Loans or a combination thereof, and if Eurodollar Loans are requested, the
Interest Period(s) therefor. If the Borrower shall fail to specify in any
such Notice of Borrowing (I) an applicable Interest Period in the case of a
Eurodollar Loan, then such notice shall be deemed to be a request for an
Interest Period of one month, or (II) the type of Revolving Loan requested,
then such notice shall be deemed to be a request for a Base Rate Loan
hereunder. The Agent shall give notice to each affected Lender promptly
upon receipt of each Notice of Borrowing pursuant to this Section
2.1(b)(i), the contents thereof and each such Lender's share of any
borrowing to be made pursuant thereto.
(ii) Minimum Amounts. Each Revolving Loan that is a Base Rate Loan shall
be in a minimum aggregate principal amount of $1,000,000 and integral
multiples of $1,000,000 in excess thereof (or the remaining amount of the
Revolving Committed
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Amount, if less). Each Revolving Loan that is a Eurodollar Loan shall be in
a minimum aggregate principal amount of $5,000,000 and integral multiples
of $1,000,000 in excess thereof.
(iii) Advances. Each Lender will make its Revolving Commitment Percentage
of each Revolving Loan borrowing available to the Agent for the account of
the Borrower as specified in Section 3.15(a), or in such other manner as
the Agent may specify in writing, by 1:00 P.M. (Charlotte, North Carolina
time) on the date specified in the applicable Notice of Borrowing in
Dollars and in funds immediately available to the Agent. Such borrowing
will then be made available to the Borrower by the Agent by crediting the
account of the Borrower on the books of such office with the aggregate of
the amounts made available to the Agent by the Lenders and in like funds as
received by the Agent.
(c) Repayment. The principal amount of all Revolving Loans shall be due
and payable in full on the Maturity Date, unless accelerated sooner pursuant to
Section 9.2.
(d) Interest. Subject to the provisions of Section 3.1,
(i) Base Rate Loans. During such periods as Revolving Loans shall be
comprised in whole or in part of Base Rate Loans, such Base Rate Loans
shall bear interest at a per annum rate equal to the Adjusted Base Rate.
(ii) Eurodollar Loans. During such periods as Revolving Loans shall be
comprised in whole or in part of Eurodollar Loans, such Eurodollar Loans
shall bear interest at a per annum rate equal to the Adjusted Eurodollar
Rate.
Interest on Revolving Loans shall be payable in arrears on each applicable
Interest Payment Date (or at such other times as may be specified herein).
(e) Revolving Notes. The Revolving Loans made by each Lender shall be
evidenced by a duly executed promissory note of the Borrower to such Lender in
an original principal amount equal to such Lender's Revolving Commitment
Percentage of the Revolving Committed Amount and in substantially the form of
Exhibit 2.1(e).
(f) Syndication Period. Notwithstanding any provision herein to the
contrary, until the earlier of (i) ninety (90) days following the Closing Date
and (ii) the closing of the primary syndication of the Loans, the Borrower shall
only be permitted to make Revolving Loans which are Base Rate Loans or
Eurodollar Loans having an Interest Period of thirty (30) days.
2.2 Letter of Credit Subfacility.
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(a) Issuance. Subject to the terms and conditions hereof and of the LOC
Documents, if any, and any other terms and conditions which the Issuing Lender
may reasonably require and in reliance upon the representations and warranties
set forth herein, the Issuing Lender agrees to issue, and each Lender severally
agrees to participate in the issuance by the Issuing Lender of Letters of Credit
in Dollars from time to time from the Closing Date until the Maturity Date as
the Borrower may request, in a form acceptable to the Issuing Lender; provided,
however, that (i) the LOC Obligations outstanding shall not at any time exceed
TWENTY-FIVE MILLION DOLLARS ($25,000,000) (the "LOC Committed Amount"), (ii)
with regard to the Lenders collectively, the amount of the Revolving Obligations
shall not exceed the lesser of (A) the Revolving Committed Amount and (B) the
Borrowing Base less the outstanding Term Loan less LOC Obligations outstanding
and (iii) with regard to each Lender individually, the amount of the sum of the
Revolving Loans plus LOC Obligations outstanding shall not exceed such Lender's
Revolving Commitment Percentage of the Revolving Committed Amount. No Letter of
Credit shall (x) have an original expiry date more than one year from the date
of issuance or (y) as originally issued or as extended, have an expiry date
extending beyond the Maturity Date. Each Letter of Credit shall comply with the
related LOC Documents. The issuance and expiry dates of each Letter of Credit
shall be a Business Day.
(b) Notice and Reports. The request for the issuance of a Letter of
Credit shall be submitted by the Borrower to the Issuing Lender at least three
(3) Business Days prior to the requested date of issuance. The Issuing Lender
will, at least quarterly and more frequently upon request, disseminate to each
of the Lenders a detailed report specifying the Letters of Credit which are then
issued and outstanding and any activity with respect thereto which may have
occurred since the date of the prior report, and including therein, among other
things, the beneficiary, the face amount and the expiry date, as well as any
payment or expirations which may have occurred.
(c) Participation. Each Lender, upon issuance of a Letter of Credit,
shall be deemed to have purchased without recourse a Participation Interest from
the Issuing Lender in such Letter of Credit and the obligations arising
thereunder and any collateral relating thereto, in each case in an amount equal
to its pro rata share of the obligations under such Letter of Credit (based on
the respective Revolving Commitment Percentages of the Lenders) and shall
absolutely, unconditionally and irrevocably assume and be obligated to pay to
the Issuing Lender and discharge when due, its pro rata share of the obligations
arising under such Letter of Credit. Without limiting the scope and nature of
each Lender's Participation Interest in any Letter of Credit, to the extent that
the Issuing Lender has not been reimbursed as required hereunder or under any
such Letter of Credit, each such Lender shall pay to the Issuing Lender its pro
rata share of such unreimbursed drawing in same day funds on the day of
notification by the Issuing Lender of an unreimbursed drawing pursuant to the
provisions of subsection (d) below. The obligation of each Lender to so
reimburse the Issuing Lender shall be absolute and unconditional and shall not
be affected by the occurrence of a Default, an Event of Default or any other
occurrence or event. Any such reimbursement shall not
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relieve or otherwise impair the obligation of the Borrower to reimburse the
Issuing Lender under any Letter of Credit, together with interest as hereinafter
provided.
(d) Reimbursement. In the event of any drawing under any Letter of
Credit, the Issuing Lender will promptly notify the Borrower. Unless the
Borrower shall immediately notify the Issuing Lender that the Borrower intends
to otherwise reimburse the Issuing Lender for such drawing, the Borrower shall
be deemed to have requested that the Lenders make a Revolving Loan in the amount
of the drawing as provided in subsection (e) below on the related Letter of
Credit, the proceeds of which will be used to satisfy the related reimbursement
obligations. The Borrower promises to reimburse the Issuing Lender on the day of
drawing under any Letter of Credit (either with the proceeds of a Revolving Loan
obtained hereunder or otherwise) in same day funds. If the Borrower shall fail
to reimburse the Issuing Lender as provided hereinabove, the unreimbursed amount
of such drawing shall bear interest at a per annum rate equal to the Adjusted
Base Rate plus 2%. The Borrower's reimbursement obligations hereunder shall be
absolute and unconditional under all circumstances irrespective of any rights of
setoff, counterclaim or defense to payment the Borrower may claim or have
against the Issuing Lender, the Agent, the Lenders, the beneficiary of the
Letter of Credit drawn upon or any other Person, including without limitation
any defense based on any failure of the Borrower or any other Credit Party to
receive consideration or the legality, validity, regularity or unenforceability
of the Letter of Credit. The Issuing Lender will promptly notify the other
Lenders of the amount of any unreimbursed drawing and each Lender shall promptly
pay to the Agent for the account of the Issuing Lender in Dollars and in
immediately available funds, the amount of such Lender's pro rata share of such
unreimbursed drawing. Such payment shall be made on the day such notice is
received by such Lender from the Issuing Lender if such notice is received at or
before 2:00 P.M. (Charlotte, North Carolina time) otherwise such payment shall
be made at or before 12:00 Noon (Charlotte, North Carolina time) on the Business
Day next succeeding the day such notice is received. If such Lender does not pay
such amount to the Issuing Lender in full upon such request, such Lender shall,
on demand, pay to the Agent for the account of the Issuing Lender interest on
the unpaid amount during the period from the date of such drawing until such
Lender pays such amount to the Issuing Lender in full at a rate per annum equal
to, if paid within two (2) Business Days of the date that such Lender is
required to make payments of such amount pursuant to the preceding sentence, the
Federal Funds Rate and thereafter at a rate equal to the Base Rate. Each
Lender's obligation to make such payment to the Issuing Lender, and the right of
the Issuing Lender to receive the same, shall be absolute and unconditional,
shall not be affected by any circumstance whatsoever and without regard to the
termination of this Credit Agreement or the Commitments hereunder, the existence
of a Default or Event of Default or the acceleration of the obligations of the
Borrower hereunder and shall be made without any offset, abatement, withholding
or reduction whatsoever. Simultaneously with the making of each such payment by
a Lender to the Issuing Lender, such Lender shall, automatically and without any
further action on the part of the Issuing Lender or such Lender, acquire a
Participation Interest in an amount equal to such payment (excluding the portion
of such payment constituting interest owing to the Issuing
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Lender) in the related unreimbursed drawing portion of the LOC Obligation and in
the interest thereon and in the related LOC Documents, and shall have a claim
against the Borrower with respect thereto.
(e) Repayment with Revolving Loans. On any day on which the Borrower
shall have requested, or been deemed to have requested, a Revolving Loan advance
to reimburse a drawing under a Letter of Credit, the Agent shall give notice to
the Lenders that a Revolving Loan has been requested or deemed requested by the
Borrower to be made in connection with a drawing under a Letter of Credit, in
which case a Revolving Loan advance comprised of Base Rate Loans (or Eurodollar
Loans to the extent the Borrower has complied with the procedures of Section
2.1(b)(i) with respect thereto) shall be immediately made to the Borrower by all
Lenders (notwithstanding any termination of the Commitments pursuant to Section
9.2) pro rata based on the respective Revolving Commitment Percentages of the
Lenders (determined before giving effect to any termination of the Commitments
pursuant to Section 9.2) and the proceeds thereof shall be paid directly to the
Issuing Lender for application to the respective LOC Obligations. Each such
Lender hereby irrevocably agrees to make its pro rata share of each such
Revolving Loan immediately upon any such request or deemed request in the
amount, in the manner and on the date specified in the preceding sentence
notwithstanding (i) the amount of such borrowing may not comply with the minimum
amount for advances of Revolving Loans otherwise required hereunder, (ii)
whether any conditions specified in Section 5.2 are then satisfied, (iii)
whether a Default or an Event of Default then exists, (iv) failure for any such
request or deemed request for Revolving Loan to be made by the time otherwise
required hereunder, (v) whether the date of such borrowing is a date on which
Revolving Loans are otherwise permitted to be made hereunder or (vi) any
termination of the Commitments relating thereto immediately prior to or
contemporaneously with such borrowing. In the event that any Revolving Loan
cannot for any reason be made on the date otherwise required above (including,
without limitation, as a result of the commencement of a proceeding under the
Bankruptcy Code with respect to the Borrower or any other Credit Party), then
each such Lender hereby agrees that it shall forthwith purchase (as of the date
such borrowing would otherwise have occurred, but adjusted for any payments
received from the Borrower on or after such date and prior to such purchase)
from the Issuing Lender such Participation Interests in the outstanding LOC
Obligations as shall be necessary to cause each such Lender to share in such LOC
Obligations ratably (based upon the respective Revolving Commitment Percentages
of the Lenders (determined before giving effect to any termination of the
Commitments pursuant to Section 9.2)), provided that at the time any purchase of
Participation Interests pursuant to this sentence is actually made, the
purchasing Lender shall be required to pay to the Issuing Lender, to the extent
not paid to the Issuer by the Borrower in accordance with the terms of
subsection (d) above, interest on the principal amount of Participation
Interests purchased for each day from and including the day upon which such
borrowing would otherwise have occurred to but excluding the date of payment for
such Participation Interests, at the rate equal to, if paid within two (2)
Business Days of the date of the Revolving Loan advance, the Federal Funds Rate,
and thereafter at a rate equal to the Base Rate.
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(f) Designation of Credit Parties as Account Parties. Notwithstanding
anything to the contrary set forth in this Credit Agreement, including without
limitation Section 2.2(a), a Letter of Credit issued hereunder may contain a
statement to the effect that such Letter of Credit is issued for the account of
a Credit Party other than the Borrower, provided that notwithstanding such
statement, the Borrower shall be the actual account party for all purposes of
this Credit Agreement for such Letter of Credit and such statement shall not
affect the Borrower's reimbursement obligations hereunder with respect to such
Letter of Credit.
(g) Renewal, Extension. The renewal or extension of any Letter of Credit
shall, for purposes hereof, be treated in all respects the same as the issuance
of a new Letter of Credit hereunder.
(h) Uniform Customs and Practices. The Issuing Lender may have the
Letters of Credit be subject to The Uniform Customs and Practice for Documentary
Credits, as published as of the date of issue by the International Chamber of
Commerce (the "UCP"), in which case the UCP may be incorporated therein and
deemed in all respects to be a part thereof.
(i) Indemnification; Nature of Issuing Lender's Duties.
(i) In addition to its other obligations under this Section 2.2, the
Borrower hereby agrees to pay, and protect, indemnify and save each Lender
harmless from and against, any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including reasonable
attorneys' fees) that such Lender may incur or be subject to as a
consequence, direct or indirect, of (A) the issuance of any Letter of
Credit or (B) the failure of such Lender to honor a drawing under a Letter
of Credit as a result of any act or omission, whether rightful or wrongful,
of any present or future de jure or de facto government or Governmental
Authority (all such acts or omissions, herein called "Government Acts").
(ii) As between the Borrower and the Lenders (including the Issuing
Lender), the Borrower shall assume all risks of the acts, omissions or
misuse of any Letter of Credit by the beneficiary thereof. No Lender
(including the Issuing Lender) shall be responsible: (A) for the form,
validity, sufficiency, accuracy, genuineness or legal effect of any
document submitted by any party in connection with the application for and
issuance of any Letter of Credit, even if it should in fact prove to be in
any or all respects invalid, insufficient, inaccurate, fraudulent or
forged; (B) for the validity or sufficiency of any instrument transferring
or assigning or purporting to transfer or assign any Letter of Credit or
the rights or benefits thereunder or proceeds thereof, in whole or in part,
that may prove to be invalid or ineffective for any reason; (C) for errors,
omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not
they be in cipher; (D) for any loss or delay in the transmission or
otherwise of any
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document required in order to make a drawing under a Letter of Credit or of
the proceeds thereof; and (E) for any consequences arising from causes
beyond the control of such Lender, including, without limitation, any
Government Acts. None of the above shall affect, impair, or prevent the
vesting of the Issuing Lender's rights or powers hereunder.
(iii) In furtherance and extension and not in limitation of the
specific provisions hereinabove set forth, any action taken or omitted by
any Lender (including the Issuing Lender), under or in connection with any
Letter of Credit or the related certificates, if taken or omitted in good
faith, shall not put such Lender under any resulting liability to the
Borrower or any other Credit Party. It is the intention of the parties that
this Credit Agreement shall be construed and applied to protect and
indemnify each Lender (including the Issuing Lender) against any and all
risks involved in the issuance of the Letters of Credit, all of which risks
are hereby assumed by the Borrower (on behalf of itself and each of the
other Credit Parties), including, without limitation, any and all
Government Acts. No Lender (including the Issuing Lender) shall, in any
way, be liable for any failure by such Lender or anyone else to pay any
drawing under any Letter of Credit as a result of any Government Acts or
any other cause beyond the control of such Lender.
(iv) Nothing in this subsection (i) is intended to limit the
reimbursement obligations of the Borrower contained in subsection (d)
above. The obligations of the Borrower under this subsection (i) shall
survive the termination of this Credit Agreement. No act or omission of any
current or prior beneficiary of a Letter of Credit shall in any way affect
or impair the rights of the Lenders (including the Issuing Lender) to
enforce any right, power or benefit under this Credit Agreement.
(j) Notwithstanding anything to the contrary contained in this subsection
(j), the Borrower shall have no obligation to indemnify any Lender (including
the Issuing Lender) in respect of any liability incurred by such Lender (A)
arising solely out of the gross negligence or willful misconduct of such Lender,
as determined by a court of competent jurisdiction, or (B) caused by such
Lender's failure to pay under any Letter of Credit after presentation to it of a
request strictly complying with the terms and conditions of such Letter of
Credit, as determined by a court of competent jurisdiction, unless such payment
is prohibited by any law, regulation, court order or decree.
(k) Responsibility of Issuing Lender. It is expressly understood and
agreed that the obligations of the Issuing Lender hereunder to the Lenders are
only those expressly set forth in this Credit Agreement and that the Issuing
Lender shall be entitled to assume that the conditions precedent set forth in
Section 5.2 have been satisfied unless it shall have acquired actual knowledge
that any such condition precedent has not been satisfied; provided, however,
that nothing set forth in this Section 2.2 shall be deemed to prejudice the
right of any Lender
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to recover from the Issuing Lender any amounts made available by such Lender to
the Issuing Lender pursuant to this Section 2.2 in the event that it is
determined by a court of competent jurisdiction that the payment with respect to
a Letter of Credit constituted gross negligence or willful misconduct on the
part of the Issuing Lender.
(l) Conflict with LOC Documents. In the event of any conflict between
this Credit Agreement and any LOC Document (including any letter of credit
application), this Credit Agreement shall control.
2.3 Term Loan.
---------
(a) Term Commitment. Subject to the terms and conditions hereof and in
reliance upon the representations and warranties set forth herein each Lender
severally agrees to make available to the Borrower on the Closing Date such
Lender's Term Loan Commitment Percentage of a term loan in Dollars (the "Term
Loan") in the aggregate principal amount of ONE HUNDRED MILLION DOLLARS
($100,000,000) (the "Term Loan Committed Amount"). The Term Loan may consist of
Base Rate Loans or Eurodollar Loans, or a combination thereof, as the Borrower
may request; provided, however, that no more than ten (10) Eurodollar Loans
shall be outstanding hereunder at any time of which no more than three (3) of
such Eurodollar Loans shall be Term Loans (it being understood that, for
purposes hereof, Eurodollar Loans with different Interest Periods shall be
considered as separate Eurodollar Loans, even if they begin on the same date,
although borrowings, extensions and conversions may, in accordance with the
provisions hereof, be combined at the end of existing Interest Periods to
constitute a new Eurodollar Loan with a single Interest Period). Amounts repaid
on the Term Loan may not be reborrowed.
(b) Borrowing Procedures. The Borrower shall submit an appropriate Notice
of Borrowing to the Agent not later than 11:00 A.M. (Charlotte, North Carolina
time) on the Closing Date, with respect to the portion of the Term Loan
initially consisting of a Base Rate Loan, or on the third Business Day prior to
the Closing Date, with respect to the portion of the Term Loan initially
consisting of one or more Eurodollar Loans, which Notice of Borrowing shall be
irrevocable and shall specify (i) that the funding of a Term Loan is requested
and (ii) whether the funding of the Term Loan shall be comprised of Base Rate
Loans, Eurodollar Loans or a combination thereof, and if Eurodollar Loans are
requested, the Interest Period(s) therefor. If the Borrower shall fail to
deliver such Notice of Borrowing to the Agent by 11:00 A.M. (Charlotte, North
Carolina time) on the third Business Day prior to the Closing Date, then the
full amount of the Term Loan shall be disbursed on the Closing Date as a Base
Rate Loan. Each Lender shall make its Term Loan Commitment Percentage of the
Term Loan available to the Agent for the account of the Borrower at the office
of the Agent specified in Schedule 2.1(a), or at such other office as the Agent
may designate in writing, by 1:00 P.M. (Charlotte, North Carolina time) on the
Closing Date in Dollars and in funds immediately available to the Agent.
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(c) Minimum Amounts. Each Eurodollar Loan or Base Rate Loan that is
part of the Term Loan shall be in an aggregate principal amount that is not
less than $1,000,000 and integral multiples of $500,000 (or the then
remaining principal balance of the Term Loan, if less).
(d) Repayment of Term Loan. The principal amount of the Term Loan
shall be due and payable in full on the Maturity Date, unless accelerated
sooner pursuant to Section 9.2.
(e) Interest. Subject to the provisions of Section 3.1, the Term Loan
shall bear interest at a per annum rate equal to:
(i) Base Rate Loans. During such periods as the Term Loan shall
be comprised in whole or in part of Base Rate Loans, such Base Rate
Loans shall bear interest at a per annum rate equal to the Adjusted
Base Rate.
(ii) Eurodollar Loans. During such periods as the Term Loan shall
be comprised in whole or in part of Eurodollar Loans, such Eurodollar
Loans shall bear interest at a per annum rate equal to the Adjusted
Eurodollar Rate.
Interest on the Term Loan shall be payable in arrears on each applicable
Interest Payment Date (or at such other times as may be specified herein).
(f) Term Notes. The portion of the Term Loan made by each Lender shall
be evidenced by a duly executed promissory note of the Borrower to such
Lender in an original principal amount equal to such Lender's Term Loan
Commitment Percentage of the Term Loan and substantially in the form of
Exhibit 2.3(f).
(g) Syndication Period. Notwithstanding any provision herein to the
contrary, until the earlier of (i) ninety (90) days following the Closing
Date and (ii) the closing of the primary syndication of the Loans, the
Borrower shall only be permitted to make Term Loans which are Base Rate
Loans or Eurodollar Loans having an Interest Period of thirty (30) days.
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
3.1 Default Rate.
Upon the occurrence, and during the continuance, of an Event of Default,
the principal of and, to the extent permitted by law, interest on the Loans and
any other amounts owing hereunder or under the other Credit Documents shall bear
interest, payable on demand, at a per annum rate 2% greater
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than the rate which would otherwise be applicable (or if no rate is applicable,
whether in respect of interest, fees or other amounts, then the Adjusted Base
Rate plus 2%).
3.2 Extension and Conversion.
The Borrower shall have the option, on any Business Day, to extend existing
Loans into a subsequent permissible Interest Period or to convert Loans into
Loans of another interest rate type; provided, however, that (i) except as
provided in Section 3.8, Eurodollar Loans may be converted into Base Rate Loans
or extended as Eurodollar Loans for new Interest Periods only on the last day of
the Interest Period applicable thereto, (ii) without the consent of the Required
Lenders, Eurodollar Loans may be extended, and Base Rate Loans may be converted
into Eurodollar Loans, only if the conditions precedent set forth in Section 5.2
are satisfied on the date of extension or conversion, (iii) Loans extended as,
or converted into, Eurodollar Loans shall be subject to the terms of the
definition of "Interest Period" set forth in Section 1.1 and shall be in such
minimum amounts as provided in, with respect to Revolving Loans, Section
2.1(b)(ii) or, with respect to the Term Loan, Section 2.3(c), (iv) no more than
ten (10) Eurodollar Loans shall be outstanding hereunder at any time, of which
no more than seven (7) of such Eurodollar Loans shall be Revolving Loans and no
more than (3) of such Eurodollar Loans shall be Term Loans (it being understood
that, for purposes hereof, Eurodollar Loans with different Interest Periods
shall be considered as separate Eurodollar Loans, even if they begin on the same
date, although borrowings, extensions and conversions may, in accordance with
the provisions hereof, be combined at the end of existing Interest Periods to
constitute a new Eurodollar Loan with a single Interest Period) and (v) any
request for extension or conversion of a Eurodollar Loan which shall fail to
specify an Interest Period shall be deemed to be a request for an Interest
Period of one month. Each such extension or conversion shall be effected by the
Borrower by giving a Notice of Extension/Conversion (or telephonic notice
promptly confirmed in writing) to the office of the Agent specified in Schedule
2.1(a), or at such other office as the Agent may designate in writing, prior to
12:00 A.M. (Charlotte, North Carolina time) on the Business Day of, in the case
of the conversion of a Eurodollar Loan into a Base Rate Loan, and on the third
Business Day prior to, in the case of the extension of a Eurodollar Loan as, or
conversion of a Base Rate Loan into, a Eurodollar Loan, the date of the proposed
extension or conversion, specifying the date of the proposed extension or
conversion, the Loans to be so extended or converted, the types of Loans into
which such Loans are to be converted and, if appropriate, the applicable
Interest Periods with respect thereto. Each request for extension or conversion
shall be irrevocable and shall constitute a representation and warranty by the
Borrower of the matters specified in subsections (b), (c), (d), (e) and (f) of
Section 5.2. In the event the Borrower fails to request extension or conversion
of any Eurodollar Loan in accordance with this Section, or any such conversion
or extension is not permitted or required by this Section, then such Eurodollar
Loan shall be automatically converted into a Base Rate Loan at the end of the
Interest Period applicable thereto. The Agent shall give each Lender notice as
promptly as practicable of any such proposed extension or conversion affecting
any Loan.
3.3 Prepayments.
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(a) Voluntary Prepayments. The Borrower shall have the right to prepay
Loans in whole or in part from time to time; provided, however, that each
partial prepayment of Loans shall be in a minimum principal amount of
$5,000,000 and integral multiples of $1,000,000. Subject to the foregoing
terms, amounts prepaid under this Section 3.3(a) shall be applied as the
Borrower may elect; provided that if the Borrower fails to specify a
voluntary prepayment then such prepayment shall be applied first to
Revolving Loans and then to the Term Loan, in each case first to Base Rate
Loans and then to Eurodollar Loans in direct order of Interest Period
maturities. All prepayments under this Section 3.3(a) shall be subject to
Section 3.12, but otherwise without premium or penalty.
(b) Mandatory Prepayments.
(i) Revolving Committed Amount. If at any time (A) the amount of
the Revolving Obligations then outstanding shall exceed the lesser of
(x) the Revolving Committed Amount and (y) the Borrowing Base less the
outstanding Term Loan or (B) the aggregate amount of LOC Obligations
outstanding shall exceed the LOC Committed Amount, the Borrower shall
immediately make payment on the Loans and/or to a cash collateral
account in respect of the LOC Obligations, in an amount sufficient to
eliminate the deficiency.
(ii) Asset Disposition. At such time as the Borrower or any of
its Subsidiaries consummates an Asset Disposition, the Borrower shall
immediately notify the Agent of (a) the consummation of such Asset
Disposition and (b) the amount of Net Cash Proceeds received by the
Borrower or Subsidiary in connection with such Asset Disposition. The
Credit Parties hereby agree that the Borrower shall forward 100% of
the Net Cash Proceeds of such Asset Disposition to the Lenders as a
prepayment of the Loans (to be applied as set forth in Section
3.3(b)(iv) below).
(iii) Casualty and Condemnation Proceeds. At such time as the
Borrower or any of its Subsidiaries shall be required to pay cash
proceeds to the Agent from any insurance policy or from any
condemnation or taking pursuant to Section 7.6 hereof, the Borrower
shall immediately notify the Agent thereof and shall forward 100% of
the cash proceeds to the Agent as required by Section 7.6. If the
Agent elects to apply such proceeds to the prepayment of the Loans
pursuant to Section 7.6, such prepayment shall be applied as set forth
in Section 3.3(b)(iv) below.
(iv) Term Loan. If at any time after the Revolving Commitments
have been terminated in full and permanently reduced to zero the
amount of the Term Loans outstanding shall exceed the Borrowing Base,
the Borrower shall immediately make payment on the Term Loans in an
amount sufficient to eliminate the deficiency.
(v) Application of Mandatory Prepayments. All amounts required to
be paid pursuant to Section 3.3(b)(i) shall be applied first to
Revolving Loans and
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then to a cash collateral account to secure LOC Obligations. All
amounts required to be prepaid pursuant to Sections 3.3(b)(ii) and
(iii) above shall be applied pro rata to (1) Revolving Loans and
(after all Revolving Loans have been repaid) to a cash collateral
account in respect of LOC Obligations and (2) the Term Loan. One or
more holders of the Term Loan may decline to accept a mandatory
prepayment under Sections 3.3(b)(ii) or (iii) to the extent there are
sufficient amounts outstanding under the Term Loan to be prepaid with
such prepayment, in which case such declined prepayments shall be
allocated pro rata among the Term Loan and Revolving Loans held by
Lenders accepting such prepayments. All amounts required to be paid
pursuant to Section 3.3(b)(iv) above shall be applied to the Term
Loan. Within the parameters of the applications set forth above,
prepayments shall be applied first to Base Rate Loans and then to
Eurodollar Loans in direct order of Interest Period maturities. All
prepayments under this Section 3.3(b) shall be subject to Section
3.12.
3.4 Termination, Reduction and Increase of Revolving Committed Amount.
(a) Termination and Reduction of Revolving Loan Commitments. The
Borrower may from time to time permanently reduce or terminate the
Revolving Committed Amount in whole or in part (in minimum aggregate
amounts of $5,000,000 or in integral multiples of $1,000,000 in excess
thereof (or, if less, the full remaining amount of the then applicable
Revolving Committed Amount)) upon five Business Days' prior written notice
to the Agent; provided, that, no such termination or reduction shall be
made which would cause the amount of the Revolving Obligations outstanding
to exceed the lesser of (A) the Revolving Committed Amount and (B) the
Borrowing Base less the outstanding Term Loan, unless, concurrently with
such termination or reduction, the Loans are repaid to the extent necessary
to eliminate such excess. The Agent shall promptly notify each affected
Lender of receipt by the Agent of any notice from the Borrower pursuant to
this Section 3.4.
(b) Increase in Revolving Loan Commitments. The Borrower shall have
the right upon at least fifteen (15) Business Days' prior written notice to
the Agent to increase the Revolving Committed Amount by up to $50,000,000,
in a single increase, at any time on or after the Closing Date, subject,
however, in any such case, to satisfaction of the following conditions
precedent:
(i) no Default or Event of Default has occurred and is continuing
on the date on which such Revolving Committed Amount increase is to
become effective;
(ii) the representations and warranties set forth in Section 6 of
this Credit Agreement shall be true and correct in all material
respects on and as of the date on which such Revolving Committed
Amount increase is to become effective;
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(iii) on or before the date on which such Revolving Committed Amount
increase is to become effective, the Agent shall have received, for its own
account, the mutually acceptable fees and expenses required by separate
agreement of the Borrower and the Agent to be paid in connection with such
increase;
(iv) such Revolving Committed Amount increase shall be an integral
multiple of $5,000,000 and shall in no event be less than $5,000,000; and
(v) such requested Revolving Commitment increase shall be effective
on such date only to the extent that, on or before such date, (A) the Agent
shall have received and accepted a corresponding amount of Additional
Commitment(s) pursuant to a commitment letter(s) acceptable to the Agent
from one or more Lenders acceptable to the Agent and, with respect to any
Lender that is not at such time a Lender hereunder, to the Borrower and (B)
each such Lender has executed an agreement in the form of Exhibit 3.4(b)
hereto (each such agreement a "New Commitment Agreement"), accepted in
writing therein by the Agent and, with respect to any Lender that is not at
such time a Lender hereunder, by the Borrower, with respect to the
Additional Commitment of such Lender.
3.5 Fees.
(a) Unused Line Fee. In consideration of the Revolving Commitments of the
Lenders hereunder, the Borrower agrees to pay to the Agent for the account of
each Lender a fee (the "Unused Line Fee") computed at a per annum rate equal to
the Applicable Percentage for Unused Line Fee then in effect on the Unused
Revolving Committed Amount for each day during the applicable Unused Line Fee
Calculation Period (hereinafter defined). The Unused Line Fee shall commence to
accrue on the Closing Date and shall be due and payable in arrears on the last
business day of each March, June, September and December (and any date that the
Revolving Committed Amount is reduced as provided in Section 3.4 and the
Maturity Date) for the immediately preceding quarter (or portion thereof) (each
such quarter or portion thereof for which the Unused Line Fee is payable
hereunder being herein referred to as an "Unused Line Fee Calculation Period"),
beginning with the first of such dates to occur after the Closing Date.
(b) Letter of Credit Fees.
(i) Letter of Credit Issuance Fee. In consideration of the issuance
of standby Letters of Credit hereunder, the Borrower promises to pay to the
Agent for the account of each Lender a fee (the "Standby Letter of Credit
Fee") on such Lender's Revolving Commitment Percentage of the average daily
maximum amount available to be drawn under each such standby Letter of
Credit computed at a per annum rate for each day from the date of issuance
to the date of expiration equal to the Applicable Percentage for Revolving
Loans which are Eurodollar Loans then in
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effect. The Standby Letter of Credit Fee will be payable monthly in arrears
on the last Business Day of each calendar month for the immediately
preceding calendar month (or a portion thereof).
(ii) Trade Letter of Credit Fee. In consideration of the issuance of
trade Letters of Credit hereunder, the Borrower promises to pay to the
Agent for the account of each Lender a fee (the "Trade Letter of Credit
Fee") on such Lender's Revolving Commitment Percentage of the amount of
each drawing under any such trade Letter of Credit equal to three-eighths
percent (3/8%). The Trade Letter of Credit Fee will be payable on each date
of drawing under a trade Letter of Credit.
(iii) Issuing Lender Fees. In addition to the Standby Letter of
Credit Fee payable pursuant to clause (i) above and the Trade Letter of
Credit Fee payable pursuant to clause (ii) above, the Borrower promises to
pay to the Issuing Lender for its own account without sharing by the other
Lenders (A) a letter of credit fronting fee of one-quarter percent (1/4%)
per annum on the average daily maximum amount available to be drawn under
outstanding Letters of Credit payable monthly in arrears with the Standby
Letter of Credit Fee and the Trade Letter of Credit Fee, and (B) customary
charges from time to time of the Issuing Lender with respect to the
issuance, amendment, transfer, administration, cancellation and conversion
of, and drawings under, such Letters of Credit (collectively, the "Issuing
Lender Fees").
(c) Administrative Fees. The Borrower agrees to pay to the Agent, for its
own account and First Union Capital Markets, as applicable, the fees referred to
in the Agent's Fee Letters (collectively, the "Agent's Fees").
3.6 Capital Adequacy.
If any Lender has determined in good faith, after the date hereof, that the
adoption or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or administration
of, any applicable law, rule or regulation regarding capital adequacy, or
compliance by such Lender with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on such Lender's capital or assets as a consequence of its commitments or
obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration such Lender's policies with respect to capital adequacy), then,
upon notice from such Lender to the Borrower, the Borrower shall be obligated to
pay to such Lender such additional amount or amounts as will compensate such
Lender for such reduction. Each determination by any such Lender of amounts
owing under this Section shall, absent manifest error, be conclusive and binding
on the parties hereto.
3.7 Limitation on Eurodollar Loans.
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If on or prior to the first day of any Interest Period for any Eurodollar
Loan:
(a) the Agent determines (which determination shall be conclusive)
that by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period; or
(b) the Required Lenders determine (which determination shall be
conclusive) and notify the Agent that the Eurodollar Rate will not
adequately and fairly reflect the cost to the Lenders of funding Eurodollar
Loans for such Interest Period;
then the Agent shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make additional Eurodollar Loans, continue Eurodollar Loans, or to convert Base
Rate Loans into Eurodollar Loans and the Borrower shall, on the last day(s) of
the then current Interest Period(s) for the outstanding Eurodollar Loans, either
prepay such Eurodollar Loans or convert such Eurodollar Loans into Base Rate
Loans in accordance with the terms of this Credit Agreement.
3.8 Illegality.
Notwithstanding any other provision herein, if the adoption of or any
change in any Requirement of Law or in the interpretation or application thereof
occurring after the Closing Date shall make it unlawful for any Lender to make
or maintain Eurodollar Loans as contemplated by this Credit Agreement, (a) such
Lender shall promptly give written notice of such circumstances to the Borrower
and the Agent (which notice shall be withdrawn whenever such circumstances no
longer exist), (b) the commitment of such Lender hereunder to make Eurodollar
Loans, continue Eurodollar Loans as such and convert a Base Rate Loan to
Eurodollar Loans, shall forthwith be canceled and, until such time as it shall
no longer be unlawful for such Lender to make or maintain Eurodollar Loans, such
Lender shall then have a commitment only to make a Base Rate Loan when a
Eurodollar Loan is requested and (c) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on
the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to Section 3.13.
3.9 Requirements of Law.
If, after the date hereof, the adoption of any applicable law, rule, or
regulation, or any change in any applicable law, rule, or regulation, or any
change in the interpretation or administration thereof by any Governmental
Authority, central bank, or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or its Applicable Lending
Office) with any
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request or directive (whether or not having the force of law) of any such
Governmental Authority, central bank, or comparable agency:
(i) shall subject such Lender (or its Applicable Lending Office) to
any tax, duty, or other charge with respect to any Eurodollar Loans, its
Notes, or its obligation to make Eurodollar Loans, or change the basis of
taxation of any amounts payable to such Lender (or its Applicable Lending
Office) under this Credit Agreement or its Notes in respect of any
Eurodollar Loans (other than taxes imposed on the overall net income of
such Lender by the jurisdiction in which such Lender has its principal
office or such Applicable Lending Office);
(ii) shall impose, modify, or deem applicable any reserve, special
deposit, assessment, or similar requirement (other than the Eurodollar
Reserve Requirement utilized in the determination of the Adjusted
Eurodollar Rate) relating to any extensions of credit or other assets of,
or any deposits with or other liabilities or commitments of, such Lender
(or its Applicable Lending Office), including the Commitment of such Lender
hereunder; or
(iii) shall impose on such Lender (or its Applicable Lending Office)
or the London interbank market any other condition affecting this Credit
Agreement or its Notes or any of such extensions of credit or liabilities
or commitments;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making, converting into, continuing, or
maintaining any Eurodollar Loans or to reduce any sum received or receivable by
such Lender (or its Applicable Lending Office) under this Credit Agreement or
its Notes with respect to any Eurodollar Loans, then the Borrower shall pay to
such Lender on demand such amount or amounts as will compensate such Lender for
such increased cost or reduction. If any Lender requests compensation by the
Borrower under this Section 3.9, the Borrower may, by notice to such Lender
(with a copy to the Agent), suspend the obligation of such Lender to make or
continue Eurodollar Loans, or to convert Base Rate Loans into Eurodollar Loans,
until the event or condition giving rise to such request ceases to be in effect
(in which case the provisions of Section 3.10 shall be applicable); provided
that such suspension shall not affect the right of such Lender to receive the
compensation so requested. Each Lender shall promptly notify the Borrower and
the Agent of any event of which it has knowledge, occurring after the date
hereof, which will entitle such Lender to compensation pursuant to this Section
3.9 and will designate a different Applicable Lending Office if such designation
will avoid the need for, or reduce the amount of, such compensation and will
not, in the judgment of such Lender, be otherwise disadvantageous to it. Any
Lender claiming compensation under this Section 3.9 shall furnish to the
Borrower and the Agent a statement setting forth the additional amount or
amounts to be paid to it hereunder which shall be conclusive in the absence of
manifest error. In determining such amount, such Lender may use any reasonable
averaging and attribution methods.
3.10 Treatment of Affected Loans.
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If the obligation of any Lender to make any Eurodollar Loan or to continue,
or to convert Base Rate Loans into, Eurodollar Loans shall be suspended pursuant
to Section 3.8 or 3.9 hereof, such Lender's Eurodollar Loans shall be
automatically converted into Base Rate Loans on the last day(s) of the then
current Interest Period(s) for such Eurodollar Loans (or, in the case of a
conversion required by Section 3.8 hereof, on such earlier date as such Lender
may specify to the Borrower with a copy to the Agent) and, unless and until such
Lender gives notice as provided below that the circumstances specified in
Section 3.8 or 3.9 hereof that gave rise to such conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have been so
converted, all payments and prepayments of principal that would otherwise
be applied to such Lender's Eurodollar Loans shall be applied instead to
its Base Rate Loans; and
(b) all Loans that would otherwise be made or continued by such
Lender as Eurodollar Loans shall be made or continued instead as Base Rate
Loans, and all Base Rate Loans of such Lender that would otherwise be
converted into Eurodollar Loans shall remain as Base Rate Loans.
If such Lender gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 3.8 or 3.9 hereof that gave rise to the
conversion of such Lender's Eurodollar Loans pursuant to this Section 3.10 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Lenders are
outstanding, such Lender's Base Rate Loans shall be automatically converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto,
all Loans held by the Lenders holding Eurodollar Loans and by such Lender are
held pro rata (as to principal amounts, interest rate basis, and Interest
Periods) in accordance with their respective Commitments.
3.11 Taxes.
(a) Any and all payments by any Credit Party to or for the account of
any Lender or the Agent hereunder or under any other Credit Document shall
be made free and clear of and without deduction for any and all present or
future taxes, duties, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding, in the case of each
Lender and the Agent, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction under the laws of which such Lender (or
its Applicable Lending Office) or the Agent (as the case may be) is
organized or any political subdivision thereof (all such non-excluded
taxes, duties, levies, imposts, deductions, charges, withholdings, and
liabilities being hereinafter referred to as "Taxes"). If any Credit Party
shall be required by law to deduct any Taxes from or in respect of any sum
payable under this Credit Agreement or any other Credit Document to any
Lender or the Agent, (i) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions applicable
to additional sums payable under this Section 3.11) such Lender or the
Agent receives an amount equal to the sum it would have received had no
such deductions been
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made, (ii) such Credit Party shall make such deductions, (iii) such Credit
Party shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law, and (iv) such Credit
Party shall furnish to the Agent, at its address referred to in Section
11.1, the original or a certified copy of a receipt evidencing payment
thereof.
(b) In addition, the Borrower agrees to pay any and all present or
future stamp or documentary taxes and any other excise or property taxes or
charges or similar levies which arise from any payment made under this
Credit Agreement or any other Credit Document or from the execution or
delivery of, or otherwise with respect to, this Credit Agreement or any
other Credit Document (hereinafter referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Lender and the Agent for
the full amount of Taxes and Other Taxes (including, without limitation,
any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts
payable under this Section 3.11) paid by such Lender or the Agent (as the
case may be) and any liability (including penalties, interest, and
expenses) arising therefrom or with respect thereto.
(d) Each Lender that is not a United States person under Section
7701(a)(30) of the Code, on or prior to the date of its execution and
delivery of this Credit Agreement in the case of each Lender listed on the
signature pages hereof and on or prior to the date on which it becomes a
Lender in the case of each other Lender, and from time to time thereafter
if requested in writing by the Borrower or the Agent (but only so long as
such Lender remains lawfully able to do so), shall provide the Borrower and
the Agent with (i) Internal Revenue Service Form 1001 or 4224, as
appropriate, or any successor form prescribed by the Internal Revenue
Service, certifying that such Lender is entitled to benefits under an
income tax treaty to which the United States is a party which reduces the
rate of withholding tax on payments of interest or certifying that the
income receivable pursuant to this Credit Agreement is effectively
connected with the conduct of a trade or business in the United States,
(ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any
successor form prescribed by the Internal Revenue Service, and (iii) any
other form or certificate required by any taxing authority (including any
certificate required by Sections 871(h) and 881(c) of the Internal Revenue
Code), certifying that such Lender is entitled to an exemption from or a
reduced rate of tax on payments pursuant to this Credit Agreement or any of
the other Credit Documents.
(e) For any period with respect to which a Lender has failed to
provide the Borrower and the Agent with the appropriate form pursuant to
Section 3.11(d) (unless such failure is due to a change in treaty, law, or
regulation occurring subsequent to the date on which a form originally was
required to be provided), such Lender shall not be entitled to
indemnification under Section 3.11(a) or 3.11(b) with respect to Taxes
imposed by the United States; provided, however, that should a Lender,
which is otherwise exempt from or subject to a reduced rate of withholding
tax, become subject to Taxes because of
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its failure to deliver a form required hereunder, the Borrower shall take
such steps as such Lender shall reasonably request to assist such Lender to
recover such Taxes.
(f) If any Credit Party is required to pay additional amounts to or
for the account of any Lender pursuant to this Section 3.11, then such
Lender will agree to use reasonable efforts to change the jurisdiction of
its Applicable Lending Office so as to eliminate or reduce any such
additional payment which may thereafter accrue if such change, in the
judgment of such Lender, is not otherwise disadvantageous to such Lender.
(g) Within thirty (30) days after the date of any payment of Taxes,
the applicable Credit Party shall furnish to the Agent the original or a
certified copy of a receipt evidencing such payment.
(h) Without prejudice to the survival of any other agreement of the
Credit Parties hereunder, the agreements and obligations of the Credit
Parties contained in this Section 3.11 shall survive the repayment of the
Loans, LOC Obligations and other obligations under the Credit Documents and
the termination of the Commitments hereunder.
3.12 Compensation.
Upon the request of any Lender, the Borrower shall pay to such Lender such
amount or amounts as shall be sufficient (in the reasonable opinion of such
Lender) to compensate it for any loss, cost, or expense (including loss of
anticipated profits) incurred by it as a result of:
(a) any payment, prepayment, or conversion of a Eurodollar Loan for
any reason (including, without limitation, the acceleration of the Loans
pursuant to Section 9.2) on a date other than the last day of the Interest
Period for such Loan; or
(b) any failure by the Borrower for any reason (including, without
limitation, the failure of any condition precedent specified in Section 5
to be satisfied) to borrow, convert, continue, or prepay a Eurodollar Loan
on the date for such borrowing, conversion, continuation, or prepayment
specified in the relevant notice of borrowing, prepayment, continuation, or
conversion under this Credit Agreement.
With respect to Eurodollar Loans, such indemnification may include an amount
equal to the excess, if any, of (a) the amount of interest which would have
accrued on the amount so prepaid, or not so borrowed, converted or continued,
for the period from the date of such prepayment or of such failure to borrow,
convert or continue to the last day of the applicable Interest Period (or, in
the case of a failure to borrow, convert or continue, the Interest Period that
would have commenced on the date of such failure) in each case at the applicable
rate of interest for such Eurodollar Loans provided for herein (excluding,
however, the Applicable Percentage included therein, if any) over (b) the amount
of interest (as reasonably determined by such Lender) which would have accrued
to such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the
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interbank Eurodollar market. The covenants of the Borrower set forth in this
Section 3.12 shall survive the repayment of the Loans, LOC Obligations and other
obligations under the Credit Documents and the termination of the Commitments
hereunder.
3.13 Pro Rata Treatment.
Except to the extent otherwise provided herein:
(a) Loans. Each Loan, each payment or (subject to the terms of
Section 3.3) prepayment of principal of any Loan or reimbursement
obligations arising from drawings under Letters of Credit, each payment of
interest on the Loans or reimbursement obligations arising from drawings
under Letters of Credit, each payment of Unused Fees, each payment of the
Standby Letter of Credit Fee, each payment of the Trade Letter of Credit
Fee, each reduction in Commitments and each conversion or extension of any
Loan, shall be allocated pro rata among the Lenders in accordance with the
respective principal amounts of their outstanding Loans and Participation
Interests.
(b) Advances. No Lender shall be responsible for the failure or delay
by any other Lender in its obligation to make its ratable share of a
borrowing hereunder; provided, however, that the failure of any Lender to
fulfill its obligations hereunder shall not relieve any other Lender of its
obligations hereunder. Unless the Agent shall have been notified in writing
by any Lender prior to the date of any requested borrowing that such Lender
does not intend to make available to the Agent its ratable share of such
borrowing to be made on such date, the Agent may assume that such Lender
has made such amount available to the Agent on the date of such borrowing,
and the Agent in reliance upon such assumption, may (in its sole discretion
but without any obligation to do so) make available to the Borrower a
corresponding amount. If such corresponding amount is not in fact made
available to the Agent, the Agent shall be able to recover such
corresponding amount from such Lender. If such Lender does not pay such
corresponding amount forthwith upon the Agent's demand therefor, the Agent
will promptly notify the Borrower, and the Borrower shall immediately pay
such corresponding amount to the Agent. The Agent shall also be entitled to
recover from the Lender or the Borrower, as the case may be, interest on
such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Agent to the Borrower to the
date such corresponding amount is recovered by the Agent at a per annum
rate equal to (i) from the Borrower at the applicable rate for the
applicable borrowing pursuant to the Notice of Borrowing and (ii) from a
Lender at the Federal Funds Rate.
3.14 Sharing of Payments.
The Lenders agree among themselves that, in the event that any Lender shall
obtain payment in respect of any Loan, LOC Obligations or any other obligation
owing to such Lender under this Credit Agreement through the exercise of a right
of setoff, banker's lien or counterclaim, or pursuant to a secured claim under
Section 506 of Title 11 of the United States Code or other security or interest
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arising from, or in lieu of, such secured claim, received by such Lender under
any applicable bankruptcy, insolvency or other similar law or otherwise, or by
any other means, in excess of its pro rata share of such payment as provided for
in this Credit Agreement, such Lender shall promptly purchase from the other
Lenders a Participation Interest in such Loans, LOC Obligations and other
obligations in such amounts, and make such other adjustments from time to time,
as shall be equitable to the end that all Lenders share such payment in
accordance with their respective ratable shares as provided for in this Credit
Agreement. The Lenders further agree among themselves that if payment to a
Lender obtained by such Lender through the exercise of a right of setoff,
banker's lien, counterclaim or other event as aforesaid shall be rescinded or
must otherwise be restored, each Lender which shall have shared the benefit of
such payment shall, by repurchase of a Participation Interest theretofore sold,
return its share of that benefit (together with its share of any accrued
interest payable with respect thereto) to each Lender whose payment shall have
been rescinded or otherwise restored. The Borrower agrees that any Lender so
purchasing such a Participation Interest may, to the fullest extent permitted by
law, exercise all rights of payment, including setoff, banker's lien or
counterclaim, with respect to such Participation Interest as fully as if such
Lender were a holder of such Loan, LOC Obligations or other obligation in the
amount of such Participation Interest. Except as otherwise expressly provided in
this Credit Agreement, if any Lender or the Agent shall fail to remit to the
Agent or any other Lender an amount payable by such Lender or the Agent to the
Agent or such other Lender pursuant to this Credit Agreement on the date when
such amount is due, such payments shall be made together with interest thereon
for each date from the date such amount is due until the date such amount is
paid to the Agent or such other Lender at a rate per annum equal to the Federal
Funds Rate. If under any applicable bankruptcy, insolvency or other similar law,
any Lender receives a secured claim in lieu of a setoff to which this Section
3.14 applies, such Lender shall, to the extent practicable, exercise its rights
in respect of such secured claim in a manner consistent with the rights of the
Lenders under this Section 3.14 to share in the benefits of any recovery on such
secured claim.
3.15 Payments, Computations, Etc.
(a) Except as otherwise specifically provided herein, all payments
hereunder shall be made to the Agent in dollars in immediately available
funds, without setoff, deduction, counterclaim or withholding of any kind,
at the Agent's office specified in Schedule 2.1(a) not later than 2:00 P.M.
(Charlotte, North Carolina time) on the date when due. Payments received
after such time shall be deemed to have been received on the next
succeeding Business Day. The Agent may (but shall not be obligated to)
debit the amount of any such payment which is not made by such time to any
ordinary deposit account of the Borrower or any other Credit Party
maintained with the Agent (with notice to the Borrower or such other Credit
Party). The Borrower shall, at the time it makes any payment under this
Credit Agreement, specify to the Agent the Loans, LOC Obligations, Fees,
interest or other amounts payable by the Borrower hereunder to which such
payment is to be applied (and in the event that it fails so to specify, or
if such application would be inconsistent with the terms hereof, the Agent
shall distribute such payment to the Lenders in such manner as the Agent
may determine to be appropriate in respect of obligations owing by the
Borrower hereunder, subject to the terms of Section 3.13(a)). The Agent
will distribute such payments to such Lenders,
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if any such payment is received prior to 12:00 Noon (Charlotte, North
Carolina time) on a Business Day in like funds as received prior to the end
of such Business Day and otherwise the Agent will distribute such payment
to such Lenders on the next succeeding Business Day. Whenever any payment
hereunder shall be stated to be due on a day which is not a Business Day,
the due date thereof shall be extended to the next succeeding Business Day
(subject to accrual of interest and Fees for the period of such extension),
except that in the case of Eurodollar Loans, if the extension would cause
the payment to be made in the next following calendar month, then such
payment shall instead be made on the next preceding Business Day. Except as
expressly provided otherwise herein, all computations of interest and fees
shall be made on the basis of actual number of days elapsed over a year of
360 days, except with respect to computation of interest on Base Rate Loans
which (unless the Base Rate is determined by reference to the Federal Funds
Rate) shall be calculated based on a year of 365 or 366 days, as
appropriate. Interest shall accrue from and include the date of borrowing,
but exclude the date of payment.
(b) Allocation of Payments After Event of Default. Notwithstanding
any other provisions of this Credit Agreement to the contrary, after the
occurrence and during the continuance of an Event of Default, all amounts
collected or received by the Agent or any Lender on account of the Credit
Party Obligations or any other amounts outstanding under any of the Credit
Documents or in respect of the Collateral shall be paid over or delivered
as follows:
FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation reasonable attorneys' fees) of the
Agent in connection with enforcing the rights of the Lenders under the
Credit Documents and any protective advances made by the Agent with respect
to the Collateral under or pursuant to the terms of the Collateral
Documents;
SECOND, to payment of any fees owed to the Agent;
THIRD, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation, reasonable attorneys' fees) of each
of the Lenders in connection with enforcing its rights under the Credit
Documents or otherwise with respect to the Credit Party Obligations owing
to such Lender;
FOURTH, to the payment of all of the Credit Party Obligations
consisting of accrued fees and interest;
FIFTH, to the payment of the outstanding principal amount of the
Credit Party Obligations (including the payment or cash collateralization
of the outstanding LOC Obligations);
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SIXTH, to all other Credit Party Obligations and other obligations
which shall have become due and payable under the Credit Documents or
otherwise and not repaid pursuant to clauses "FIRST" through "FIFTH" above;
and
SEVENTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (ii) each of the Lenders shall receive an amount equal
to its pro rata share (based on the proportion that the then outstanding
Loans and LOC Obligations held by such Lender bears to the aggregate then
outstanding Loans and LOC Obligations) of amounts available to be applied
pursuant to clauses "THIRD", "FOURTH", "FIFTH" and "SIXTH" above; and (iii)
to the extent that any amounts available for distribution pursuant to
clause "FIFTH" above are attributable to the issued but undrawn amount of
outstanding Letters of Credit, such amounts shall be held by the Agent in a
cash collateral account and applied (A) first, to reimburse the Issuing
Lender from time to time for any drawings under such Letters of Credit and
(B) then, following the expiration of all Letters of Credit, to all other
obligations of the types described in clauses "FIFTH" and "SIXTH" above in
the manner provided in this Section 3.15(b).
3.16 Evidence of Debt.
(a) Each Lender shall maintain an account or accounts evidencing each
Loan made by such Lender to the Borrower from time to time, including the
amounts of principal and interest payable and paid to such Lender from time
to time under this Credit Agreement. Each Lender will make reasonable
efforts to maintain the accuracy of its account or accounts and to promptly
update its account or accounts from time to time, as necessary.
(b) The Agent shall maintain the Register pursuant to Section
11.3(c), and a subaccount for each Lender, in which Register and
subaccounts (taken together) shall be recorded (i) the amount, type and
Interest Period of each such Loan hereunder, (ii) the amount of any
principal or interest due and payable or to become due and payable to each
Lender hereunder and (iii) the amount of any sum received by the Agent
hereunder from or for the account of any Credit Party and each Lender's
share thereof. The Agent will make reasonable efforts to maintain the
accuracy of the subaccounts referred to in the preceding sentence and to
promptly update such subaccounts from time to time, as necessary.
(c) The entries made in the accounts, Register and subaccounts
maintained pursuant to subsection (b) of this Section 3.16 (and, if
consistent with the entries of the Agent, subsection (a)) shall be prima
facie evidence of the existence and amounts of the obligations of the
Credit Parties therein recorded; provided, however, that the failure of any
Lender or the Agent to maintain any such account, such Register or such
subaccount, as applicable, or
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any error therein, shall not in any manner affect the obligation of the Credit
Parties to repay the Credit Party obligations owing to such Lender.
SECTION 4
GUARANTY
4.1 The Guaranty.
Each of the Guarantors hereby jointly and severally guarantees to each
Lender, each Affiliate of a Lender that enters into a Hedging Agreement, and the
Agent as hereinafter provided, as primary obligor and not as surety, the prompt
payment of the Credit Party Obligations in full when due (whether at stated
maturity, as a mandatory prepayment, by acceleration, as a mandatory cash
collateralization or otherwise) strictly in accordance with the terms thereof.
The Guarantors hereby further agree that if any of the Credit Party Obligations
are not paid in full when due (whether at stated maturity, as a mandatory
prepayment, by acceleration, as a mandatory cash collateralization or
otherwise), the Guarantors will, jointly and severally, promptly pay the same,
without any demand or notice whatsoever, and that in the case of any extension
of time of payment or renewal of any of the Credit Party Obligations, the same
will be promptly paid in full when due (whether at extended maturity, as a
mandatory prepayment, by acceleration, as a mandatory cash collateralization or
otherwise) in accordance with the terms of such extension or renewal.
Notwithstanding any provision to the contrary contained herein or in any other
of the Credit Documents or Hedging Agreements, the obligations of each Guarantor
hereunder shall be limited to an aggregate amount equal to the largest amount
that would not render its obligations hereunder subject to avoidance under
Section 548 of the Bankruptcy Code or any comparable provisions of any
applicable state law.
4.2 Obligations Unconditional.
The obligations of the Guarantors under Section 4.1 are joint and several,
absolute and unconditional, irrespective of the value, genuineness, validity,
regularity or enforceability of any of the Credit Documents or Hedging
Agreements, or any other agreement or instrument referred to therein, or any
substitution, release, impairment or exchange of any other guarantee of or
security for any of the Credit Party Obligations, and, to the fullest extent
permitted by applicable law, irrespective of any other circumstance whatsoever
which might otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor, it being the intent of this Section 4.2 that the
obligations of the Guarantors hereunder shall be absolute and unconditional
under any and all circumstances. Each Guarantor agrees that such Guarantor
shall have no right of subrogation, indemnity, reimbursement or contribution
against the Borrower or any other Guarantor for amounts paid under this Section
4 until such time as the Lenders (and any Affiliates of Lenders entering into
Hedging Agreements) have been paid in full, all Commitments under this Credit
Agreement have been terminated and no Person
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or Governmental Authority shall have any right to request any return or
reimbursement of funds from the Lenders in connection with monies received under
the Credit Documents or Hedging Agreements. Without limiting the generality of
the foregoing, it is agreed that, to the fullest extent permitted by law, the
occurrence of any one or more of the following shall not alter or impair the
liability of any Guarantor hereunder which shall remain absolute and
unconditional as described above:
(a) at any time or from time to time, without notice to any
Guarantor, the time for any performance of or compliance with any of the
Credit Party Obligations shall be extended, or such performance or
compliance shall be waived;
(b) any of the acts mentioned in any of the provisions of any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be done or omitted;
(c) the maturity of any of the Credit Party Obligations shall be
accelerated, or any of the Credit Party Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be waived or any other guarantee of any of the Credit Party Obligations or
any security therefor shall be released, impaired or exchanged in whole or
in part or otherwise dealt with;
(d) any Lien granted to, or in favor of, the Agent or any Lender or
Lenders as security for any of the Credit Party Obligations shall fail to
attach or be perfected; or
(e) any of the Credit Party Obligations shall be determined to be
void or voidable (including, without limitation, for the benefit of any
creditor of any Guarantor) or shall be subordinated to the claims of any
Person (including, without limitation, any creditor of any Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Agent or any Lender exhaust any right,
power or remedy or proceed against any Person under any of the Credit Documents,
any Hedging Agreement or any other agreement or instrument referred to in the
Credit Documents or Hedging Agreements, or against any other Person under any
other guarantee of, or security for, any of the Credit Party Obligations.
4.3 Reinstatement.
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Credit Party Obligations is
rescinded or must be otherwise restored by any holder of any of the Credit Party
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Agent and each Lender on demand for all reasonable
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costs and expenses (including, without limitation, fees and expenses of counsel)
incurred by the Agent or such Lender in connection with such rescission or
restoration, including any such costs and expenses incurred in defending against
any claim alleging that such payment constituted a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law.
4.4 Certain Additional Waivers.
Each Guarantor agrees that such Guarantor shall have no right of recourse
to security for the Credit Party Obligations, except through the exercise of
rights of subrogation pursuant to Section 4.2 and through the exercise of rights
of contribution pursuant to Section 4.6.
4.5 Remedies.
The Guarantors agree that, to the fullest extent permitted by law, as
between the Guarantors, on the one hand, and the Agent and the Lenders, on the
other hand, the Credit Party Obligations may be declared to be forthwith due and
payable as provided in Section 9.2 (and shall be deemed to have become
automatically due and payable in the circumstances provided in said Section 9.2)
for purposes of Section 4.1 notwithstanding any stay, injunction or other
prohibition preventing such declaration (or preventing the Credit Party
Obligations from becoming automatically due and payable) as against any other
Person and that, in the event of such declaration (or the Credit Party
Obligations being deemed to have become automatically due and payable), the
Credit Party Obligations (whether or not due and payable by any other Person)
shall forthwith become due and payable by the Guarantors for purposes of Section
4.1. The Guarantors acknowledge and agree that their obligations hereunder are
secured in accordance with the terms of the Security Agreement and the other
Collateral Documents and that the Lenders may exercise their remedies thereunder
in accordance with the terms thereof.
4.6 Rights of Contribution.
The Guarantors hereby agree as among themselves that, if any Guarantor
shall make an Excess Payment (as defined below), such Guarantor shall have a
right of contribution from each other Guarantor in an amount equal to such other
Guarantor's Contribution Share (as defined below) of such Excess Payment. The
payment obligations of any Guarantor under this Section 4.6 shall be subordinate
and subject in right of payment to the prior payment in full to the Agent and
the Lenders of the Guaranteed Obligations, and none of the Guarantors shall
exercise any right or remedy under this Section 4.6 against any other Guarantor
until payment and satisfaction in full of all of such Guaranteed Obligations.
For purposes of this Section 4.6, (a) "Guaranteed Obligations" shall mean any
obligations arising under the other provisions of this Section 4; (b) "Excess
Payment" shall mean the amount paid by any Guarantor in excess of its Pro Rata
Share of any Guaranteed Obligations; (c) "Pro Rata Share" shall mean, for any
Guarantor in respect of any payment of Guaranteed Obligations, the ratio
(expressed as a percentage) as of the date of such payment of Guaranteed
Obligations of (i) the amount by which the aggregate present fair salable value
of all of its assets and properties taken as a going concern exceeds the amount
of all debts and liabilities of such Guarantor (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of such
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Guarantor hereunder) to (ii) the amount by which the aggregate present fair
salable value of all assets and other properties of all of the Credit Parties
taken as a going concern exceeds the amount of all of the debts and liabilities
(including contingent, subordinated, unmatured, and unliquidated liabilities,
but excluding the obligations of the Credit Parties hereunder) of the Credit
Parties; provided, however, that, for purposes of calculating the Pro Rata
Shares of the Guarantors in respect of any payment of Guaranteed Obligations,
any Guarantor that became a Guarantor subsequent to the date of any such payment
shall be deemed to have been a Guarantor on the date of such payment and the
financial information for such Guarantor as of the date such Guarantor became a
Guarantor shall be utilized for such Guarantor in connection with such payment;
and (d) "Contribution Share" shall mean, for any Guarantor in respect of any
Excess Payment made by any other Guarantor, the ratio (expressed as a
percentage) as of the date of such Excess Payment of (i) the amount by which the
aggregate present fair salable value of all of its assets and properties exceeds
the amount of all debts and liabilities of such Guarantor (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of such Guarantor hereunder) to (ii) the amount by which the
aggregate present fair salable value of all assets and other properties of the
Credit Parties other than the maker of such Excess Payment exceeds the amount of
all of the debts and liabilities (including contingent, subordinated, unmatured,
and unliquidated liabilities, but excluding the obligations of the Credit
Parties) of the Credit Parties other than the maker of such Excess Payment;
provided, however, that, for purposes of calculating the Contribution Shares of
the Guarantors in respect of any Excess Payment, any Guarantor that became a
Guarantor subsequent to the date of any such Excess Payment shall be deemed to
have been a Guarantor on the date of such Excess Payment and the financial
information for such Guarantor as of the date such Guarantor became a Guarantor
shall be utilized for such Guarantor in connection with such Excess Payment.
This Section 4.6 shall not be deemed to affect any right of subrogation,
indemnity, reimbursement or contribution that any Guarantor may have under
applicable law against the Borrower in respect of any payment of Guaranteed
Obligations.
4.7 Guarantee of Payment; Continuing Guarantee.
The guarantee in this Section 4 is a guaranty of payment and not of
collection, is a continuing guarantee, and shall apply to all Credit Party
Obligations whenever arising.
SECTION 5
CONDITIONS
5.1 Closing Conditions.
The obligation of the Lenders to enter into this Credit Agreement and to
make the initial Loans or the Issuing Lender to issue the initial Letter of
Credit, whichever shall occur first, shall be subject to satisfaction of the
following conditions (in form and substance acceptable to the Lenders):
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(a) Executed Credit Documents. Receipt by the Agent of duly executed
copies of: (i) this Credit Agreement, (ii) the Notes, (iii) the Collateral
Documents and (iv) all other Credit Documents, each in form and substance
reasonably acceptable to the Agent in its sole discretion.
(b) Corporate Documents. Receipt by the Agent of the following:
(i) Charter Documents. Copies of the articles or certificates of
incorporation or other charter documents of each Credit Party certified to
be true and complete as of a recent date by the appropriate Governmental
Authority of the state or other jurisdiction of its incorporation and
certified by a secretary or assistant secretary of such Credit Party to be
true and correct as of the Closing Date.
(ii) Bylaws. A copy of the bylaws of each Credit Party certified by
a secretary or assistant secretary of such Credit Party to be true and
correct as of the Closing Date.
(iii) Resolutions. Copies of resolutions of the Board of Directors of
each Credit Party approving and adopting the Credit Documents to which it
is a party, the transactions contemplated therein and authorizing execution
and delivery thereof, certified by a secretary or assistant secretary of
such Credit Party to be true and correct and in force and effect as of the
Closing Date.
(iv) Good Standing. Copies of certificates of good standing,
existence or its equivalent with respect to each Credit Party certified as
of a recent date by the appropriate Governmental Authorities of the state
or other jurisdiction of incorporation and each other jurisdiction in which
the failure to so qualify and be in good standing could have a Material
Adverse Effect.
(v) Incumbency. An incumbency certificate of each Credit Party
certified by a secretary or assistant secretary to be true and correct as
of the Closing Date.
(c) Financial Statements. Receipt by the Agent of (i) the unaudited
consolidated financial statements of the Borrower and its Subsidiaries
(excluding Falconite), including balance sheets and income and cash flow
statements for the five-month period ended May 31, 1998, in each case prepared
in conformity with GAAP and in form and substance reasonably satisfactory to the
Agent, (ii) the unaudited consolidated financial statements of Falconite and its
Subsidiaries, including balance sheets and income and cash flow statements for
the five-month period ended May 31, 1998, in each case prepared in conformity
with GAAP and in form and substance reasonably satisfactory to the Agent, (iii)
the unaudited combined consolidated financial statements of the Borrower and its
Subsidiaries (including Falconite), including balance sheets and income and cash
flow statements for the five-month period ended May 31, 1998, in each case
prepared in conformity with GAAP and in form and substance
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reasonably satisfactory to the Agent, (iv) satisfactory financial projections
for the Borrower and its Subsidiaries for each twelve-month period through the
twelve-month period occurring five (5) years from the Closing Date and (v) such
other information relating to the Borrower and its Subsidiaries as the Agent may
reasonably require in connection with the structuring and syndication of credit
facilities of the type described herein.
(d) Opinions of Counsel. The Agent shall have received a legal
opinion in form and substance reasonably satisfactory to the Lenders dated as of
the Closing Date from counsel to the Credit Parties.
(e) Personal Property Collateral. The Agent shall have received:
(i) searches of Uniform Commercial Code filings in the jurisdiction
of the chief executive office of each Credit Party and each jurisdiction
where any Collateral is located or where a filing would need to be made in
order to perfect the Agent's security interest in the Collateral, copies of
the financing statements on file in such jurisdictions and evidence that no
Liens exist other than Permitted Liens;
(ii) duly executed UCC financing statements for each appropriate
jurisdiction as is necessary, in the Agent's sole discretion, to perfect
the Agent's security interest in the Collateral;
(iii) searches of ownership of intellectual property in the
appropriate governmental offices and such patent/trademark/copyright
filings as requested by the Agent in order to perfect the Agent's security
interest in the Collateral;
(iv) all stock certificates evidencing the Capital Stock pledged to
the Agent pursuant to the Pledge Agreement, together with duly executed in
blank, undated stock powers attached thereto (unless, with respect to the
pledged Capital Stock of any Foreign Subsidiary, such stock powers are
deemed unnecessary by the Agent in its reasonable discretion under the law
of the jurisdiction of incorporation of such Person); and
(v) duly executed consents as are necessary, in the Agent's
reasonable discretion, to perfect the Agent's security interest in the
Collateral.
(f) Priority of Liens. The Agent shall have received satisfactory evidence
that (i) the Agent, on behalf of the Lenders, holds a perfected, first priority
Lien on all Collateral (provided that the Agent's perfected Lien shall not be
required to be first priority with respect to Collateral subject to a previously
perfected Permitted Lien) and (ii) none of the Collateral is subject to any
other Liens other than Permitted Liens.
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(g) Opening Borrowing Base. Receipt by the Agent of a Borrowing Base
Certificate as of the Closing Date, substantially in the form of Exhibit 7.1(d)
and certified by the chief financial officer of the Borrower to be true and
correct as of the Closing Date.
(h) Evidence of Insurance. Receipt by the Agent of copies of insurance
policies or certificates of insurance of the Consolidated Parties evidencing
liability and casualty insurance meeting the requirements set forth in the
Credit Documents, including, but not limited to, naming the Agent as sole loss
payee on behalf of the Lenders.
(i) Material Adverse Effect. No material adverse change shall have
occurred since December 31, 1997 in the condition (financial or otherwise),
business, assets, operations, management or prospects of the Consolidated
Parties taken as a whole.
(j) Litigation. There shall not exist any pending or threatened action,
suit, investigation or proceeding against a Consolidated Party that could
reasonably be expected to have a Material Adverse Effect.
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(k) Officer's Certificates. The Agent shall have received a certificate
or certificates executed by an Executive Officer of the Borrower as of the
Closing Date certifying that (A) each Credit Party is in compliance with all
existing financial obligations, including, without limitation, the Senior
Subordinated Notes, (B) all governmental, shareholder and third party consents
and approvals, if any, with respect to the Credit Documents and the transactions
contemplated thereby have been obtained, (C) no action, suit, investigation or
proceeding is pending or threatened in any court or before any arbitrator or
governmental instrumentality that purports to affect any Credit Party or any
transaction contemplated by the Credit Documents, if such action, suit,
investigation or proceeding could reasonably be expected to have a Material
Adverse Effect, and (D) immediately after giving effect to this Credit
Agreement, the other Credit Documents and all the transactions contemplated
therein to occur on such date, (1) each of the Credit Parties is Solvent, (2) no
Default or Event of Default exists, (3) all representations and warranties
contained herein and in the other Credit Documents are true and correct in all
material respects, (4) the Credit Parties are in pro forma compliance with each
of the financial covenants set forth in Section 7.11 as of March 31, 1998 (which
certificate shall set forth the calculations therefor in reasonable detail), (5)
Consolidated Funded Indebtedness does not exceed $360 million (of which at least
$98.7 million is comprised of Indebtedness evidenced by the Senior Subordinated
Notes, (6) fees and expenses incurred in connection with the initial public
offering of the common Capital Stock of the Borrower, the acquisition of
Falconite and the consummation of the Credit Documents do not exceed $17 million
and (7) Consolidated EBITDA on a Pro Forma Basis (after giving effect to the
Acquisition of Falconite) for the twelve-month period ended on May 31, 1998 is
at least $80 million.
(l) Corporate Structure. The corporate capital and ownership structure of
the Consolidated Parties (after giving effect to the purchase of Falconite)
shall be as described in Schedule 6.13.
(m) Equity Investment. Receipt by the Agent of evidence that the Borrower
has received gross proceeds of at least $78 million from the issuance of common
Capital Stock of the Borrower pursuant to an initial public offering on terms
that are satisfactory to the Agent.
(n) Government Consent. Receipt by the Agent of evidence that all
governmental, shareholder and material third party consents (including Hart-
Scott-Rodino clearance) and approvals necessary or desirable in connection with
the Acquisition of Falconite and the related financings and other transactions
contemplated hereby and expiration of all applicable waiting periods without any
action being taken by any authority that could restrain, prevent or impose any
material adverse conditions on the Acquisition of Falconite or such other
transactions or that could seek or threaten any of the foregoing, and no law or
regulation shall be applicable which in the judgment of the Agent could have
such effect.
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(o) Falconite Purchase Agreement. The Falconite Purchase Agreement (i)
shall have been consummated in accordance with the terms thereof and in
compliance with applicable law and regulatory approvals, and all conditions
precedent to the obligations of the buyer thereunder shall have been satisfied
and (ii) shall not have been altered, amended or otherwise changed or
supplemented in any material respect or any material condition therein waived,
without the prior written consent of the Agent. The Purchase Price paid for
Falconite shall not exceed $185 million. The Agent shall have received a copy,
certified by an officer of the Borrower as true and complete, of the Falconite
Purchase Agreement as originally executed and delivered, together with all
exhibits and schedules.
(p) Environmental Reports. Receipt by the Agent in form and substance
reasonably satisfactory to it of environmental assessment reports and related
documents of a recent date with respect to all real property owned or leased by
Falconite.
(q) Fees and Expenses. Payment by the Credit Parties of all fees and
expenses owed by them to the Lenders and the Agent, including, without
limitation, payment to the Agent of the fees set forth in the Fee Letter.
(r) Financial Requirements. Receipt by the Agent of satisfactory evidence
that (i) Consolidated Funded Indebtedness does not exceed $360 million (of which
at least $98.7 million is comprised of Indebtedness evidenced by the Senior
Subordinated Notes) and (ii) Consolidated EBITDA on a Pro Forma Basis (after
giving effect to the Acquisition of Falconite) for the twelve-month period ended
on May 31, 1998 is at least $80 million.
(s) Funds Flow Memorandum. Receipt by the Agent of (i) a statement of
sources and uses of funds covering all payments reasonably expected to be made
by the Credit Parties in connection with the transactions contemplated by the
Credit Documents, the consummation of the initial public offering of the common
Capital Stock of the Borrower and the Falconite Purchase Agreement to be
consummated on the Closing Date, including an itemized estimate of all fees,
expenses and other closing costs in an aggregate amount not to exceed $17
million and (ii) payment instructions with respect to each wire transfer to be
made by the Agent, or the Credit Parties on the Closing Date setting forth the
amount of such transfer, the purpose of such transfer, the name and number of
the account to which such transfer is to be made, the name and ABA number of the
bank or other financial institution where such account is located and the name
and telephone number of an individual that can be contacted to confirm receipt
of such transfer.
(t) Account Designation Letter. Receipt by the Agent of an account
designation letter (the "Account Designation Letter") in the form of Exhibit
5.1(t) hereto.
(u) Other. Receipt by the Lenders of such other documents, instruments,
agreements or information as reasonably requested by any Lender, including, but
not limited
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to, information regarding litigation, tax, accounting, labor, insurance,
pension liabilities (actual or contingent), real estate leases, material
contracts, debt agreements, property ownership and contingent liabilities
of the Consolidated Parties.
5.2 Conditions to all Extensions of Credit.
The obligations of each Lender to make, convert or extend any Loan and of
the Issuing Lender to issue or extend any Letter of Credit (including the
initial Loans and the initial Letter of Credit) are subject to satisfaction of
the following conditions in addition to satisfaction on the Closing Date of the
conditions set forth in Section 5.1:
(a) The Borrower shall have delivered (i) in the case of any
Revolving Loan or any portion of the Term Loan, an appropriate Notice of
Borrowing or Notice of Extension/Conversion or (ii) in the case of any
Letter of Credit, the Issuing Lender shall have received an appropriate
request for issuance in accordance with the provisions of Section 2.2(b);
(b) The representations and warranties set forth in Section 6 shall,
subject to the limitations set forth therein, be true and correct in all
material respects as of such date (except for those which expressly relate
to an earlier date);
(c) There shall not have been commenced against any Consolidated Party
an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or any case, proceeding or other
action for the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of such Person or for any
substantial part of its Property or for the winding up or liquidation of
its affairs, and such involuntary case or other case, proceeding or other
action shall remain undismissed, undischarged or unbonded;
(d) No Default or Event of Default shall exist and be continuing
either prior to or after giving effect thereto;
(e) No circumstances, events or conditions shall have occurred since
December 31, 1997 which would have a Material Adverse Effect; and
(f) Immediately after giving effect to the making of such Loan (and
the application of the proceeds thereof) or to the issuance of such
Letter of Credit, as the case may be, (i) the sum of the aggregate
principal amount of outstanding Revolving Loans plus LOC Obligations
outstanding shall not exceed the lesser of (A) the Revolving Committed
Amount and (B) the Borrowing Base less the outstanding Term Loan less LOC
Obligations outstanding and (ii) the LOC Obligations shall not exceed the
LOC Committed Amount.
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The delivery of each Notice of Borrowing, each Notice of Extension/Conversion
and each request for a Letter of Credit pursuant to Section 2.2(b) shall
constitute a representation and warranty by the Credit Parties of the
correctness of the matters specified in subsections (b), (c), (d), (e) and (f)
above.
SECTION 6
REPRESENTATIONS AND WARRANTIES
- ------------------------------
The Credit Parties hereby represent to the Agent and each Lender that:
6.1 Financial Condition.
-------------------
The financial statements delivered to the Lenders pursuant to Section
5.1(c) and Section 7.1(a) and (b) and those set forth in the preliminary
Prospectus for the Borrower's common stock dated July 1, 1998, (i) have been
prepared in accordance with GAAP and (ii) present fairly in all material
respects (on the basis disclosed in the footnotes to such financial statements)
the consolidated and consolidating financial condition, results of operations
and cash flows of the Consolidated Parties as of such date and for such periods.
6.2 No Material Change.
------------------
Since December 31, 1997 (a) there has been no development or event relating
to or affecting a Consolidated Party which has had or could reasonably be
expected to have a Material Adverse Effect and (b) except as otherwise permitted
under this Credit Agreement, no dividends or other distributions have been
declared, paid or made upon the Capital Stock in a Consolidated Party nor has
any of the Capital Stock in a Consolidated Party been redeemed, retired,
purchased or otherwise acquired for value.
6.3 Organization and Good Standing.
------------------------------
Each of the Consolidated Parties (a) is duly organized, validly existing
and is in good standing under the laws of the jurisdiction of its incorporation
or organization, (b) has the corporate or other necessary power and authority,
and the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged
and (c) is duly qualified as a foreign entity and in good standing under the
laws of each jurisdiction where its ownership, lease or operation of property or
the conduct of its business requires such qualification, other than in such
jurisdictions where the failure to be so qualified and in good standing could
reasonably be expected to have a Material Adverse Effect.
6.4 Power; Authorization; Enforceable Obligations.
---------------------------------------------
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Each of the Credit Parties has the corporate or other necessary power and
authority, and the legal right, to make, deliver and perform the Credit
Documents to which it is a party, and in the case of the Borrower, to obtain
extensions of credit hereunder, and has taken all necessary corporate action to
authorize the borrowings and other extensions of credit on the terms and
conditions of this Credit Agreement and to authorize the execution, delivery and
performance of the Credit Documents to which it is a party. No consent or
authorization of, filing with, notice to or other similar act by or in respect
of, any Governmental Authority or any other Person is required to be obtained or
made by or on behalf of any Credit Party in connection with the borrowings or
other extensions of credit hereunder or with the execution, delivery,
performance, validity or enforceability of the Credit Documents to which such
Credit Party is a party, except for filings to perfect the Liens created by the
Collateral Documents and filings required from time to time by the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
This Credit Agreement has been, and each other Credit Document to which any
Credit Party is a party will be, duly executed and delivered on behalf of the
Credit Parties. This Credit Agreement constitutes, and each other Credit
Document to which any Credit Party is a party when executed and delivered will
constitute, a legal, valid and binding obligation of such Credit Party
enforceable against such party in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
6.5 No Conflicts.
------------
Neither the execution and delivery of the Credit Documents, nor the
consummation of the transactions contemplated therein, nor performance of and
compliance with the terms and provisions thereof by such Credit Party will (a)
violate or conflict with any provision of its articles or certificate of
incorporation or bylaws or other organizational or governing documents of such
Person, (b) violate, contravene or conflict with any Requirement of Law or any
other law, regulation (including, without limitation, Regulation U or Regulation
X), order, writ, judgment, injunction, decree or permit applicable to it except
where such violation, conflict or contravention could not reasonably be expected
to have a Material Adverse Effect, (c) violate, contravene or conflict with
contractual provisions of, or cause an event of default under, any indenture,
loan agreement, mortgage, deed of trust, contract or other agreement or
instrument to which it is a party or by which it may be bound, the violation of
which could reasonably be expected to have a Material Adverse Effect, or (d)
result in or require the creation of any Lien (other than those contemplated in
or created in connection with the Credit Documents) upon or with respect to its
properties.
6.6 No Default.
----------
No Consolidated Party is in default in any respect under any contract,
lease, loan agreement, indenture, mortgage, security agreement or other
agreement or obligation to which it is a party or by which any of its properties
is bound which default could reasonably be expected to have a Material Adverse
Effect. No Default or Event of Default has occurred or exists except as
previously disclosed in writing to the Lenders.
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6.7 Ownership.
---------
Each Consolidated Party is the owner of, and has good and marketable title
to, all of its respective assets and none of such assets is subject to any Lien
other than Permitted Liens.
6.8 Indebtedness.
------------
Except as otherwise permitted under Section 8.1, the Consolidated Parties
have no Indebtedness.
6.9 Litigation.
----------
There are no actions, suits or legal, equitable, arbitration or
administrative proceedings, pending or, to the knowledge of any Credit Party,
threatened against any Consolidated Party which could reasonably be expected to
have a Material Adverse Effect.
6.10 Taxes.
-----
Each Consolidated Party has filed, or caused to be filed, all tax returns
(federal, state, local and foreign) required to be filed and paid (a) all
amounts of taxes shown thereon to be due (including interest and penalties) and
(b) all other taxes, fees, assessments and other governmental charges (including
mortgage recording taxes, documentary stamp taxes and intangibles taxes) known
by such Consolidated Party to be due and owing by it, except for such taxes (i)
which are not yet delinquent or (ii) that are being contested in good faith and
by proper proceedings, and against which adequate reserves are being maintained
in accordance with GAAP or, in the case of Subsidiaries acquired pursuant to the
Falconite Purchase Agreement, adequate indemnification is available under such
purchase agreement. No Credit Party is aware as of the Closing Date of any
proposed tax assessments against it or any other Consolidated Party.
6.11 Compliance with Law.
-------------------
Each Consolidated Party is in compliance with all Requirements of Law and
all other laws, rules, regulations, orders and decrees (including without
limitation Environmental Laws) applicable to it, or to its properties, unless
such failure to comply could not reasonably be expected to have a Material
Adverse Effect.
6.12 ERISA.
-----
(a) During the five-year period prior to the date on which this
representation is made or deemed made: (i) no ERISA Event has occurred,
and, to the best knowledge of the Credit Parties, no event or condition has
occurred or exists as a result of which any ERISA Event could reasonably be
expected to occur, with respect to any Plan; (ii) no "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA and Section
412 of the
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Code, whether or not waived, has occurred with respect to any Plan; (iii) each
Plan has been maintained, operated, and funded in compliance with its own terms
and in material compliance with the provisions of ERISA, the Code, and any other
applicable federal or state laws; and (iv) no lien in favor of the PBGC or a
Plan has arisen or is reasonably likely to arise on account of any Plan.
(b) The actuarial present value of all "benefit liabilities" (as
defined in Section 4001(a)(16) of ERISA), whether or not vested, under each
Single Employer Plan, as of the last annual valuation date prior to the
date on which this representation is made or deemed made (determined, in
each case, in accordance with Financial Accounting Standards Board
Statement 87, utilizing the actuarial assumptions used in such Plan's most
recent actuarial valuation report), did not exceed as of such valuation
date the fair market value of the assets of such Plan.
(c) Except as would not have a Material Adverse Effect, neither any
Consolidated Party nor any ERISA Affiliate has incurred, or, to the best
knowledge of the Credit Parties, could be reasonably expected to incur, any
withdrawal liability under ERISA to any Multiemployer Plan or Multiple
Employer Plan. Except as would not have a Material Adverse Effect, neither
any Consolidated Party nor any ERISA Affiliate would become subject to any
withdrawal liability under ERISA if any Consolidated Party or any ERISA
Affiliate were to withdraw completely from all Multiemployer Plans and
Multiple Employer Plans as of the valuation date most closely preceding the
date on which this representation is made or deemed made. Neither any
Consolidated Party nor any ERISA Affiliate has received any notification
that any Multiemployer Plan is in reorganization (within the meaning of
Section 4241 of ERISA), is insolvent (within the meaning of Section 4245 of
ERISA), or has been terminated (within the meaning of Title IV of ERISA),
and no Multiemployer Plan is, to the best knowledge of the Credit Parties,
reasonably expected to be in reorganization, insolvent, or terminated.
(d) No prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) or breach of fiduciary responsibility
has occurred with respect to a Plan which has subjected or may subject any
Consolidated Party or any ERISA Affiliate to any liability under Sections
406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under
any agreement or other instrument pursuant to which any Consolidated Party
or any ERISA Affiliate has agreed or is required to indemnify any Person
against any such liability.
(e) Neither any Consolidated Party nor any ERISA Affiliate has any
material liability with respect to "expected post-retirement benefit
obligations" within the meaning of the Financial Accounting Standards Board
Statement 106. Each Plan which is a welfare plan (as defined in Section
3(1) of ERISA) to which Sections 601-609 of ERISA and Section 4980B of the
Code apply has been administered in compliance in all material respects of
such sections.
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(f) Neither the execution and delivery of this Credit Agreement nor
the consummation of the financing transactions contemplated thereunder will
involve any transaction which is subject to the prohibitions of Sections
404, 406 or 407 of ERISA or in connection with which a tax could be imposed
pursuant to Section 4975 of the Code. The representation by the Credit
Parties in the preceding sentence is subject, in the event that the source
of the funds used by the Lenders in connection with this transaction is an
insurance company's general asset account, to the application of Prohibited
Transaction Class Exemption 95-60, 60 Fed. Reg. 35,925 (1995), compliance
with the regulations issued under Section 401(c)(1)(A) of ERISA, or the
issuance of any other prohibited transaction exemption or similar relief,
to the effect that assets in an insurance company's general asset account
do not constitute assets of an "employee benefit plan" within the meaning
of Section 3(3) of ERISA of a "plan" within the meaning of Section
4975(e)(1) of the Code.
6.13 Subsidiaries.
------------
Set forth on Schedule 6.13 is a complete and accurate list of all
Subsidiaries of each Consolidated Party. Information on Schedule 6.13 includes
jurisdiction of incorporation, the number of shares of each class of Capital
Stock outstanding, the number and percentage of outstanding shares of each class
owned (directly or indirectly) by such Consolidated Party; and the number and
effect, if exercised, of all outstanding options, warrants, rights of conversion
or purchase and all other similar rights with respect thereto. The outstanding
Capital Stock of all such Subsidiaries is validly issued, fully paid and non-
assessable and is owned by each such Consolidated Party, directly or indirectly,
free and clear of all Liens (other than those arising under or contemplated in
connection with the Credit Documents). Other than as set forth in Schedule 6.13,
no Subsidiary has outstanding any securities convertible into or exchangeable
for its Capital Stock nor does any such Person have outstanding any rights to
subscribe for or to purchase or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to its Capital Stock.
6.14 Governmental Regulations, Etc.
-----------------------------
(a) No part of the Letters of Credit or proceeds of the Loans will be
used, directly or indirectly, for the purpose of purchasing or carrying any
"margin stock" within the meaning of Regulation U, or for the purpose of
purchasing or carrying or trading in any securities. If requested by any
Lender or the Agent, the Borrower will furnish to the Agent and each Lender
a statement to the foregoing effect in conformity with the requirements of
FR Form U-1 referred to in Regulation U. No indebtedness being reduced or
retired out of the proceeds of the Loans was or will be incurred for the
purpose of purchasing or carrying any margin stock within the meaning of
Regulation U or any "margin security" within the meaning of Regulation T.
"Margin stock" within the meaning of Regulation U does not constitute more
than 25% of the value of the consolidated assets of the Consolidated
Parties. None of the transactions contemplated by this Credit Agreement
(including, without limitation, the direct or indirect use of the proceeds
of the Loans) will violate or result in a violation of the
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Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, or regulations issued pursuant thereto, or Regulation T, U or
X.
(b) No Consolidated Party is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act or the
Investment Company Act of 1940, each as amended. In addition, no
Consolidated Party is (i) an "investment company" registered or required to
be registered under the Investment Company Act of 1940, as amended, and is
not controlled by such a company, or (ii) a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a
"holding company" or of a "subsidiary" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
(c) No director, executive officer or principal shareholder of any
Consolidated Party is a director, executive officer or principal
shareholder of any Lender. For the purposes hereof the terms "director",
"executive officer" and "principal shareholder" (when used with reference
to any Lender) have the respective meanings assigned thereto in Regulation
O issued by the Board of Governors of the Federal Reserve System.
(d) Each Consolidated Party has obtained and holds in full force and
effect, all franchises, licenses, permits, certificates, authorizations,
qualifications, accreditations, easements, rights of way and other rights,
consents and approvals which are necessary for the ownership of its
respective Property and to the conduct of its respective businesses as
presently conducted except where the failure to so obtain or maintain could
not reasonably be expected to have a Material Adverse Effect.
(e) No Consolidated Party is in violation of any applicable statute,
regulation or ordinance of the United States of America, or of any state,
city, town, municipality, county or any other jurisdiction, or of any
agency thereof (including without limitation, environmental laws and
regulations), which violation could have a Material Adverse Effect.
(f) Each Consolidated Party is current with all material reports and
documents, if any, required to be filed with any state or federal
securities commission or similar agency and is in full compliance in all
material respects with all applicable rules and regulations of such
commissions.
6.15 Purpose of Loans and Letters of Credit.
--------------------------------------
The proceeds of the Loans hereunder shall be used solely by the Borrower
(i) for working capital, (ii) for refinancing certain existing Indebtedness of
the Consolidated Parties, (iii) to acquire Falconite and to make Permitted
Acquisitions (and to pay related fees and expenses) and (iv) for general
corporate purposes.
6.16 Environmental Matters.
---------------------
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Except as would not have a Material Adverse Effect,
(a) Each of the facilities and properties owned, leased or operated by
the Consolidated Parties (the "Properties") and all operations at the
Properties are in compliance with all applicable Environmental Laws, and
there is no violation of any Environmental Law with respect to the
Properties or the businesses operated by the Consolidated Parties (the
"Businesses"), and there are no conditions relating to the Businesses or
Properties that could give rise to liability under any applicable
Environmental Laws.
(b) None of the Properties contains, or has previously contained, any
Materials of Environmental Concern at, on or under the Properties in
amounts or concentrations that constitute or constituted a violation of, or
could give rise to liability under, Environmental Laws.
(c) No Consolidated Party has received any written or verbal notice
of, or inquiry from any Governmental Authority regarding, any violation,
alleged violation, non-compliance, liability or potential liability
regarding environmental matters or compliance with Environmental Laws with
regard to any of the Properties or the Businesses, nor does any
Consolidated Party have knowledge or reason to believe that any such notice
will be received or is being threatened.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties, or generated, treated, stored or disposed
of at, on or under any of the Properties or any other location, in each
case by or on behalf of any Consolidated Party in violation of, or in a
manner that could give rise to liability under, any applicable
Environmental Law.
(e) No judicial proceeding or governmental or administrative action is
pending or, to the best knowledge of any Credit Party, threatened, under
any Environmental Law to which any Consolidated Party is or will be named
as a party, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other administrative or
judicial requirements outstanding under any Environmental Law with respect
to the Consolidated Parties, the Properties or the Businesses.
(f) There has been no release, or threat of release, of Materials of
Environmental Concern at or from the Properties, or arising from or related
to the operations (including, without limitation, disposal) of any
Consolidated Party in connection with the Properties or otherwise in
connection with the Businesses, in violation of or in amounts or in a
manner that could give rise to liability under Environmental Laws.
6.17 Intellectual Property.
---------------------
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Each Consolidated Party owns, or has the legal right to use, all
trademarks, tradenames, copyrights, technology, know-how and processes (the
"Intellectual Property") necessary for each of them to conduct its business as
currently conducted except for those the failure to own or have such legal right
to use could not reasonably be expected to have a Material Adverse Effect. Set
forth on Schedule 6.17 is a list of all Intellectual Property owned by each
Consolidated Party or that any Consolidated Party has the right to use. Except
as provided on Schedule 6.17, no claim has been asserted and is pending by any
Person challenging or questioning the use of any such Intellectual Property or
the validity or effectiveness of any such Intellectual Property, nor does any
Credit Party know of any such claim, and to the Credit Parties' knowledge the
use of such Intellectual Property by any Consolidated Party does not infringe on
the rights of any Person, except for such claims and infringements that, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
6.18 Solvency.
--------
Each Credit Party is and, after consummation of the transactions
contemplated by this Credit Agreement, will be Solvent.
6.19 Investments.
-----------
All Investments of each Consolidated Party are Permitted Investments.
6.20 Location of Collateral.
----------------------
Set forth on Schedule 6.20(a) is a list of all locations where any tangible
personal property of a Consolidated Party is located, including county and state
where located. Set forth on Schedule 6.20(b) is the chief executive office and
principal place of business of each Consolidated Party.
6.21 Disclosure.
----------
Neither this Credit Agreement nor any financial statements delivered to the
Lenders nor any other document, certificate or statement furnished to the
Lenders by or on behalf of any Consolidated Party in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained therein or herein not misleading.
6.22 No Burdensome Restrictions.
--------------------------
No Consolidated Party is a party to any agreement or instrument, or is in
breach of or in violation of any provision of any applicable law, rule or
regulation which, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.
6.23 Brokers' Fees.
-------------
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Except for (i) brokerage fees paid to Donaldson, Lufkin & Jenrette in
connection with the Acquisition of Falconite, (ii) underwriting fees incurred in
connection with the initial public offering of the Capital Stock of the Borrower
and (iii) fees payable to First Union Capital Markets in connection with the
closing and syndication of this Credit Agreement, no Consolidated Party has any
obligation to any Person in respect of any finder's, broker's, investment
banking or other similar fee in connection with any of the transactions
contemplated under the Credit Documents to occur on the Closing Date.
6.24 Labor Matters.
-------------
Except as set forth on Schedule 6.24, there are no collective bargaining
agreements or Multiemployer Plans covering the employees of a Consolidated Party
as of the Closing Date and none of the Consolidated Parties has suffered any
strikes, walkouts, work stoppages or other material labor difficulty within the
last five years.
6.25 Year 2000 Compliance.
--------------------
Each of the Credit Parties has conducted a review and assessment of its
computer applications and made inquiry of its key suppliers, vendors and
customers with respect to the "year 2000 problem" (that is, the risk that
computer applications may not be able to properly perform date-sensitive
functions after December 31, 1999) and, based on that review and inquiry, the
Credit Parties believe that the year 2000 problem will not result in a material
adverse change in its business condition (financial or otherwise), operations,
business, assets, liabilities or prospects of the Credit Parties taken as a
whole, or on the ability of any Credit Party to perform any material obligation
under the Credit Documents to which it is a party.
6.26 Material Contracts.
------------------
Attached hereto as Schedule 6.25 is a true, correct and complete list of
all the Material Contracts currently in effect on the date hereof. All of the
Material Contracts are in full force and effect.
6.27 Senior Debt.
-----------
The Loans and other extensions of credit under this Credit Agreement
constitute "Senior Debt" under the indenture for the Senior Subordinated Notes.
SECTION 7
AFFIRMATIVE COVENANTS
- ---------------------
Each Credit Party hereby covenants and agrees that, so long as this Credit
Agreement is in effect or any amounts payable hereunder or under any other
Credit Document shall remain outstanding (other than contingent indemnity
obligations), and until all of the Commitments hereunder shall have terminated:
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7.1 Information Covenants.
---------------------
The Credit Parties will furnish, or cause to be furnished, to the Agent and
each of the Lenders:
(a) Annual Financial Statements. As soon as available, and in any
event within 90 days after the close of each fiscal year of the Consolidated
Parties, a consolidated balance sheet and income statement of the Consolidated
Parties, as of the end of such fiscal year, together with related consolidated
statements of operations and retained earnings and of cash flows for such fiscal
year, setting forth in comparative form consolidated figures for the preceding
fiscal year, all such financial information described above to be in reasonable
form and detail and audited by independent certified public accountants of
recognized national standing reasonably acceptable to the Agent and whose
opinion shall be to the effect that such financial statements have been prepared
in accordance with GAAP (except for changes with which such accountants concur)
and shall not be limited as to the scope of the audit or qualified as to the
status of the Consolidated Parties as a going concern.
(b) Interim Financial Statements.
----------------------------
(i) Quarterly Financial Statements. As soon as available, and in
any event within 45 days after the close of each fiscal quarter of the
Consolidated Parties (other than the fourth fiscal quarter, in which case 90
days after the end thereof) a consolidated balance sheet and income statement of
the Consolidated Parties, as of the end of such fiscal quarter, together with
related consolidated statements of operations and retained earnings and of cash
flows for such fiscal quarter, in each case setting forth in comparative form
consolidated figures for the corresponding period of the preceding fiscal year,
all such financial information described above to be in reasonable form and
detail and reasonably acceptable to the Agent, and accompanied by a certificate
of the chief financial officer of the Borrower to the effect that such quarterly
financial statements fairly present in all material respects the financial
condition of the Consolidated Parties and have been prepared in accordance with
GAAP, subject to changes resulting from audit and normal year-end audit
adjustments.
(ii) Monthly Financial Statements. As soon as available, and in
any event within 30 days after the close of each fiscal month, financial
statements of the Consolidated Parties as of the end of such month substantially
in the form of the monthly financial statements prepared in connection with the
fiscal month ended June 30, 1998 and in form and detail reasonably acceptable to
the Agent (as such form may be updated or modified from time to time in a manner
reasonably acceptable to the Agent).
(c) Officer's Certificate. At the time of delivery of the financial
statements provided for in Sections 7.1(a) and 7.1(b)(i) above, a certificate of
the chief financial officer of the Borrower substantially in the form of Exhibit
7.1(c), (i) demonstrating compliance with the financial covenants contained in
Section 7.11 by calculation thereof as of the end of each
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such fiscal period and (ii) stating that no Default or Event of Default
exists, or if any Default or Event of Default does exist, specifying the
nature and extent thereof and what action the Credit Parties propose to
take with respect thereto.
(d) Borrowing Base Certificates. Within 30 days after the end of each
calendar month, a report on the Borrowing Base (a "Borrowing Base
Certificate") as of the end of the immediately preceding month,
substantially in the form of Exhibit 7.1(d) and certified by the chief
financial officer of the Borrower to be true and correct as of the date
thereof, together with (i) a consolidated summary of aged Accounts
Receivable as of the last day of such month, (ii) a schedule of inventory
of the Credit Parties as of the last day of such month and (iii) a
calculation of the financial covenant contained in Section 7.11(e)
demonstrating compliance therewith as of the end of such calendar month.
(e) Annual Budgets. No later than 30 days after the beginning of each
fiscal year, a budget for such fiscal year of the Borrower which includes
(i) a projected consolidated balance sheet and statement of income of the
Credit Parties for such fiscal year and a projected consolidated statement
of cash flows of the Credit Parties for such fiscal year and (ii) projected
consolidated and consolidating balance sheets, statements of income and
statements of cash flows of the Credit Parties on a monthly basis for such
fiscal year.
(f) Accountant's Certificate. Within the period for delivery of the
annual financial statements provided in Section 7.1(a), a certificate of
the accountants conducting the annual audit stating that they have reviewed
this Credit Agreement and stating further whether, in the course of their
audit, they have become aware of any Default or Event of Default and, if
any such Default or Event of Default exists, specifying the nature and
extent thereof.
(g) Auditor's Reports. Promptly upon receipt thereof, a copy of any
other report or "management letter" submitted by independent accountants to
any Consolidated Party in connection with any annual, interim or special
audit of the books of such Person.
(h) Reports. Promptly upon transmission or receipt thereof, (i) copies
of any filings and registrations with, and reports to or from, the
Securities and Exchange Commission, or any successor agency, and copies of
all financial statements, proxy statements, notices and reports as any
Consolidated Party shall send to its shareholders or to a holder of any
Indebtedness owed by any Consolidated Party in its capacity as such a
holder and (ii) upon the request of the Agent, all reports and written
information to and from the United States Environmental Protection Agency,
or any state or local agency responsible for environmental matters, the
United States Occupational Health and Safety Administration, or any state
or local agency responsible for health and safety matters, or any successor
agencies or authorities concerning environmental, health or safety matters.
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(i) Notices. Upon obtaining knowledge thereof, the Credit Parties will
give written notice to the Agent immediately of (i) the occurrence of an
event or condition consisting of a Default or Event of Default, specifying
the nature and existence thereof and what action the Credit Parties propose
to take with respect thereto, and (ii) the occurrence of any of the
following with respect to any Consolidated Party: (A) the pendency or
commencement of any litigation, arbitral or governmental proceeding against
such Consolidated Party which if adversely determined could reasonably be
expected to have a Material Adverse Effect, (B) the institution of any
proceedings against such Consolidated Party with respect to, or the receipt
of notice by such Consolidated Party of potential liability or
responsibility for violation, or alleged violation of any federal, state or
local law, rule or regulation, including but not limited to, Environmental
Laws, the violation of which could reasonably be expected to have a
Material Adverse Effect, or (C) any notice or determination concerning the
imposition of any withdrawal liability by a Multiemployer Plan against such
Consolidated Party or any ERISA Affiliate, the determination that a
Multiemployer Plan is, or is expected to be, in reorganization within the
meaning of Title IV of ERISA or the termination of any Plan.
(j) ERISA. Upon obtaining knowledge thereof, the Credit Parties will
give written notice to the Agent promptly (and in any event within five
business days) of: (i) any event or condition, including, but not limited
to, any Reportable Event, that constitutes, or might reasonably lead to, an
ERISA Event; (ii) with respect to any Multiemployer Plan, the receipt of
notice as prescribed in ERISA or otherwise of any withdrawal liability
assessed against the Credit Parties or any ERISA Affiliates, or of a
determination that any Multiemployer Plan is in reorganization or insolvent
(both within the meaning of Title IV of ERISA); (iii) the failure to make
full payment on or before the due date (including extensions) thereof of
all amounts which any Consolidated Party or any ERISA Affiliate is required
to contribute to each Plan pursuant to its terms and as required to meet
the minimum funding standard set forth in ERISA and the Code with respect
thereto; or (iv) any change in the funding status of any Plan that could
have a Material Adverse Effect, together with a description of any such
event or condition or a copy of any such notice and a statement by the
chief financial officer of the Borrower briefly setting forth the details
regarding such event, condition, or notice, and the action, if any, which
has been or is being taken or is proposed to be taken by the Credit Parties
with respect thereto. Promptly upon request, the Credit Parties shall
furnish the Agent and the Lenders with such additional information
concerning any Plan as may be reasonably requested, including, but not
limited to, copies of each annual report/return (Form 5500 series), as well
as all schedules and attachments thereto required to be filed with the
Department of Labor and/or the Internal Revenue Service pursuant to ERISA
and the Code, respectively, for each "plan year" (within the meaning of
Section 3(39) of ERISA).
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(k) Environmental.
-------------
(i) Upon the reasonable written request of the Agent, the Credit
Parties will furnish or cause to be furnished to the Agent, at the
Credit Parties' expense, a report of an environmental assessment of
reasonable scope, form and depth, (including, where appropriate,
invasive soil or groundwater sampling) by a consultant reasonably
acceptable to the Agent as to the nature and extent of the presence of
any Materials of Environmental Concern on any Properties (as defined
in Section 6.16) and as to the compliance by any Consolidated Party
with Environmental Laws at such Properties. If the Credit Parties fail
to deliver such an environmental report within seventy-five (75) days
after receipt of such written request then the Agent may arrange for
same, and the Consolidated Parties hereby grant to the Agent and their
representatives access to the Properties to reasonably undertake such
an assessment (including, where appropriate, invasive soil or
groundwater sampling). The reasonable cost of any assessment arranged
for by the Agent pursuant to this provision will be payable by the
Credit Parties on demand and added to the obligations secured by the
Collateral Documents.
(ii) The Consolidated Parties will conduct and complete all
investigations, studies, sampling, and testing and all remedial,
removal, and other actions necessary to address all Materials of
Environmental Concern on, from or affecting any of the Properties to
the extent necessary to be in compliance with all Environmental Laws
and with the validly issued orders and directives of all Governmental
Authorities with jurisdiction over such Properties to the extent any
failure could have a Material Adverse Effect.
(l) Additional Patents and Trademarks. At the time of delivery of the
financial statements and reports provided for in Section 7.1(a), a report
signed by the chief financial officer or treasurer of the Borrower setting
forth (i) a list of registration numbers for all patents, trademarks,
service marks, tradenames and copyrights awarded to any Consolidated Party
since the last day of the immediately preceding fiscal year and (ii) a list
of all patent applications, trademark applications, service mark
applications, trade name applications and copyright applications submitted
by any Consolidated Party since the last day of the immediately preceding
fiscal year and the status of each such application, all in such form as
shall be reasonably satisfactory to the Agent.
(m) Accounts Receivable Aging Report. Promptly after request by the
Agent, an Accounts Receivable aging report as of the date reasonably
required by the Agent.
(n) Other Information. With reasonable promptness upon any such
request, such other information regarding the business, properties or
financial condition of any Consolidated Party as the Agent or the Required
Lenders may reasonably request.
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7.2 Preservation of Existence and Franchises.
----------------------------------------
Except as a result of or in connection with a merger of a Subsidiary
permitted under Section 8.4, each Credit Party will, and will cause each of its
Subsidiaries to, do all things necessary to preserve and keep in full force and
effect its existence, rights, franchises and authority except where the failure
to so preserve could not reasonably be expected to have a Material Adverse
Effect.
7.3 Books and Records.
-----------------
Each Credit Party will, and will cause each of its Subsidiaries to, keep
complete and accurate books and records of its transactions in accordance with
good accounting practices on the basis of GAAP (including the establishment and
maintenance of appropriate reserves).
7.4 Compliance with Law.
-------------------
Each Credit Party will, and will cause each of its Subsidiaries to, comply
with all laws, rules, regulations and orders, and all applicable restrictions
imposed by all Governmental Authorities, applicable to it and its Property if
noncompliance with any such law, rule, regulation, order or restriction could
reasonably be expected to have a Material Adverse Effect.
7.5 Payment of Taxes and Other Indebtedness.
---------------------------------------
Each Credit Party will, and will cause each of its Subsidiaries to, pay and
discharge (a) all taxes, assessments and governmental charges or levies imposed
upon it, or upon its income or profits, or upon any of its properties, before
they shall become delinquent, (b) all lawful claims (including claims for labor,
materials and supplies) which, if unpaid, might give rise to a Lien upon any of
its properties, and (c) except as prohibited hereunder, all of its other
Indebtedness as it shall become due; provided, however, that no Consolidated
Party shall be required to pay any such tax, assessment, charge, levy, claim or
Indebtedness which is being contested in good faith by appropriate proceedings
and as to which adequate reserves therefor have been established in accordance
with GAAP, unless the failure to make any such payment (i) could give rise to an
immediate right to foreclose on a Lien securing such amounts or (ii) could
reasonably be expected to have a Material Adverse Effect.
7.6 Insurance; Condemnation.
-----------------------
Each Credit Party will, and will cause each of the Consolidated Parties to,
maintain public liability insurance, third party property damage insurance and
replacement value insurance on the Collateral under such policies of insurance,
with such insurance companies, in such amounts and covering such risks as are
commercially reasonable and customary in the industry in which such Consolidated
Parties are engaged. In addition, the Credit Parties will obtain and maintain,
within 60 days of the Closing Date, general liability insurance in the minimum
aggregate amount of $10,000,000 for the Consolidated Parties. All policies
covering the Collateral are to name the Borrower and the Agent, on behalf of the
Lenders, as additional insureds and loss payees in case
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of loss, as their interests may appear, and are to contain such other provisions
as the Agent may reasonably require to fully protect the Agent's interest in the
Collateral and to any payments to be made under such policies. True copies of
all original insurance policies are to be delivered to the Agent on or prior to
the Closing Date, premium prepaid, with the loss payable endorsement in the
Agent's favor, and shall provide for not less than thirty (30) days prior
written notice to the Agent, of the exercise of any right of cancellation. In
the event any Consolidated Party fails to respond in a timely and appropriate
manner (as determined by the Agent in its reasonable discretion) with respect to
making a claim under any insurance policies required to be maintained under this
Section 7.6, the Agent shall have the right, in the name of the Agent or any
Consolidated Party, to file claims under such insurance policies, to receive and
give acquittance for any payments that may be payable thereunder, and to execute
any and all endorsements, receipts, releases, assignments, reassignments or
other documents that may be necessary to effect the collection, compromise or
settlement of any claims under any such insurance policies. Each Credit Party
will provide written notice to the Lenders of the occurrence of any of the
following events within five (5) Business Days after an Executive Officer of
such Credit Party learns of the occurrence of such event: any asset or property
owned or used by any Consolidated Party is (a) materially damaged or destroyed,
or suffers any other loss or (b) is condemned, confiscated or otherwise taken,
in whole or in part, or the use thereof is otherwise diminished so as to render
impracticable or unreasonable the use of such asset or property for the purpose
to which such asset or property was used immediately prior to such condemnation,
confiscation or taking, by exercise of the powers of condemnation or eminent
domain or otherwise, and in either case the amount of the damage, destruction,
loss or diminution in value of the Collateral is in excess of $2,500,000 (each
such event or occurrence in excess of $2,500,000 being herein referred to as a
"Casualty Loss"). Each Credit Party will diligently file and prosecute its claim
or claims for any award or payment in connection with a Casualty Loss. In the
event of a Casualty Loss, the Credit Parties will pay to the Agent, promptly
upon receipt thereof, any and all insurance proceeds and payments received by
any Consolidated Party on account of damage, destruction or loss of all or any
portion of the Collateral. The Agent may, at its election and in its sole
discretion (and with the approval of the Required Lenders if such Casualty Loss
is in excess of $5,000,000), either (i) apply the proceeds realized from
Casualty Losses to payment of accrued and unpaid interest on, or outstanding
principal of, the Term Loans or the Revolving Loans, as provided in Section
3.3(b), or (ii) pay such proceeds to the Credit Parties to be used to repair,
replace or rebuild the asset or property or portion thereof that was the subject
of the Casualty Loss. After the occurrence and during the continuance of an
Event of Default, (A) no settlement on account of any such Casualty Loss shall
be made without the consent of the Required Lenders and (B) the Agent may
participate in any such proceedings and the Credit Parties will deliver to the
Agent such documents as may be requested by the Agent to permit such
participation and will consult with the Agent, its attorneys and agents in the
making and prosecution of such claim or claims. Each Credit Party hereby
irrevocably authorizes and appoints the Agent its attorney-in-fact, after the
occurrence and during the continuance of an Event of Default, to collect and
receive for any such award or payment and to file and prosecute such claim or
claims, which power of attorney shall be irrevocable and shall be deemed to be
coupled with an interest, and each Credit Party shall, upon demand of the Agent,
make, execute and deliver any and all
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assignments and other instruments sufficient for the purpose of assigning any
such award or payment to the Agent for the benefit of the Lenders, free and
clear of any encumbrances of any kind or nature whatsoever.
7.7 Maintenance of Property.
-----------------------
Each Credit Party will, and will cause each of its Subsidiaries to,
maintain and preserve its properties and equipment material to the conduct of
its business in good repair, working order and condition, normal wear and tear
and casualty and condemnation excepted, and will make, or cause to be made, in
such properties and equipment from time to time all repairs, renewals,
replacements, extensions, additions, betterments and improvements thereto as may
be needed or proper, to the extent and in the manner customary for companies in
similar businesses.
7.8 Performance of Obligations.
--------------------------
Each Credit Party will, and will cause each of its Subsidiaries to, perform
in all material respects all of its obligations under the terms of all material
agreements, indentures, mortgages, security agreements or other debt instruments
to which it is a party or by which it is bound.
7.9 Use of Proceeds.
---------------
The Borrower will use the proceeds of the Loans and will use the Letters of
Credit solely for the purposes set forth in Section 6.15.
7.10 Audits/Inspections.
------------------
Each Credit Party will, and will cause each of its Subsidiaries to, at the
expense of the Credit Parties, permit the Agent and representatives appointed by
the Agent (including, without limitation, independent accountants, agents,
attorneys, and appraisers) at any time, upon reasonable notice, in the Agent's
sole discretion or at the direction of the Required Lenders to visit and inspect
its property, including its books and records, its accounts receivable and
inventory, its facilities and its other business assets, to conduct periodic
field exams and/or appraisals of the rental fleet of the Consolidated Parties
and to make photocopies or photographs thereof and to write down and record any
information such representative obtains and shall permit the Agent or its
representatives to investigate and verify the accuracy of information provided
to the Lenders and to discuss all such matters with the officers, employees and
representatives of such Person. Notwithstanding the foregoing, the Credit
Parties shall only be required to pay for two (2) such inspections per year
unless an Event of Default has occurred and is continuing.
7.11 Financial Covenants.
-------------------
(a) Interest Coverage Ratio. The Interest Coverage Ratio, as of the
last day of each fiscal quarter of the Consolidated Parties, commencing with the
fiscal quarter ending on
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June 30, 1998, shall be greater than or equal to (i) 2.25 to 1.0 for each
fiscal quarter ending prior to March 31, 1999 and (ii) 2.50 to 1.00 for
each fiscal quarter ending on or after March 31, 1999.
(b) Total Debt Leverage Ratio. The Total Debt Leverage Ratio, as of
the last day of each fiscal quarter of the Consolidated Parties, commencing
with the fiscal quarter ending on June 30, 1998, shall be less than or
equal to (i) 4.75 to 1.0 for each fiscal quarter ending prior to March 31,
1999, (ii) 4.50 to 1.00 for each fiscal quarter ending on or after March
31, 1999 but prior to December 31, 1999 and (iii) 4.25 to 1.00 for each
fiscal quarter ending on or after December 31, 1999.
(c) Senior Debt Leverage Ratio. The Senior Debt Leverage Ratio, as of
the last day of each fiscal quarter of the Consolidated Parties, commencing
with the fiscal quarter ending on June 30, 1998, shall be less than or
equal to (i) 3.25 to 1.0 for each fiscal quarter ending prior to March 31,
1999, (ii) 3.00 to 1.00 for each fiscal quarter ending on or after March
31, 1999 but prior to December 31, 1999 and (iii) 2.75 to 1.00 for each
fiscal quarter ending on or after December 31, 1999.
Notwithstanding the foregoing, in the event that the Borrower makes a
Price Reduction Election, the maximum allowable Senior Debt Leverage Ratio
for each corresponding period occurring after the date of such Price
Reduction Election through the Maturity Date shall be permanently reduced
by 0.25.
(d) Consolidated Net Worth. At all times Consolidated Net Worth shall
be greater than or equal to the sum of $100,000,000, increased on a
cumulative basis as of the end of each fiscal quarter of the Borrower,
commencing with the fiscal quarter ending December 31, 1997 by an amount
equal to (i) 50% of Consolidated Net Income for the fiscal quarter then
ended (without deductions for any losses) and (ii) 100% of the Net Cash
Proceeds of issuances of Capital Stock by any Consolidated Party in
whatever form (other than to another Credit Party) occurring subsequent to
the Closing Date.
(e) Senior Debt to Borrowing Base. Consolidated Senior Indebtedness
secured by Permitted Liens, as of the last day of each fiscal month of the
Consolidated Parties, plus LOC Obligations shall not exceed the Borrowing
Base.
7.12 Additional Credit Parties.
-------------------------
(a) On or before the date any Person becomes a Subsidiary of any
Credit Party, the Borrower shall provide the Agent with written notice
thereof setting forth information in reasonable detail describing all of
the assets of such Person and shall (a) if such Person is a Domestic
Subsidiary of a Credit Party, cause such Person to execute a Joinder
Agreement in substantially the same form as Exhibit 7.12, (b) cause 100%
(if such Person is a Domestic Subsidiary of a Credit Party) or 65% (if such
Person is a direct Foreign
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Subsidiary of a Credit Party) of the Capital Stock of such Person to be
delivered to the Agent (together with undated stock powers signed in blank
(unless, with respect to a Foreign Subsidiary, such stock powers are deemed
unnecessary by the Agent in its reasonable discretion under the law of the
jurisdiction of incorporation of such Person)) and pledged to the Agent
pursuant to an appropriate pledge agreement(s) in form acceptable to the
Agent and (c) cause such Person to deliver appropriate UCC-1 financing
statements reasonably satisfactory to the Agent.
(b) As soon as practicable and in any event not later than 30 days
after any Person becomes a Subsidiary of any Credit Party, the Borrower
shall cause such Person to deliver such other documentation as the Agent
may reasonably request in connection with the foregoing, including, without
limitation, real estate title insurance policies, environmental reports,
certified resolutions and other organizational and authorizing documents of
such Person, and favorable opinions of counsel to such Person all in form,
content and scope reasonably satisfactory to the Agent.
7.13 Environmental Laws.
------------------
(a) The Consolidated Parties shall comply in all material respects
with, and take reasonable actions to ensure compliance in all material
respects by all tenants and subtenants, if any, with, all applicable
Environmental Laws and obtain and comply in all material respects with and
maintain, and take reasonable actions to ensure that all tenants and
subtenants obtain and comply in all material respects with and maintain,
any and all licenses, approvals, notifications, registrations or permits
required by applicable Environmental Laws except to the extent that failure
to do so would not reasonably be expected to have a Material Adverse
Effect;
(b) The Consolidated Parties shall conduct and complete all
investigations, studies, sampling and testing, and all remedial, removal
and other actions required under Environmental Laws and promptly comply in
all material respects with all lawful orders and directives of all
Governmental Authorities regarding Environmental Laws except to the extent
that the same are being contested in good faith by appropriate proceedings
and the failure to do or the pendency of such proceedings would not
reasonably be expected to have a Material Adverse Effect; and
(c) The Consolidated Parties shall defend, indemnify and hold harmless
the Agent and the Lenders, and their respective employees, agents, officers
and directors, from and against any and all claims, demands, penalties,
fines, liabilities, settlements, damages, costs and expenses of whatever
kind or nature known or unknown, contingent or otherwise, arising out of,
or in any way relating to the violation of, noncompliance with or liability
under, any Environmental Law applicable to the operations of the Borrower
or any of its Subsidiaries or the Properties, or any orders, requirements
or demands of Governmental Authorities related thereto, including, without
limitation,
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reasonable attorney's and consultant's fees, investigation and laboratory
fees, response costs, court costs and litigation expenses, except to the
extent that any of the foregoing arise out of the gross negligence or
willful misconduct of the party seeking indemnification therefor. The
agreements in this paragraph shall survive repayment of the Loans and all
other amounts payable hereunder, and termination of the Commitments.
7.14 Collateral.
If, subsequent to the Closing Date, a Credit Party shall acquire any
intellectual property, securities instruments, chattel paper or other personal
property required to be delivered to the Agent as Collateral hereunder or under
any of the Collateral Documents, the Borrower shall notify the Agent of the same
in each case as soon as practicable after the acquisition thereof. Each Credit
Party shall take such action as requested by the Agent and at its own expense,
to ensure that the Agent shall have a first priority perfected Lien in all
personal property of the Credit Parties (whether now owned or hereafter
acquired), subject only to Permitted Liens. Each Credit Party shall, and shall
cause each of its Subsidiaries to, adhere to the covenants regarding the
location of personal property as set forth in the Security Agreement. The Credit
Parties shall use its best efforts to deliver to the Agent (i) with respect to
all real property leased by any Credit Party as of the Closing Date, landlord
waivers and consents with respect to each such leased property no later than 90
days after the Closing Date and (ii) with respect to all leases for real
property entered into by any Credit Party subsequent to the Closing Date,
landlord waivers and consents with respect to each such leased property, in each
case in form and substance reasonably satisfactory to the Agent.
7.15 Pledged Real Estate Assets.
Upon the request of the Agent, each Credit Party will, and will cause each
of its Subsidiaries to, cause (a) all of its owned real property and (b) all of
its leased real property, whether owned or leased as of, or subsequent to, the
Closing Date, to be subject at all times to first priority, perfected and title
insured Liens (other than Permitted Liens) in favor of the Agent pursuant to the
terms and conditions of such security documents and instruments, in form and
substance satisfactory to the Agent, as the Agent shall reasonably request. In
connection with any mortgage in favor of the Agent delivered pursuant to this
Section 7.15, the Agent shall be entitled to receive a title report, title
insurance, such maps, plats or surveys as it may reasonably request, flood
insurance as required by law, evidence that the subject real property is in
compliance with all zoning and environmental laws and such other information and
documents as the Agent shall reasonably request. In furtherance of the foregoing
terms of this Section 7.15, each Credit Party agrees to promptly provide the
Agent with written notice of the acquisition by, or the entering into a lease
by, any Consolidated Party of any real property assets having a market value
greater than $250,000 or annual lease payments in excess of $250,000, setting
forth in reasonable detail the location and a description of the real property
assets so acquired or leased.
7.16 Revisions or Updates to Schedules.
If any of the information or disclosures provided on any of Schedules 6.13,
6.17, 6.20(a), 6.20(b) or 6.26, originally attached hereto become outdated or
incorrect in any material respect, the Borrowers shall
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deliver to the Agent and the Lenders as part of the compliance certificate
required pursuant to Section 7.1(c) such revision or updates to such Schedule(s)
as may be necessary or appropriate to update or correct such Schedule(s),
provided, that no such revisions or updates to any such Schedule(s) shall be
deemed to have amended, modified or superseded such Schedule(s) as originally
attached hereto, or to have cured any breach of warranty or representation
resulting from the inaccuracy or incompleteness of any such Schedule(s), unless
and until the Required Lenders, in their sole and absolute discretion, shall
have accepted in writing such revisions or updates to such Schedule(s) or unless
such revision or updates to such Schedule(s) would not have a Material Adverse
Affect and would not cause or result in a breach of a covenant hereunder or
otherwise cause or result in a Default or Event of Default hereunder.
SECTION 8
NEGATIVE COVENANTS
- ------------------
Each Credit Party hereby covenants and agrees that, so long as this Credit
Agreement is in effect or any amounts payable hereunder or under any other
Credit Document shall remain outstanding (other than contingent indemnity
obligations), and until all of the Commitments hereunder shall have terminated:
8.1 Indebtedness.
The Credit Parties will not permit any Consolidated Party to contract,
create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising under this Credit Agreement and the other
Credit Documents;
(b) Indebtedness of the Borrower set forth in Schedule 8.1 (and
renewals, refinancings and extensions thereof on terms and conditions no
less favorable to such Person than such existing Indebtedness);
(c) purchase money Indebtedness (including obligations in respect of
Capital Leases or Synthetic Leases) hereafter incurred by the Credit
Parties to finance the purchase of fixed assets provided that (i) the total
of all such Indebtedness (including any such Indebtedness referred to on
Schedule 8.1) shall not exceed an aggregate principal amount equal to ten
percent (10%) of the Revolving Committed Amount at any one time
outstanding; (ii) such Indebtedness when incurred shall not exceed the
purchase price of the asset(s) financed; and (iii) no such Indebtedness
shall be refinanced for a principal amount in excess of the principal
balance outstanding thereon at the time of such refinancing;
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(d) obligations of the Borrower in respect of Hedging Agreements
entered into in order to manage existing or anticipated interest rate or
exchange rate risks and not for speculative purposes;
(e) Subordinated Debt;
(f) Guaranty Obligations of any Credit Party with respect to
Indebtedness permitted pursuant to this Section 8.1 or other amounts with
respect to ordinary course obligations of a Credit Party in the nature of
operating leases or supply contracts;
(g) intercompany loans and advances made by the Borrower to any Credit
Party, by any Credit Party to the Borrower or by any Credit Party to
another Credit Party;
(h) indemnity obligations of any Credit Party arising in connection
with the representations and warranties made by such Credit Party with
respect to the sale or acquisition by such Credit Party of a Person or a
business unit of such Person sold or purchased as a going concern;
(i) Indebtedness in connection with attachment or judgment Liens which
are Permitted Liens, provided that the total of all such Indebtedness for
all the Consolidated Parties taken together shall not exceed $1,000,000 by
in the aggregate at any one time outstanding;
(j) Indebtedness of any Credit Party evidenced by promissory notes or
other instruments given to officers or directors of such Credit Party in
consideration for the repurchase of Capital Stock or options of such Credit
Party; provided that such promissory notes or other instruments shall not
provide for any current payment of interest or principal on or prior to the
Maturity Date; and
(k) other unsecured Indebtedness of the Consolidated Parties in an
amount not to exceed $5,000,000 in the aggregate at any one time.
8.2 Liens.
The Credit Parties will not permit any Consolidated Party to contract,
create, incur, assume or permit to exist any Lien with respect to any of its
Property, whether now owned or after acquired, except for Permitted Liens.
8.3 Nature of Business.
The Credit Parties will not permit any Consolidated Party to substantively
alter the character or conduct of the business conducted by such Person as of
the Closing Date.
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8.4 Consolidation, Merger, Dissolution, etc.
The Credit Parties will not permit any Consolidated Party to enter into any
transaction of merger or consolidation or liquidate, wind up or dissolve itself
(or suffer any liquidation or dissolution); provided that, notwithstanding the
foregoing provisions of this Section 8.4, (a) the Borrower may merge or
consolidate with any of its Subsidiaries provided that (i) the Borrower shall be
the continuing or surviving corporation, (ii) the Credit Parties shall cause to
be executed and delivered such documents, instruments and certificates as the
Agent may request in order to maintain the perfection and priority of the
Agent's liens on the assets of the Credit Parties as required by Section 7.14
after giving effect to such transaction and (iii) after giving effect to such
transaction, no Default or Event of Default exists, (b) any Credit Party other
than the Borrower may merge or consolidate with any other Credit Party other
than the Borrower provided that (i) the Credit Parties shall cause to be
executed and delivered such documents, instruments and certificates as the Agent
may request in order to maintain the perfection and priority of the Agent's
liens on the assets of the Credit Parties as required by Section 7.14 after
giving effect to such transaction and (ii) after giving effect to such
transaction, no Default or Event of Default exists, (c) any Consolidated Party
which is not a Credit Party may be merged or consolidated with or into any
Credit Party provided that (i) such Credit Party shall be the continuing or
surviving corporation, (ii) the Credit Parties shall cause to be executed and
delivered such documents, instruments and certificates as the Agent may request
in order to maintain the perfection and priority of the Agent's liens on the
assets of the Credit Parties as required by Section 7.14 after giving effect to
such transaction and (iii) after giving effect to such transaction, no Default
or Event of Default exists, (d) any Consolidated Party which is not a Credit
Party may be merged or consolidated with or into any other Consolidated Party
which is not a Credit Party provided that, after giving effect to such
transaction, no Default or Event of Default exists and (e) any Consolidated
Party may merge with any Person other than another Consolidated Party in
connection with a Permitted Acquisition if such Consolidated Party shall be the
continuing or surviving corporation.
8.5 Asset Sales.
The Credit Parties will not permit any Consolidated Party to sell, lease,
transfer or otherwise dispose of, directly or indirectly, any of its assets
other than (a) sales or other dispositions of Equipment Held for Resale in the
ordinary course of business, (b) sales or other dispositions of Rental Equipment
in any calendar month so long as (i) the aggregate Net Cash Proceeds from such
dispositions when combined with all other such dispositions previously made by
all the Consolidated Parties in such calendar month do not exceed 5% of the net
book value of all Rental Equipment of the Credit Parties, (ii) the aggregate Net
Cash Proceeds from such dispositions when combined with all other such
dispositions previously made by all the Consolidated Parties in the fiscal year
in which such dispositions were made do not exceed 15% of the net book value of
all Rental Equipment of the Credit Parties and (iii) not more than 25% of the
purchase price paid for such assets is in the form of a promissory note or other
deferred payment instrument, (c) sales or other dispositions of obsolete or worn
equipment by a Credit Party other than the sale or other disposition of
equipment described in clauses (a) or (b) immediately above, (d) sales or other
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dispositions of Cash Equivalents, (e) Sale and Leaseback Transactions permitted
pursuant to Section 8.13 hereof and (f) sales or other dispositions for cash and
fair value of real estate assets in any fiscal year so long as the aggregate Net
Cash Proceeds from such dispositions when combined with all other such
dispositions previously made by all the Consolidated Parties in such fiscal year
do not exceed $5,000,000.
8.6 Investments.
The Credit Parties will not permit any Consolidated Party to make
Investments in or to any Person, except for Permitted Investments.
8.7 Restricted Payments.
The Credit Parties will not permit any Consolidated Party to, directly or
indirectly, make a Restricted Payment other than the following Restricted
Payments so long as no Default or Event of Default shall exist immediately prior
to or immediately after the making of any such permitted Restricted Payment: (a)
the payments of dividends from any Consolidated Party to the Borrower or to
another Consolidated Party that is a direct Parent of such Consolidated Party,
(b) the payment of reasonable salaries and bonuses to management by the
Consolidated Parties, (c) repurchases of Capital Stock or options of any Credit
Party held by management of such Credit Party, provided that the aggregate
amount of such repurchases shall not exceed $1,000,000 in cash per fiscal year,
(d) customary and reasonable corporate overhead reimbursements payable by the
Subsidiary Guarantors to the Borrower and (e) payments of the types described in
clauses (vi) and (viii) of the definition of "Permitted Investments".
8.8 Prepayments of Indebtedness, etc.
The Credit Parties will not permit any Consolidated Party to (a) after the
issuance thereof, amend or modify (or permit the amendment or modification of)
any of the terms of any Indebtedness (including, without limitation,
Subordinated Debt) if such amendment or modification would add or change any
terms in a manner adverse to the issuer of such Indebtedness, or shorten the
final maturity or average life to maturity or require any payment to be made
sooner than originally scheduled or increase the interest rate applicable
thereto or change any subordination provision thereof, or (b) make (or give any
notice with respect thereto) any voluntary or optional payment or prepayment or
redemption or acquisition for value of (including without limitation, by way of
depositing money or securities with the trustee with respect thereto before due
for the purpose of paying when due), refund, refinance or exchange of any other
Indebtedness.
8.9 Transactions with Affiliates.
The Credit Parties will not permit any Consolidated Party to enter into any
transaction with, including, without limitation, the purchase, sale or exchange
of property or the rendering of any service to, any Subsidiary or Affiliate of
any Consolidated Party except (a) in the ordinary course
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of and pursuant to the reasonable requirements of such Consolidated Party's
business and upon fair and reasonable terms no less favorable to such
Consolidated Party than could be obtained in a comparable arm's-length
transaction with an unaffiliated Person, (b) as permitted under Section 8.1 or
Section 8.7 hereof, (c) for intercompany loans and advances from the Borrower to
any Subsidiary Guarantor or from any Subsidiary Guarantor to the Borrower or any
other Subsidiary Guarantor and (d) for intercompany transfers of equipment among
Subsidiary Guarantors for the purpose of meeting customer demand for Rental
Equipment, provided that the Subsidiary Guarantors shall keep adequate internal
records of all such transfers.
8.10 Accounting; Organizational Documents; Material Contracts.
(i) The Credit Parties will not and will not permit any Consolidated Party
to change its fiscal year or otherwise materially change its accounting
practices (including, without limitation, depreciation methodology as applied by
the Borrower and its Subsidiaries pursuant to the Borrower's Control Bulletin
No. 5, as revised March 31, 1998) without the prior written consent of the
Required Lenders, except for such changes necessary to conform the fiscal year
or the accounting practices of an Acquired Company to that of the Borrower.
(ii) The Credit Parties will not and will not permit any Consolidated Party
to amend, modify or change its articles of incorporation (or corporate charter
or other similar organizational document) or bylaws (or other similar document)
in a manner adverse to the Lenders.
(iii) The Credit Parties will not and will not permit any Consolidated
Party to, without the prior written consent of the Agent, amend, modify, cancel
or terminate or permit the amendment, modification, cancellation or termination
of any of the Material Contracts, except in the event that such amendments,
modifications, cancellations or terminations could not reasonably be expected to
have a Material Adverse Effect.
8.11 Limitation on Restricted Actions.
The Credit Parties will not permit any Consolidated Party to, directly or
indirectly, create or otherwise cause, incur, assume, suffer or permit to exist
or become effective any consensual encumbrance or restriction of any kind on the
ability of any such Person to (a) in the case of any Subsidiary Guarantors, pay
dividends or make any other distribution on any of such Person's Capital Stock
other than pursuant to the indenture for the Senior Subordinated Notes, (b) pay
any Indebtedness owed to the Credit Parties, (c) make loans or advances to any
other Credit Party or (d) transfer any of its property to any other Credit
Party, except for encumbrances or restrictions existing under or by reason of
(i) customary non-assignment provisions in any lease governing a leasehold
interest, (ii) any agreement or other instrument of a Person existing at the
time it becomes a Subsidiary of a Credit Party; provided that such encumbrance
or restriction is not applicable to any other Person, or any property of any
other Person, other than such Person becoming a Subsidiary of a Credit Party and
was not entered into in contemplation of such Person becoming a Subsidiary of a
Credit Party, (iii) customary provisions contained in purchase
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money financing arrangements permitted by Section 8.1(c) and (iv) this Credit
Agreement and the other Credit Documents.
8.12 Ownership of Subsidiaries.
Notwithstanding any other provisions of this Credit Agreement to the
contrary, the Credit Parties will not permit any Consolidated Party to (i)
permit any Person (other than the Borrower or any Wholly-Owned Subsidiary of the
Borrower) to own any Capital Stock of any Subsidiary of the Borrower, (ii)
permit any Subsidiary of the Borrower to issue Capital Stock (except to the
Borrower or to a Wholly-Owned Subsidiary of the Borrower), (iii) permit, create,
incur, assume or suffer to exist any Lien thereon, in each case except (A) to
qualify directors where required by applicable law or to satisfy other
requirements of applicable law with respect to the ownership of Capital Stock of
Foreign Subsidiaries or (B) for Permitted Liens and (iv) notwithstanding
anything to the contrary contained in clause (ii) above, permit any Subsidiary
of the Borrower to issue any shares of preferred Capital Stock.
8.13 Sale Leasebacks.
The Credit Parties will not permit any Consolidated Party to, directly or
indirectly, enter into any Sale and Leaseback Transaction other than any Sale
Leaseback Transaction pursuant to which the consideration paid, when aggregated
with the consideration received from all other Sale and Leaseback Transactions
of the Credit Parties, does not exceed $5,000,000.
8.14 No Further Negative Pledges.
The Credit Parties will not, and will not permit any Consolidated Party to,
create or otherwise cause or suffer to exist or become effective, directly or
indirectly, (i) any prohibition or restriction (including any agreement to
provide equal and ratable security to any other Person in the event a Lien is
granted to or for the benefit of the Agent and the Lenders) on the creation or
existence of any Lien upon the assets of any Consolidated Party, other than
pursuant to the indenture for the Senior Subordinated Notes or pursuant to
documentation relating to purchase money financing arrangements permitted by
Section 8.1(c) or (ii) any Contractual Obligation which may restrict or limit
the Agent's rights or ability to sell or otherwise dispose of the Collateral or
any part thereof after the occurrence of an Event of Default other than standard
and customary subordination, nondisturbance and attornment agreements under or
in connection with leases of Rental Equipment.
SECTION 9
EVENTS OF DEFAULT
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9.1 Events of Default.
An Event of Default shall exist upon the occurrence of any of the following
specified events (each an "Event of Default"):
(a) Payment. Any Credit Party shall fail to pay (i) any interest or
Fees hereunder within three (3) Business Days of when due hereunder, in
each case whether at stated maturity, by acceleration, or otherwise, (ii)
any principal of the Revolving Loans, the Term Loan or the LOC Obligations
when due, whether at stated maturity, by acceleration or otherwise or (iii)
any expenses hereunder within five (5) Business Days after receipt of
notice by the Credit Parties from the Agent or any applicable Lender that
such expenses are payable; or
(b) Representations. Any representation, warranty or statement made or
deemed to be made by any Credit Party herein, in any of the other Credit
Documents, or in any statement or certificate delivered or required to be
delivered pursuant hereto or thereto shall prove untrue in any material
respect on the date as of which it was deemed to have been made; or
(c) Covenants. Any Credit Party shall
(i) default in the due performance or observance of any term,
covenant or agreement contained in Sections 7.2, 7.4, 7.9, 7.11 or 8.1
through 8.14, inclusive;
(ii) default in the due performance or observance of any term,
covenant or agreement contained in Sections 7.1(a), (b), (c) or (d)
and such default shall continue unremedied for a period of at least 5
Business Days after the earlier of any chairman, president, chief
executive officer, chief financial officer or vice president of a
Credit Party becoming aware of such default or notice thereof by the
Agent; or
(iii) default in the due performance or observance of any other
covenant, contained in this Credit Agreement, the other Credit
Documents (including Hedging Agreements), and in the event such breach
or failure to comply is capable of cure, is not cured within thirty
(30) days of its occurrence;
(d) Other Credit Documents. (i) Any Credit Party shall default in the
due performance or observance of any term, covenant or agreement in any of
the other Credit Documents (subject to applicable grace or cure periods, if
any), or (ii) except as a result of or in connection with a merger of a
Subsidiary permitted under Section 8.4, any Credit Document shall fail to
be in full force and effect or to give the Agent and/or the Lenders the
Liens, rights, powers and privileges purported to be created thereby, or
any Credit Party shall so state in writing; or
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(e) Guaranties. Except as the result of or in connection with a merger
of a Subsidiary permitted under Section 8.4, the guaranty given by any
Subsidiary Guarantor hereunder (including any Additional Credit Party) or
any provision thereof shall cease to be in full force and effect, or any
Subsidiary Guarantor (including any Additional Credit Party) hereunder or
any Person acting by or on behalf of such Subsidiary Guarantor shall deny
or disaffirm such Subsidiary Guarantor's obligations under such guaranty,
or any Subsidiary Guarantor shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed
or observed pursuant to any guaranty; or
(f) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect to
any Consolidated Party; or
(g) Defaults under Other Agreements.
(i) Any Consolidated Party shall default in the performance or
observance (beyond the applicable grace period with respect thereto,
if any) of any Material Contract;
(ii) With respect to (x) any Subordinated Debt or (y) any other
Indebtedness (other than Indebtedness outstanding under this Credit
Agreement) in excess of $1,000,000 in the aggregate for the
Consolidated Parties taken as a whole, (A) any Consolidated Party
shall (1) default in any payment (beyond the applicable grace period
with respect thereto, if any) with respect to any such Indebtedness,
or (2) the occurrence and continuance of a default in the observance
or performance relating to such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or
any other event or condition shall occur or condition exist, the
effect of which default or other event or condition is to cause, or
permit, the holder or holders of such Indebtedness (or trustee or
agent on behalf of such holders) to cause (determined without regard
to whether any notice or lapse of time is required), any such
Indebtedness to become due prior to its stated maturity; or (B) any
such Indebtedness shall be declared due and payable, or required to be
prepaid other than by a regularly scheduled required prepayment, prior
to the stated maturity thereof; or
(iii) (a) any holder of Subordinated Debt alleges (or any
Governmental Authority with applicable jurisdiction determines) that
the Subordinated Debt is not subordinated to any of the Credit Party
Obligations or (b) the subordination provisions in any agreement
relating to Subordinated Debt shall, in whole or in part, terminate,
cease to be effective or cease to be legally valid, binding and
enforceable as to any holder of the Subordinated Debt; or
(h) Judgments. One or more judgments or decrees shall be entered
against one or more of the Consolidated Parties involving a liability of
$250,000 or more in the aggregate (to the extent not paid or fully covered
by insurance provided by a carrier who has
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acknowledged coverage and has the ability to perform) and any such
judgments or decrees shall not have been vacated, discharged or stayed or
bonded pending appeal within 30 days from the entry thereof; or
(i) ERISA. Any of the following events or conditions, if such event or
condition could have a Material Adverse Effect: (i) any "accumulated
funding deficiency," as such term is defined in Section 302 of ERISA and
Section 412 of the Code, whether or not waived, shall exist with respect to
any Plan, or any lien shall arise on the assets of any Consolidated Party
or any ERISA Affiliate in favor of the PBGC or a Plan; (ii) an ERISA Event
shall occur with respect to a Single Employer Plan, which is, in the
reasonable opinion of the Agent, likely to result in the termination of
such Plan for purposes of Title IV of ERISA; (iii) an ERISA Event shall
occur with respect to a Multiemployer Plan or Multiple Employer Plan, which
is, in the reasonable opinion of the Agent, likely to result in (A) the
termination of such Plan for purposes of Title IV of ERISA, or (B) any
Consolidated Party or any ERISA Affiliate incurring any liability in
connection with a withdrawal from, reorganization of (within the meaning of
Section 4241 of ERISA), or insolvency or (within the meaning of Section
4245 of ERISA) such Plan; or (iv) any prohibited transaction (within the
meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of
fiduciary responsibility shall occur which may subject any Consolidated
Party or any ERISA Affiliate to any liability under Sections 406, 409,
502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any
agreement or other instrument pursuant to which any Consolidated Party or
any ERISA Affiliate has agreed or is required to indemnify any person
against any such liability; or
(j) Ownership. There shall occur a Change of Control.
9.2 Acceleration; Remedies.
Upon the occurrence of an Event of Default, and at any time thereafter
unless and until such Event of Default has been waived by the requisite Lenders
(pursuant to the voting requirements of Section 11.6) or cured to the
satisfaction of the requisite Lenders (pursuant to the voting procedures in
Section 11.6), the Agent shall, upon the request and direction of the Required
Lenders, by written notice to the Credit Parties, take any of the following
actions:
(a) Termination of Commitments. Declare the Commitments terminated
whereupon the Commitments shall be immediately terminated.
(b) Acceleration. Declare the unpaid principal of and any accrued
interest in respect of all Loans, any reimbursement obligations arising
from drawings under Letters of Credit and any and all other indebtedness or
obligations of any and every kind owing by the Credit Parties to the Agent
and/or any of the Lenders hereunder to be due whereupon the same shall be
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Credit Parties.
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(c) Cash Collateral. Direct the Credit Parties to pay (and the Credit
Parties agree that upon receipt of such notice, or upon the occurrence of
an Event of Default under Section 9.1(f), they will immediately pay) to the
Agent additional cash, to be held by the Agent, for the benefit of the
Lenders, in a cash collateral account as additional security for the LOC
Obligations in respect of subsequent drawings under all then outstanding
Letters of Credit in an amount equal to the maximum aggregate amount which
may be drawn under all Letters of Credits then outstanding.
(d) Enforcement of Rights. Enforce any and all rights and interests
created and existing under the Credit Documents including, without
limitation, all rights and remedies existing under the Collateral
Documents, all rights and remedies against a Subsidiary Guarantor and all
rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
9.1(f) shall occur with respect to any Credit Party, then the Commitments shall
automatically terminate and all Loans, all reimbursement obligations arising
from drawings under Letters of Credit, all accrued interest in respect thereof,
all accrued and unpaid Fees and other indebtedness or obligations owing to the
Agent and/or any of the Lenders hereunder automatically shall immediately become
due and payable without the giving of any notice or other action by the Agent or
the Lenders.
SECTION 10
AGENCY PROVISIONS
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10.1 Appointment, Powers and Immunities.
Each Lender hereby irrevocably appoints and authorizes the Agent to act as
its agent under this Credit Agreement and the other Credit Documents with such
powers and discretion as are specifically delegated to the Agent by the terms of
this Credit Agreement and the other Credit Documents, together with such other
powers as are reasonably incidental thereto. The Agent (which term as used in
this sentence and in Section 10.5 and the first sentence of Section 10.6 hereof
shall include its Affiliates and its own and its Affiliates' officers,
directors, employees, and agents): (a) shall not have any duties or
responsibilities except those expressly set forth in this Credit Agreement and
shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible
to the Lenders for any recital, statement, representation, or warranty (whether
written or oral) made in or in connection with any Credit Document or any
certificate or other document referred to or provided for in, or received by any
of them under, any Credit Document, or for the value, validity, effectiveness,
genuineness, enforceability, or sufficiency of any Credit Document, or any other
document referred to or provided for therein or for any failure by any Credit
Party or any other Person to perform any of its obligations thereunder; (c)
shall not be responsible for or have any duty to ascertain, inquire into, or
verify the performance or observance of any covenants or agreements by any
Credit Party or the satisfaction of any
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condition or to inspect the property (including the books and records) of any
Credit Party or any of its Subsidiaries or Affiliates; (d) shall not be required
to initiate or conduct any litigation or collection proceedings under any Credit
Document; and (e) shall not be responsible for any action taken or omitted to be
taken by it under or in connection with any Credit Document, except for its own
gross negligence or willful misconduct. The Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care.
10.2 Reliance by Agent.
The Agent shall be entitled to rely upon any certification, notice,
instrument, writing, or other communication (including, without limitation, any
thereof by telephone or telecopy) believed by it to be genuine and correct and
to have been signed, sent or made by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel (including counsel for
any Credit Party), independent accountants, and other experts selected by the
Agent. The Agent may deem and treat the payee of any Note as the holder thereof
for all purposes hereof unless and until the Agent receives and accepts an
Assignment and Acceptance executed in accordance with Section 11.3(b) hereof. As
to any matters not expressly provided for by this Credit Agreement, the Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required Lenders,
and such instructions shall be binding on all of the Lenders; provided, however,
that the Agent shall not be required to take any action that exposes the Agent
to personal liability or that is contrary to any Credit Document or applicable
law or unless it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking any such action.
10.3 Defaults.
The Agent shall not be deemed to have knowledge or notice of the occurrence
of a Default or Event of Default unless the Agent has received written notice
from a Lender or the a Credit Party specifying such Default or Event of Default
and stating that such notice is a "Notice of Default". In the event that the
Agent receives such a notice of the occurrence of a Default or Event of Default,
the Agent shall give prompt notice thereof to the Lenders. The Agent shall
(subject to Section 10.2 hereof) take such action with respect to such Default
or Event of Default as shall reasonably be directed by the Required Lenders,
provided that, unless and until the Agent shall have received such directions,
the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interest of the Lenders.
10.4 Rights as a Lender.
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With respect to its Commitment and the Loans made by it, First Union
National Bank (and any successor acting as Agent) in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting as the Agent, and the
term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include the Agent in its individual capacity. First Union National Bank (and any
successor acting as Agent) and its Affiliates may (without having to account
therefor to any Lender) accept deposits from, lend money to, make investments
in, provide services to, and generally engage in any kind of lending, trust, or
other business with any Credit Party or any of its Subsidiaries or Affiliates as
if it were not acting as Agent, and First Union National Bank (and any successor
acting as Agent) and its Affiliates may accept fees and other consideration from
any Credit Party or any of its Subsidiaries or Affiliates for services in
connection with this Credit Agreement or otherwise without having to account for
the same to the Lenders.
10.5 Indemnification.
The Lenders agree to indemnify the Agent (to the extent not reimbursed
under Section 11.5 hereof, but without limiting the obligations of the Credit
Parties under such Section) ratably in accordance with their respective
Commitments, for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including attorneys'
fees), or disbursements of any kind and nature whatsoever that may be imposed
on, incurred by or asserted against the Agent (including by any Lender) in any
way relating to or arising out of any Credit Document or the transactions
contemplated thereby or any action taken or omitted by the Agent under any
Credit Document (including any of the foregoing arising from the negligence of
the Agent); provided that no Lender shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful misconduct of the
Person to be indemnified. Without limitation of the foregoing, each Lender
agrees to reimburse the Agent promptly upon demand for its ratable share of any
costs or expenses payable by the Credit Parties under Section 11.5, to the
extent that the Agent is not promptly reimbursed for such costs and expenses by
the Credit Parties. The agreements in this Section 10.5 shall survive the
repayment of the Loans, LOC Obligations and other obligations under the Credit
Documents and the termination of the Commitments hereunder.
10.6 Non-Reliance on Agent and Other Lenders.
Each Lender agrees that it has, independently and without reliance on the
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Credit Parties and their
Subsidiaries and decision to enter into this Credit Agreement and that it will,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under the Credit Documents. Except for notices, reports, and other documents and
information expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the
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affairs, financial condition, or business of any Credit Party or any of its
Subsidiaries or Affiliates that may come into the possession of the Agent or any
of its Affiliates.
10.7 Successor Agent.
The Agent may resign at any time by giving notice thereof to the Lenders
and the Credit Parties. Upon any such resignation, the Required Lenders shall
have the right to appoint a successor Agent with the approval of the Borrower
(so long as no Event of Default has occurred and is continuing), which approval
shall not be unreasonably withheld or delayed. If no successor Agent shall have
been so appointed by the Required Lenders and shall have accepted such
appointment within thirty (30) days after the retiring Agent's giving of notice
of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent which shall be a commercial bank organized under the laws of the
United States of America having combined capital and surplus of at least
$100,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor, such successor shall thereupon succeed to and become vested with all
the rights, powers, discretion, privileges, and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Section 10 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
Agent.
SECTION 11
MISCELLANEOUS
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11.1 Notices.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (a) when
delivered, (b) when transmitted via telecopy (or other facsimile device) to the
number set out below, (c) the Business Day following the day on which the same
has been delivered prepaid to a reputable national overnight air courier
service, or (d) the third Business Day following the day on which the same is
sent by certified or registered mail, postage prepaid, in each case to the
respective parties at the address, in the case of the Credit Parties and the
Agent, set forth below, and, in the case of the Lenders, set forth on Schedule
2.1(a), or at such other address as such party may specify by written notice to
the other parties hereto:
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if to any Credit Party:
National Equipment Services, Inc.
1800 Sherman Avenue, Suite 1000
Evanston, Illinois 60201
Attention: Paul R. Ingersoll, Vice President, Secretary
Telephone: (847) 733-1000 (ext. 11)
Telecopy: (847) 733-1078
With a copy to:
Sandford E. Perl, Esq.
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telecopy: 312-861-2200
if to the Agent:
First Union National Bank
One First Union Center
301 South College Street, TW-10
Attn: Agency Services
Telephone: (704) 383-3721
Telecopy: (704) 383-0288
with a copy to:
First Union National Bank
One First Union Center
301 South College Street, DC-5
Attn: Hank Biedrzycki, Vice President
Telephone: (704) 374-4914
Telecopy: (704) 374-3300
11.2 Right of Set-Off; Adjustments.
Upon the occurrence and during the continuance of any Event of Default,
each Lender (and each of its Affiliates) is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender (or any
of its Affiliates) to or for the credit or the account of any Credit Party
against any and all of the obligations of such Person now or hereafter existing
under this Credit Agreement, under
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the Notes, under any other Credit Document or otherwise, irrespective of whether
such Lender shall have made any demand under hereunder or thereunder and
although such obligations may be unmatured. Each Lender agrees promptly to
notify any affected Credit Party after any such set-off and application made by
such Lender; provided, however, that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of each Lender
under this Section 11.2 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) that such Lender may have.
11.3 Benefit of Agreement.
(a) This Credit Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of
the parties hereto; provided that none of the Credit Parties may assign or
transfer any of its interests and obligations without prior written consent
of the Lenders; provided further that the rights of each Lender to
transfer, assign or grant participations in its rights and/or obligations
hereunder shall be limited as set forth in this Section 11.3.
(b) Each Lender may assign to one or more Eligible Assignees all or a
portion of its rights and obligations under this Credit Agreement
(including, without limitation, all or a portion of its Loans, its Notes,
and its Commitment); provided, however, that
(i) each such assignment shall be to an Eligible Assignee;
(ii) except in the case of an assignment to another Lender or an
assignment of all of a Lender's rights and obligations under this
Credit Agreement, any such partial assignment shall be in an amount at
least equal to $5,000,000 (or, if less, the remaining amount of the
Commitment being assigned by such Lender) or an integral multiple of
$1,000,000 in excess thereof;
(iii) each such assignment by a Lender shall be of a constant,
and not varying, percentage of all of its rights and obligations under
this Credit Agreement and the Notes; and
(iv) the parties to such assignment shall execute and deliver to
the Agent for its acceptance an Assignment and Acceptance in the form
of Exhibit 11.3(b) hereto, together with any Note subject to such
assignment and a processing fee of $3,500.
Upon execution, delivery, and acceptance of such Assignment and Acceptance,
the assignee thereunder shall be a party hereto and, to the extent of such
assignment, have the obligations, rights, and benefits of a Lender
hereunder and the assigning Lender shall, to the extent of such assignment,
relinquish its rights and be released from its obligations under this
Credit Agreement. Upon the consummation of any assignment pursuant to this
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Section 11.3(b), the assignor, the Agent and the Credit Parties shall make
appropriate arrangements so that, if required, new Notes are issued to the
assignor and the assignee. If the assignee is not a United States person
under Section 7701(a)(30) of the Code, it shall deliver to the Credit
Parties and the Agent certification as to exemption from deduction or
withholding of Taxes in accordance with Section 3.11.
(c) The Agent shall maintain at its address referred to in Section
11.1 a copy of each Assignment and Acceptance delivered to and accepted by
it and a register for the recordation of the names and addresses of the
Lenders and the Commitment of, and principal amount of the Loans owing to,
each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error,
and the Credit Parties, the Agent and the Lenders may treat each Person
whose name is recorded in the Register as a Lender hereunder for all
purposes of this Credit Agreement. The Register shall be available for
inspection by the Credit Parties or any Lender at any reasonable time and
from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by the
parties thereto, together with any Note subject to such assignment and
payment of the processing fee, the Agent shall, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit
11.3(b) hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the parties thereto.
(e) Each Lender may sell participations to one or more Persons in all
or a portion of its rights, obligations or rights and obligations under
this Credit Agreement (including all or a portion of its Commitment or its
Loans); provided, however, that (i) such Lender's obligations under this
Credit Agreement shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) the participant shall be entitled to the benefit of the
yield protection provisions contained in Sections 3.7 through 3.12,
inclusive, and the right of set-off contained in Section 11.2, and (iv) the
Credit Parties shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under this Credit
Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Credit Parties relating to the Credit Party Obligations
owing to such Lender and to approve any amendment, modification, or waiver
of any provision of this Credit Agreement (other than amendments,
modifications, or waivers decreasing the amount of principal of or the rate
at which interest is payable on such Loans or Notes, extending any
scheduled principal payment date or date fixed for the payment of interest
on such Loans or Notes, or extending its Commitment).
(f) Notwithstanding any other provision set forth in this Credit
Agreement, any Lender may at any time assign and pledge all or any portion
of its Loans and its Notes to any Federal Reserve Bank as collateral
security pursuant to Regulation A and any
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Operating Circular issued by such Federal Reserve Bank. No such assignment
shall release the assigning Lender from its obligations hereunder.
(g) Any Lender may furnish any information concerning the Consolidated
Parties in the possession of such Lender from time to time to assignees and
participants (including prospective assignees and participants), subject,
however, to the provisions of Section 11.15 hereof.
11.4 No Waiver; Remedies Cumulative.
No failure or delay on the part of the Agent or any Lender in exercising
any right, power or privilege hereunder or under any other Credit Document and
no course of dealing between the Agent or any Lender and any of the Credit
Parties shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and remedies
provided herein are cumulative and not exclusive of any rights or remedies which
the Agent or any Lender would otherwise have. No notice to or demand on any
Credit Party in any case shall entitle the Credit Parties to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Agent or the Lenders to any other or further action
in any circumstances without notice or demand.
11.5 Expenses; Indemnification.
(a) The Credit Parties jointly and severally agree to pay on demand all costs
and expenses of the Agent in connection with the syndication, preparation,
execution, delivery, administration, modification, and amendment of this Credit
Agreement, the other Credit Documents, and the other documents to be delivered
hereunder, including, without limitation, the reasonable fees and expenses of
counsel for the Agent (including the cost of internal counsel) with respect
thereto and with respect to advising the Agent as to its rights and
responsibilities under the Credit Documents. The Credit Parties further jointly
and severally agree to pay on demand all costs and expenses of the Agent and the
Lenders, if any (including, without limitation, reasonable attorneys' fees and
expenses and the cost of internal counsel), in connection with the enforcement
(whether through negotiations, legal proceedings, or otherwise) of the Credit
Documents and the other documents to be delivered hereunder.
(b) The Credit Parties jointly and severally agree to indemnify and hold
harmless the Agent and each Lender and each of their Affiliates and their
respective officers, directors, employees, agents, and advisors (each, an
"Indemnified Party") from and against any and all claims, damages, losses,
liabilities, costs, and expenses (including, without limitation, reasonable
attorneys' fees) that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of (including, without limitation, in connection with any investigation,
litigation, or proceeding or preparation of defense in connection therewith) the
Credit Documents, any of the transactions contemplated herein or the
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actual or proposed use of the proceeds of the Loans (including any of the
foregoing arising from the negligence of the Indemnified Party), except to the
extent such claim, damage, loss, liability, cost, or expense is found in a
final, non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful misconduct.
In the case of an investigation, litigation or other proceeding to which the
indemnity in this Section 11.5 applies, such indemnity shall be effective
whether or not such investigation, litigation or proceeding is brought by any of
the Credit Parties, their respective directors, shareholders or creditors or an
Indemnified Party or any other Person or any Indemnified Party is otherwise a
party thereto and whether or not the transactions contemplated hereby are
consummated. The Credit Parties agree not to assert any claim against the Agent,
any Lender, any of their Affiliates, or any of their respective directors,
officers, employees, attorneys, agents, and advisers, on any theory of
liability, for special, indirect, consequential, or punitive damages arising out
of or otherwise relating to the Credit Documents, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the Loans.
(c) Without prejudice to the survival of any other agreement of the Credit
Parties hereunder, the agreements and obligations of the Credit Parties
contained in this Section 11.5 shall survive the repayment of the Loans, LOC
Obligations and other obligations under the Credit Documents and the termination
of the Commitments hereunder.
11.6 Amendments, Waivers and Consents.
Neither this Credit Agreement nor any other Credit Document nor any of the
terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is in
writing entered into by, or approved in writing by, the Required Lenders and the
Borrower, provided, however, that:
(i) without the consent of each Lender affected thereby, neither
this Credit Agreement nor any other Credit Document may be amended to
(a) extend the final maturity of any Loan or of any
reimbursement obligation, or any portion thereof, arising from
drawings under Letters of Credit,
(b) reduce the rate or extend the time of payment of interest
(other than as a result of waiving the applicability of any post-
default increase in interest rates) thereon or Fees hereunder,
(c) reduce or waive the principal amount of any Loan or of any
reimbursement obligation, or any portion thereof, arising from
drawings under Letters of Credit,
(d) increase the Commitment of a Lender over the amount
thereof in effect (it being understood and agreed that a waiver of any
Default or Event of Default or
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mandatory reduction in the Commitments shall not constitute a change
in the terms of any Commitment of any Lender),
(e) release the Borrower or substantially all of the other
Credit Parties from its or their obligations under the Credit
Documents,
(f) except as the result of or in connection with an Asset
Disposition permitted by Section 8.5, release all or substantially all
of the Collateral,
(g) amend, modify or waive any provision of this Section 11.6
or Section 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15,
9.1(a), 11.2, 11.3, 11.5 or 11.9,
(h) reduce any percentage specified in, or otherwise modify,
the definition of Required Lenders, or
(i) consent to the assignment or transfer by the Borrower or
all or substantially all of the other Credit Parties of any of its or
their rights and obligations under (or in respect of) the Credit
Documents except as permitted thereby;
(ii) without the consent of Lenders holding in the aggregate more
than 50% of the outstanding Term Loan, extend the time for or the amount or
the manner of application of proceeds of any mandatory prepayment required
by Sections 3.3(b)(ii) or (iii) hereof;
(iii) without the consent of the Agent, no provision of Section 10
may be amended; and
(iv) without the consent of the Issuing Lender, no provision of
Section 2.2 may be amended.
Notwithstanding the fact that the consent of all the Lenders is required in
certain circumstances as set forth above, (x) each Lender is entitled to
vote as such Lender sees fit on any bankruptcy reorganization plan that
affects the Loans, and each Lender acknowledges that the provisions of
Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent
provisions set forth herein and (y) the Required Lenders may consent to
allow a Credit Party to use cash collateral in the context of a bankruptcy
or insolvency proceeding.
11.7 Counterparts.
This Credit Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument. It shall not be necessary in
making proof of this Credit Agreement to produce or account for more than one
such counterpart for each of the parties hereto. Delivery by facsimile by any of
the parties hereto of an executed counterpart of this Credit Agreement shall be
as effective as an
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original executed counterpart hereof and shall be deemed a representation that
an original executed counterpart hereof will be delivered.
11.8 Headings.
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
11.9 Survival.
All indemnities set forth herein, including, without limitation, in Section
2.2(i), 3.11, 3.12, 10.5 or 11.5 shall survive the execution and delivery of
this Credit Agreement, the making of the Loans, the issuance of the Letters of
Credit, the repayment of the Loans, LOC Obligations and other obligations under
the Credit Documents and the termination of the Commitments hereunder, and all
representations and warranties made by the Credit Parties herein shall survive
delivery of the Notes and the making of the Loans hereunder.
11.10 Governing Law; Submission to Jurisdiction; Venue; Waiver of Trial by
Jury.
(a) THIS CREDIT AGREEMENT AND, UNLESS OTHERWISE EXPRESSLY PROVIDED
THEREIN, THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Any legal
action or proceeding with respect to this Credit Agreement or any other
Credit Document may be brought in the courts of the State of North Carolina
in Mecklenburg County or of the United States for the Western District of
North Carolina or of the State of New York or of the United States for the
Southern District of New York, and, by execution and delivery of this
Credit Agreement, each of the Credit Parties hereby irrevocably accepts for
itself and in respect of its property, generally and unconditionally, the
nonexclusive jurisdiction of such courts. Each of the Credit Parties
further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to it at
the address set out for notices pursuant to Section 11.1, such service to
become effective three (3) days after such mailing. Nothing herein shall
affect the right of the Agent or any Lender to serve process in any other
manner permitted by law or to commence legal proceedings or to otherwise
proceed against any Credit Party in any other jurisdiction.
(b) Each of the Credit Parties hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any
of the aforesaid actions or proceedings arising out of or in connection
with this Credit Agreement or any other Credit Document brought in the
courts referred to in subsection (a) above and hereby further
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irrevocably waives and agrees not to plead or claim in any such court that
any such action or proceeding brought in any such court has been brought in
an inconvenient forum.
(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE AGENT, THE LENDERS AND
EACH OF THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING
TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
11.11 Arbitration.
(a) Notwithstanding the provisions of Section 11.1 to the contrary,
upon demand of any party hereto, whether made before or after institution
of any judicial proceeding, any dispute, claim or controversy arising out
of, connected with or relating to this Credit Agreement and other Credit
Documents ("Disputes") between or among parties to this Credit Agreement
shall be resolved by binding arbitration as provided herein. Institution of
a judicial proceeding by a party does not waive the right of that party to
demand arbitration hereunder. Disputes may include, without limitation,
tort claims, counterclaims, disputes as to whether a matter is subject to
arbitration, claims brought as class actions, claims arising from Credit
Documents executed in the future, or claims arising out of or connected
with the transaction reflected by this Credit Agreement.
Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
American Arbitration Association (the "AAA") and Title 9 of the U.S. Code.
All arbitration hearings shall be conducted in Charlotte, North Carolina. A
hearing shall begin within 90 days of demand for arbitration and all
hearings shall be concluded within 120 days of demand for arbitration.
These time limitations may not be extended unless a party shows cause for
extension and then no more than a total extension of 60 days. The expedited
procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be
applicable to claims of less than $1,000,000. All applicable statutes of
limitation shall apply to any Dispute. The panel from which all arbitrators
are selected shall be comprised of licensed attorneys selected from the
Commercial Financial Dispute Arbitration Panel of the AAA. The single
arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction, state or federal, of the state
where the hearing will be conducted or if such person is not available to
serve, the single arbitrator may be a licensed attorney. The parties hereto
do not waive applicable Federal or state substantive law except as provided
herein. A judgment upon the award may be entered in any court having
jurisdiction. Notwithstanding the foregoing, this arbitration provision
does not apply to disputes under or related to swap agreements.
(b) Notwithstanding the preceding binding arbitration provisions, the
Agent, the Lenders and the Credit Parties agree to preserve, without
diminution, certain remedies that the
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Agent on behalf of the Lenders may employ or exercise freely, independently
or in connection with an arbitration proceeding or after an arbitration
action is brought. The Agent on behalf of the Lenders shall have the right
to proceed in any court of proper jurisdiction or by self-help to exercise
or prosecute the following remedies, as applicable (i) all rights to
foreclose against any real or personal property or other security by
exercising a power of sale granted under Credit Documents or under
applicable law or by judicial foreclosure and sale, including a proceeding
to confirm the sale; (ii) all rights of self-help including peaceful
occupation of real property and collection of rents, set-off, and peaceful
possession of personal property; (iii) obtaining provisional or ancillary
remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment.
Any claim or controversy with regard to the Agent's entitlement on behalf
of the Lenders to such remedies is a Dispute. Preservation of these
remedies does not limit the power of an arbitrator to grant similar
remedies that may be requested by a party in a Dispute.
(c) The parties hereto agree that they shall not have a remedy of
punitive or exemplary damages against the other in any Dispute and hereby
waive any right or claim to punitive or exemplary damages they have now or
which may arise in the future in connection with any Dispute whether the
Dispute is resolved by arbitration or judicially.
(d) By execution and delivery of this Credit Agreement, each of the
parties hereto accepts, for itself and in connection with its properties,
generally and unconditionally, the non-exclusive jurisdiction relating to
any arbitration proceedings conducted under the Arbitration Rules in
Charlotte, North Carolina and irrevocably agrees to be bound by any final
judgment rendered thereby in connection with this Credit Agreement from
which no appeal has been taken or is available.
11.12 Severability.
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.13 Entirety.
This Credit Agreement together with the other Credit Documents represent
the entire agreement of the parties hereto and thereto, and supersede all prior
agreements and understandings, oral or written, if any, including any commitment
letters or correspondence relating to the Credit Documents or the transactions
contemplated herein and therein (but excluding the Agent's Commitment Letter and
the Agent's Fee Letters).
11.14 Binding Effect; Termination.
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(a) This Credit Agreement shall become effective at such time when all
of the conditions set forth in Section 5.1 have been satisfied or waived by
the Lenders and it shall have been executed by each Credit Party and the
Agent, and the Agent shall have received copies hereof (telefaxed or
otherwise) which, when taken together, bear the signatures of each Lender,
and thereafter this Credit Agreement shall be binding upon and inure to the
benefit of each Credit Party, the Agent and each Lender and their
respective successors and assigns.
(b) The term of this Credit Agreement shall be until no Loans, LOC
Obligations or any other amounts payable hereunder or under any of the
other Credit Documents shall remain outstanding, no Letters of Credit shall
be outstanding, all of the Credit Party Obligations have been irrevocably
satisfied in full and all of the Commitments hereunder shall have expired
or been terminated.
11.15 Confidentiality.
The Agent and each Lender (each, a "Lending Party") agrees to keep
confidential any information furnished or made available to it by the Credit
Parties pursuant to this Credit Agreement that is marked confidential; provided
that nothing herein shall prevent any Lending Party from disclosing such
information (a) to any other Lending Party or any Affiliate of any Lending
Party, or any officer, director, employee, agent, or advisor of any Lending
Party or Affiliate of any Lending Party, (b) to any other Person if it is
reasonably necessary for the administration of the credit facility provided
herein, (c) as required by any law, rule, or regulation, (d) upon the order of
any court or administrative agency, (e) upon the request or demand of any
regulatory agency or authority, (f) that is or becomes available to the public
or that is or becomes available to any Lending Party other than as a result of a
disclosure by any Lending Party prohibited by this Credit Agreement, (g) in
connection with any litigation to which such Lending Party or any of its
Affiliates may be a party, (h) to the extent necessary in connection with the
exercise of any remedy under this Credit Agreement or any other Credit Document,
(i) subject to provisions substantially similar to those contained in this
Section 11.15, to any actual or proposed participant or assignee and (j) to Gold
Sheets and other similar bank trade publications (such information to consist of
deal terms and other information customarily found in such publications).
11.16 Conflict.
To the extent that there is a conflict or inconsistency between any
provision hereof, on the one hand, and any provision of any Credit Document, on
the other hand, this Credit Agreement shall control.
[Signature Page to Follow]
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Credit Agreement to be duly executed and delivered as of the date first
above written.
BORROWER: NATIONAL EQUIPMENT SERVICES, INC.
- --------
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
SUBSIDIARY
GUARANTORS: NES ACQUISITION CORP.
- ----------
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
BAT ACQUISITION CORP.
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
NES EAST ACQUISITION CORP.
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
NES MICHIGAN ACQUISITION CORP.
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
<PAGE>
ALBANY LADDER COMPANY, INC.
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
FALCONITE, INC.
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
FALCONITE EQUIPMENT, INC.
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
M&M PROPERTIES, INC.
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
CARL'S MID SOUTH RENT-ALL CENTER
INCORPORATED
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
FALCONITE REBUILD CENTER, INC.
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
<PAGE>
FALCONITE AVIATION, INC.
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
MCCURRY & FALCONITE EQUIPMENT CO.,
INC.
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
<PAGE>
LENDERS: FIRST UNION NATIONAL BANK,
- ------- individually in its capacity as a
Lender and in its capacity as Agent
By: /s/ Eric M. Butler
-------------------------------------
Name: Eric M. Butler
-----------------------------------
Title: Senior Vice President
----------------------------------
COMERICA BANK,
as a Lender
By: /s/ James B. Haeffner
-------------------------------------
Name: James B. Haeffner
-----------------------------------
Title: First Vice President
----------------------------------
THE CIT GROUP/BUSINESS CREDIT, INC.,
as a Lender
By: /s/ Mary James
-------------------------------------
Name: Mary James
-----------------------------------
Title: Vice President
----------------------------------
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO,
as a Lender
By: /s/ David S. Weislogel
-------------------------------------
Name: David S. Weislogel
-----------------------------------
Title: Vice President
----------------------------------
MERCANTILE BUSINESS CREDIT INC.,
as a Lender
By: /s/ Carolyn M. Rooney
-------------------------------------
Name: Carolyn M. Rooney
-----------------------------------
Title: Vice President
----------------------------------
<PAGE>
Exhibit 4.7
-----------
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT dated as of July 17, 1998 (as amended, modified or
otherwise supplemented, the "Pledge Agreement" or this "Agreement") by NATIONAL
EQUIPMENT SERVICES, INC., a Delaware corporation (the "Borrower") and the
Subsidiary Guarantors identified on the signature pages hereof and such other
parties as may become Subsidiary Guarantors after the date hereof (hereinafter,
the Borrower and such Subsidiary Guarantors collectively referred to herein as
the "Pledgors" or individually referred to as a "Pledgor") in favor of FIRST
UNION NATIONAL BANK, in its capacity as agent (in such capacity, the "Agent")
for the Lenders under the Credit Agreement described below and any Affiliates of
Lenders which provide interest rate or currency protection agreements as
hereafter provided (collectively, the "Lenders").
RECITALS
--------
WHEREAS, the Lenders have severally agreed to make loans and extensions of
credit to the Borrower pursuant to the terms of that certain Credit Agreement
dated as of the date hereof (as amended, modified or otherwise supplemented, the
"Credit Agreement") among the Borrower, the Subsidiary Guarantors, the Lenders
identified therein and the Agent;
WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the obligations of the Lenders to make their respective loans and
extensions of credit to the Borrower thereunder that the Pledgors shall have
executed and delivered this Pledge Agreement to the Agent for the ratable
benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the Agent and
the Lenders to enter into the Credit Agreement and to induce the Lenders to make
their respective loans and extensions of credit thereunder, the Pledgors hereby
agree with the Agent, for the ratable benefit of the Lenders, as follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms defined in
the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement. For purposes of this Agreement, the term "Lender" shall
include any Affiliate of any Lender which has entered into a Hedging Agreement
with the Borrower to the extent permitted by the Credit Agreement in respect of
the Credit Party Obligations.
(b) The following terms shall have the following meanings:
"Agreement": this Pledge Agreement, as the same may be amended,
modified or otherwise supplemented from time to time.
"Code": the Uniform Commercial Code from time to time in effect in the
State of New York.
"Collateral": the Pledged Stock and all Proceeds thereof.
<PAGE>
"Collateral Account": any account established to hold money Proceeds,
maintained under the sole dominion and control of the Agent, subject to
withdrawal by the Agent for the account of the Lenders as provided in
Section 8(a).
"Issuers": the collective reference to the companies identified on
Schedule 1 attached hereto as the issuers of the Pledged Stock;
individually, each an "Issuer."
"Pledged Stock": the shares of Capital Stock listed on Schedule 1
hereto, together with all stock certificates, options or rights of any
nature whatsoever that may be issued or granted by any Issuer to a Pledgor
in respect of the Pledged Stock while this Agreement is in effect.
"Proceeds": all "proceeds" as such term is defined in Section 9-306(1)
of the Uniform Commercial Code in effect in the State of New York on the
date hereof and, in any event, shall include, without limitation, all
dividends or other income from the Pledged Stock, collections thereon or
distributions with respect thereto.
"Secured Obligations": the collective reference to the following:
(a) All unpaid principal of and interest on (including, without
limitation, interest accruing at the then applicable rate provided in
the Credit Agreement after the maturity of the Loans and other
obligations owing under the Credit Agreement and interest accruing at
the then applicable rate provided in the Credit Agreement after the
filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the
Pledgors, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding) the Loans and all other
obligations and liabilities of the Pledgors to the Agent and the
Lenders, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, the Credit Agreement, any Notes,
the other Credit Documents, any Hedging Agreements with the Agent or
any Lender in respect of the Pledgors' obligations under the Credit
Agreement to the extent permitted by the Credit Agreement or any other
document made, delivered or given in connection therewith, in each
case, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel
to the Agent and the Lenders that are required to be paid by the
Pledgors pursuant to the terms of the Credit Agreement, any other
Credit Document or any such Hedging Agreements); and
(b) All other indebtedness, liabilities and obligations of any
kind or nature, now existing or hereafter arising, owing by the
Pledgors to the Agent or any
<PAGE>
Lender, arising under this Pledge Agreement or any of the other Credit
Documents, whether primary, secondary, direct, contingent, or joint
and several.
"Securities Act": the Securities Act of 1933, as amended.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement, and section and
paragraph references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. Pledge; Grant of Security Interest. Each of the Pledgors hereby
delivers to the Agent, for the ratable benefit of the Lenders, all the Pledged
Stock and hereby grants to the Agent, for the ratable benefit of the Lenders, a
first security interest in the Collateral, as collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of the Secured Obligations.
3. Stock Powers. Concurrently with the delivery to the Agent of each
certificate representing one or more shares of Pledged Stock, each of the
Pledgors shall deliver to the Agent an undated stock power covering such
certificate, duly executed in blank.
4. Representations and Warranties. Each of the Pledgors represents and
warrants that:
(a) The shares of Pledged Stock constitute all the issued and
outstanding shares of all classes of Capital Stock of each Issuer.
(b) All the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable.
(c) The Pledgor is the record and beneficial owner of, and has good
and marketable title to, the Pledged Stock, free of any and all Liens or
options in favor of, or claims of, any other Person, except the security
interests created by this Agreement.
(d) Upon delivery to the Agent of the stock certificates evidencing
the Pledged Stock, the security interest created by this Agreement will
constitute a valid, perfected first priority security interest in the
Collateral, enforceable in accordance with its terms against all creditors
of the Pledgor and any Persons purporting to purchase any Collateral from
the Pledgor, except as affected by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to
or affecting
<PAGE>
creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of
good faith and fair dealing.
5. Covenants. Each of the Pledgors covenants and agrees with the Agent
and the Lenders that, from and after the date of this Agreement until this
Agreement is terminated and the security interests created hereby are released:
(a) If the Pledgor shall, as a result of its ownership of the Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock
dividend or a distribution in connection with any reclassification,
increase or reduction of capital or any certificate issued in connection
with any reorganization), option or rights, whether in addition to, in
substitution of, as a conversion of, or in exchange for any shares of the
Pledged Stock, or otherwise in respect thereof, the Pledgor shall accept
the same as the agent of the Agent and the Lenders, hold the same in trust
for the Agent and the Lenders and deliver the same forthwith to the Agent
in the exact form received, duly endorsed by the Pledgor to the Agent, if
required, together with an undated stock power covering such certificate
duly executed in blank by the Pledgor and with, if the Agent so requests,
signature guaranteed, to be held by the Agent, subject to the terms hereof,
as additional collateral security for the Secured Obligations. Any sums
paid upon or in respect of the Pledged Stock upon the liquidation or
dissolution of any Issuer shall be paid over to the Agent to be held by it
hereunder as additional collateral security for the Secured Obligations,
and in case any distribution of capital shall be made on or in respect of
the Pledged Stock or any property shall be distributed upon or with respect
to the Pledged Stock pursuant to the recapitalization or reclassification
of the capital of the Issuer or pursuant to the reorganization thereof, the
property so distributed shall be delivered to the Agent to be held by it
hereunder as additional collateral security for the Secured Obligations. If
any sums of money or property so paid or distributed in respect of the
Pledged Stock shall be received by the Pledgor, the Pledgor shall, until
such money or property is paid or delivered to the Agent, hold such money
or property in trust for the Agent and the Lenders, segregated from other
funds of the Pledgor, as additional collateral security for the Secured
Obligations.
(b) Without the prior written consent of the Agent, the Pledgor will
not (i) vote to enable, or take any other action to permit, any Issuer to
issue any stock or other equity securities of any nature or to issue any
other securities convertible into or granting the right to purchase or
exchange for any stock or equity securities of any nature of any Issuer,
(ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant
any option with respect to, the Collateral, (iii) create, incur or permit
to exist any Lien or option in favor of, or any claim of any Person with
respect to, any of the Collateral, or any interest therein, except for the
security interests created by this Agreement or (iv) enter into any
agreement or undertaking restricting the right or ability of the Pledgor or
the Agent to sell, assign or transfer any of the Collateral.
<PAGE>
(c) The Pledgor shall maintain the security interest created by this
Agreement as a first, perfected security interest and shall defend such
security interest against claims and demands of all Persons whomsoever. At
any time and from time to time, upon the written request of the Agent, and
at the sole expense of the Pledgor, the Pledgor will promptly and duly
execute and deliver such further instruments and documents and take such
further actions as the Agent may reasonably request for the purposes of
obtaining or preserving the full benefits of this Agreement and of the
rights and powers herein granted. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
promissory note, other instrument or chattel paper, such note, instrument
or chattel paper shall be promptly delivered to the Agent, duly endorsed in
a manner satisfactory to the Agent, to be held as Collateral pursuant to
this Agreement.
(d) The Pledgor shall pay, and save the Agent and the Lenders harmless
from, any and all liabilities with respect to, or resulting from any delay
in paying, any and all stamp, excise, sales or other taxes which may be
payable or determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by this
Agreement, except for any such liabilities which result from the gross
negligence or willful misconduct of the Agent.
6. Cash Dividends; Voting Rights. Unless an Event of Default shall have
occurred and be continuing and the Agent shall have given notice to the Pledgors
of the Agent's intent to exercise its corresponding rights pursuant to Section 7
below, the Pledgors shall be permitted to receive all cash dividends paid in the
normal course of business of the Issuers and consistent with past practice or
otherwise to enable the partners or shareholders of the Pledgors to pay taxes,
to the extent permitted by the Credit Agreement, in respect of the Pledged Stock
and to exercise all voting and corporate rights with respect to the Pledged
Stock; provided, however, that no vote shall be cast or corporate right
exercised or other action taken which, in the Agent's reasonable judgment, would
impair the Collateral or which would be inconsistent with or result in any
violation of any provision of the Credit Agreement, this Agreement or any other
Credit Document.
7. Rights of the Lenders and the Agent. (a) All money Proceeds received
by the Agent hereunder shall be held by the Agent for the benefit of the Lenders
in a Collateral Account. All Proceeds while held by the Agent in a Collateral
Account (or by the Pledgors in trust for the Agent and the Lenders) shall
continue to be held as collateral security for all the Secured Obligations and
shall not constitute payment thereof until applied as provided in Section 8(a).
(b) At any time after an Event of Default shall have occurred and be
continuing and the Agent shall give notice of its intent to exercise such rights
to the Pledgors, (i) the Agent
<PAGE>
shall have the right to receive any and all cash dividends paid in respect of
the Pledged Stock and make application thereof to the Secured Obligations in the
order set forth in Section 11 of the Security Agreement, and (ii) all shares of
the Pledged Stock shall be registered in the name of the Agent or its nominee,
and the Agent or its nominee may thereafter exercise (A) all voting, corporate
and other rights pertaining to such shares of the Pledged Stock at any meeting
of shareholders of any Issuer or otherwise and (B) any and all rights of
conversion, exchange, subscription and any other rights, privileges or options
pertaining to such shares of the Pledged Stock as if it were the absolute owner
thereof (including, without limitation, the right to exchange at its discretion
any and all of the Pledged Stock upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate structure of any
Issuer, or upon the exercise by the Pledgors or the Agent of any right,
privilege or option pertaining to such shares of the Pledged Stock, and in
connection therewith, the right to deposit and deliver any and all of the
Pledged Stock with any committee, depositary, transfer agent, registrar or other
designated agency upon such terms and conditions as the Agent may determine),
all without liability except to account for property actually received by it,
but the Agent shall have no duty to the Pledgors to exercise any such right,
privilege or option and shall not be responsible for any failure to do so or
delay in so doing.
8. Remedies. (a) At any time after an Event of Default shall have
occurred and be continuing, at the Agent's election, the Agent may apply all or
any part of Proceeds held in any Collateral Account in payment of the Secured
Obligations in the order set forth in Section 3.15(b) to the Credit Agreement.
(b) At any time after an Event of Default shall have occurred, the Agent,
on behalf of the Lenders, may exercise, in addition to all other rights and
remedies granted in this Agreement and in any other instrument or agreement
securing, evidencing or relating to the Secured Obligations, all rights and
remedies of a secured party under the Code. Without limiting the generality of
the foregoing, the Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Pledgors or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
assign, give an option or options to purchase or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, in the
over-the-counter market, at any exchange, broker's board or office of the Agent
or any Lender or elsewhere upon such terms and conditions as it may deem
advisable and at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. The Agent or any Lender
shall have the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption in
the Pledgors to the extent permitted by applicable law. The Agent shall apply
any Proceeds from time to time held by it and the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable
<PAGE>
costs and expenses of every kind incurred in respect thereof or incidental to
the care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Agent and the Lenders hereunder, including,
without limitation, reasonable attorneys' fees and disbursements of counsel to
the Agent, to the payment in whole or in part of the Secured Obligations, in
such order as the Agent may elect, and only after such application and after the
payment by the Agent of any other amount required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the Code, need the Agent
account for the surplus, if any, to the Pledgors. If any notice of a proposed
sale or other disposition of Collateral shall be required by law, such notice
shall be deemed reasonable and proper if given at least 20 days before such sale
or other disposition. The Pledgors shall remain liable for any deficiency if the
proceeds of any sale or other disposition of Collateral are insufficient to pay
the Secured Obligations and the fees and disbursements of any attorneys employed
by the Agent or any Lender to collect such deficiency.
9. Registration Rights; Private Sales. (a) If the Agent shall determine
to exercise its right to sell any or all of the Pledged Stock pursuant to
Section 8 hereof, and if in the opinion of the Agent it is necessary or
advisable to have the Pledged Stock, or that portion thereof to be sold,
registered under the provisions of the Securities Act, the Pledgors will cause
the Issuer thereof to (i) execute and deliver, and cause the directors and
officers of such Issuer to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts as may be, in the
opinion of the Agent, necessary or advisable to register the Pledged Stock, or
that portion thereof to be sold, under the provisions of the Securities Act,
(ii) to use its best efforts to cause the registration statement relating
thereto to become effective and to remain effective for a period of one year
from the date of the first public offering of the Pledged Stock, or that portion
thereof to be sold, and (iii) to make all amendments thereto and/or to the
related prospectus which, in the opinion of the Agent, are necessary or
advisable, all in conformity with the requirements of the Securities Act and the
rules and regulations of the Securities and Exchange Commission applicable
thereto. Each Pledgor acknowledges and agrees to cause such Issuer to comply
with the provisions of the securities or "Blue Sky" laws of any and all
jurisdiction which the Agent shall designate and to make available to its
security holders, as soon as practicable, an earnings statement (which need not
be audited) which will satisfy the provisions of Section 11(a) of the Securities
Act.
(b) The Pledgors recognize that the Agent may be unable to effect a public
sale of any or all the Pledged Stock, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obligated to agree, among
other things, to acquire such securities for their own account for investment
and not with a view to the distribution or resale thereof. The Pledgors agree
that any such private sale may result in prices and other terms less favorable
than if such sale were a public sale and, notwithstanding such circumstances,
agrees that any such private sale shall be deemed to have been made in a
commercially reasonable manner. The Agent shall be under no obligation to delay
a sale of any
<PAGE>
of the Pledged Stock for the period of time necessary to permit the Issuer
thereof to register such securities for public sale under the Securities Act, or
under applicable state securities laws, even if such Issuer agree to do so.
(c) The Pledgors further agree to use best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Pledged Stock pursuant to this Section valid and binding
and in compliance with any and all other applicable requirements of law. The
Pledgors further agree that a breach of any of the covenants contained in this
Section will cause irreparable injury to the Agent and the Lenders, that the
Agent and the Lenders have no adequate remedy at law in respect of such breach
and, as a consequence, that each and every covenant contained in this Section
shall be specifically enforceable against the Pledgors, and the Pledgors hereby
waive and agree not to assert any defenses against an action for specific
performance of such covenants except for a defense that no Event of Default has
occurred under the Credit Agreement.
10. Irrevocable Authorization and Instruction to Issuer. The Pledgors
hereby authorize and instruct each Issuer to comply with any instruction
received by them or any one of them from the Agent in writing that (a) states
that an Event of Default has occurred and (b) is otherwise in accordance with
the terms of this Agreement, without any other or further instructions from the
Pledgors, and the Pledgors agree that each Issuer shall be fully protected in so
complying.
11. Agent's Appointment as Attorney-in-Fact. (a) The Pledgors hereby
irrevocably constitute and appoint the Agent and any officer or agent of the
Agent, with full power of substitution, as their true and lawful attorney-in-
fact with fully irrevocable power and authority in the place and stead of the
Pledgors and in the name of the Pledgors or in the Agent's own name, from time
to time after the occurrence and during the continuation of an Event of Default,
in the Agent's discretion, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Agreement, including, without limitation, any financing
statements, endorsement, assignment or other instruments of transfer.
(b) The Pledgors hereby ratify all that the Agent shall lawfully do or
cause to be done pursuant to the power of attorney granted in Section 11(a)
herein. All powers, authorizations and agencies contained in this Agreement are
coupled with an interest and are irrevocable until this Agreement is terminated
and the security interests created hereby are released.
12. Duty of Agent. The Agent's sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
Section 9-207 of the Code or otherwise, shall be to deal with it in the same
manner as the Agent deals with similar securities and property for its own
account, except that the Agent shall have no obligation to invest funds held in
any Collateral Account and may hold the same as demand deposits. Neither the
Agent, any Lender nor any of their respective directors, officers, employees or
agents shall be liable for
<PAGE>
failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Pledgors or any other Person or to
take any other action whatsoever with regard to the Collateral or any part
thereof.
13. Execution of Financing Statements. Pursuant to Section 9-402 of the
Code, the Pledgors authorize the Agent to file financing statements with respect
to the Collateral without the signature of the Pledgors in such form and in such
filing offices as the Agent reasonably determines appropriate to perfect the
security interests of the Agent under this Agreement. A carbon, photographic or
other reproduction of this Agreement shall be sufficient as a financing
statement for filing in any jurisdiction.
14. Authority of Agent. The Pledgors acknowledge that the rights and
responsibilities of the Agent under this Agreement with respect to any action
taken by the Agent or the exercise or non-exercise by the Agent of any option,
voting right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Agent and the
Lenders, be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Agent and the Pledgors, the Agent shall be conclusively presumed to be acting as
agent for the Lenders with full and valid authority so to act or refrain from
acting, and neither any of the Pledgors nor any Issuer shall be under any
obligation, or entitlement, to make any inquiry respecting such authority.
15. Notices. All notices shall be given or made in accordance with
Section 11.1 of the Credit Agreement.
16. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
17. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of the
terms or provisions of this Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Pledgors and
the Agent, provided that any provision of this Agreement may be waived by the
Agent, on behalf of the Lenders, in a letter or agreement executed by the Agent
or by facsimile transmission from the Agent.
(b) Neither the Agent nor any Lender shall by any act (except by a written
instrument pursuant to Section 17(a) hereof), be deemed to delay, indulge, omit
or otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor
<PAGE>
any delay in exercising on the part of the Agent or any Lender, any right, power
or privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Agent or any Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the Agent
or such Lender would otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
18. Section Headings. The section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
19. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of the Pledgors and shall inure to the benefit of the
Agent and the Lenders and their successors and assigns, provided that the
Pledgors may not assign any of their rights or obligations under this Agreement
without the prior written consent of the Agent and any such purported assignment
shall be null and void.
20. Governing Law; Submission to Jurisdiction; Venue; Arbitration. THIS
AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK. THE PROVISIONS OF THE CREDIT AGREEMENT RELATING TO SUBMISSION
TO JURISDICTION, VENUE AND ARBITRATION ARE HEREBY INCORPORATED BY REFERENCE
HEREIN, MUTATIS MUTANDIS.
21. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH
PLEDGOR HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
ARISING OUT OF THIS PLEDGE AGREEMENT, THE CREDIT DOCUMENTS OR ANY OTHER
AGREEMENTS OR TRANSACTIONS RELATED HERETO OR THERETO.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Pledge Agreement to be
duly executed and delivered as of the date first above written.
PLEDGORS: NATIONAL EQUIPMENT SERVICES, INC.,
a Delaware corporation
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
NES ACQUISITION CORP.,
a Delaware corporation
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
NES EAST ACQUISITION CORP.,
a Delaware corporation
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
NES MICHIGAN ACQUISITION CORP.,
a Delaware corporation
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
<PAGE>
BAT ACQUISITION CORP.,
a Delaware corporation
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
ALBANY LADDER COMPANY, INC.,
a New York corporation
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
FALCONITE, INC.
an Illinois corporation
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
FALCONITE EQUIPMENT, INC.,
an Illinois corporation
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
M&M PROPERTIES, INC.,
an Alabama corporation
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
12
<PAGE>
CARL'S MID SOUTH RENT-ALL CENTER INCORPORATED,
a Tennessee corporation
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
FALCONITE REBUILD CENTER, INC.,
a Kentucky corporation
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
FALCONITE AVIATION, INC.,
a Delaware corporation
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
MCCURRY & FALCONITE EQUIPMENT CO., INC.,
an Alabama corporation
By: /s/ Paul R. Ingersoll
----------------------
Name: Paul R. Ingersoll
----------------------
Title: Vice President
----------------------
13
<PAGE>
AGENT: FIRST UNION NATIONAL BANK,
as Agent
By: /s/ Eric M. Butler
-------------------------
Name: Eric M. Butler
-----------------------
Title: Senior Vice President
----------------------
14
<PAGE>
Exhibit 4.8
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is entered into as of July
17, 1998 among NATIONAL EQUIPMENT SERVICES, INC., a Delaware corporation (the
"Borrower"), the Subsidiary Guarantors listed on the signature pages attached
hereto and such other parties as may become Subsidiary Guarantors after the date
hereof (hereinafter, the Borrower and the Subsidiary Guarantors collectively
referred to as the "Obligors" or individually referred to as an "Obligor") and
FIRST UNION NATIONAL BANK, in its capacity as agent (in such capacity, the
"Agent") for the financial institutions from time to time party to the Credit
Agreement referred to hereinbelow (the "Lenders").
RECITALS
WHEREAS, pursuant to that certain Credit Agreement, dated as of the date
hereof (as amended, modified, extended, renewed or replaced from time to time,
the "Credit Agreement"), among the Borrower, the Subsidiary Guarantors, the
Lenders and the Agent, the Lenders have agreed to make Loans and issue Letters
of Credit upon the terms and subject to the conditions set forth therein; and
WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the obligations of the Lenders to make their respective Loans and
to issue Letters of Credit under the Credit Agreement that the Obligors shall
have executed and delivered this Security Agreement to the Agent for the ratable
benefit of the Lenders.
NOW, THEREFORE, in consideration of these premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Definitions.
(a) Unless otherwise defined herein, capitalized terms used herein
shall have the meanings ascribed to such terms in the Credit Agreement, and
the following terms which are defined in the Uniform Commercial Code in
effect in the State of New York on the date hereof (the "UCC"), are used
herein as so defined: Accounts, Chattel Paper, Deposit Accounts, Documents,
Equipment, Farm Products, Fixtures, General Intangibles, Instruments,
Inventory, Investment Property and Proceeds. For purposes of this Security
Agreement, the term "Lender" shall include any affiliate of a Lender which
has entered into a Hedging Agreement with the Borrower in respect of the
Credit Party Obligations.
(b) In addition, the following terms shall have the following
meanings: "Contracts": (a) the Falconite Purchase Agreement, (b) all
Equipment Leases and (c) all other contracts and agreements to which an
Obligor is a party, as each may be amended, supplemented or otherwise
modified from time to time, including, without limitation, (i) all rights
of an Obligor to receive moneys due and to become due to it thereunder or
in connection therewith, (ii) all rights of an Obligor to damages arising
out
<PAGE>
of or for breach or default in respect thereof and (iii) all rights of an
Obligor to exercise all remedies thereunder.
"Copyright Licenses": any written agreement, naming any Obligor as
licensor, granting any right under any Copyright including, without
limitation, any thereof referred to in Schedule 1(b) hereto.
"Copyrights": (a) all registered United States copyrights in all
Works, now existing or hereafter created or acquired, all registrations and
recordings thereof, and all applications in connection therewith,
including, without limitation, registrations, recordings and applications
in the United States Copyright office including, without limitation, any
thereof referred to in Schedule 1(b) hereto, and (b) all renewals thereof
including, without limitation, any thereof referred to in Schedule 1(b)
hereto.
"Equipment Leases": all leases of Equipment entered into by an Obligor
acting as lessor, as each may be amended, supplemented or otherwise
modified from time to time.
"Insurance Policies": all insurance policies insuring the Obligors and
their assets and any life insurance policies securing the lives of officers
of the Obligors which name one or more Obligors as beneficiary thereof.
"Patent License": all agreements, whether written or oral, providing
for the grant by or to an Obligor of any right to manufacture, use or sell
any invention covered by a Patent, including, without limitation, any
thereof referred to in Schedule 1(b) hereto.
"Patents": (a) all letters patent of the United States or any other
country and all reissues and extensions thereof, including, without
limitation, any thereof referred to in Schedule 1(b) hereto, and (b) all
applications for letters patent of the United States or any other country
and all divisions, continuations and continuations-in-part thereof,
including, without limitation, any thereof referred to in Schedule 1(b)
hereto.
"Secured Obligations": the collective reference to all of the Credit
Party Obligations, now existing or hereafter arising pursuant to the Credit
Documents, owing from the Borrower or any other Credit Party to any Lender
or the Agent, howsoever evidenced, created, incurred or acquired, whether
primary, secondary, direct, contingent, or joint and several, including,
without limitation, all liabilities arising under Hedging Agreements and
all obligations and liabilities incurred in connection with collecting and
enforcing the foregoing.
"Trademark License": any agreement, written or oral, providing for the
grant by or to an Obligor of any right to use any Trademark, including,
without limitation, any thereof referred to in Schedule 1(b) hereto.
<PAGE>
"Trademarks": (a) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and the
goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, whether in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any State
thereof or any other country or any political subdivision thereof, or
otherwise, including, without limitation, any thereof referred to in
Schedule 1(b) hereto, and (b) all renewals thereof.
"UCC": as defined in Section 1 hereof.
"Work": any work which is subject to copyright protection pursuant to
Title 17 of the United States Code.
2. Grant of Security Interest in the Collateral. To secure the prompt
payment and performance in full when due, whether by lapse of time, acceleration
or otherwise, of the Secured Obligations, each Obligor hereby grants to the
Agent, for the benefit of the Lenders, a continuing security interest in, and a
right to set off against, any and all right, title and interest of such Obligor
in and to the following, whether now owned or existing or owned, acquired, or
arising hereafter (collectively, the "Collateral"):
(a) all Accounts;
(b) all Chattel Paper;
(c) all Copyrights;
(d) all Copyright Licenses;
(e) all Deposit Accounts;
(f) all Documents;
(g) all Equipment;
(h) all Fixtures;
(i) all General Intangibles, including, without limitation, all
rights under the Contracts;
(j) all Instruments;
<PAGE>
(k) all Inventory;
(l) all Investment Property;
(m) all Patents;
(n) all Patent Licenses;
(o) all Trademarks;
(p) all Trademark Licenses;
(q) all Insurance Policies;
(r) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks, and related data processing software (owned by such
Obligor or in which it has an interest) that at any time evidence or
contain information relating to any Collateral or are otherwise necessary
or helpful in the collection thereof or realization thereupon;
(s) to the extent not otherwise included, all other personal property
of such Obligor; and
(t) to the extent not otherwise included, all Proceeds and products of
any and all of the foregoing.
The Obligors and the Agent, on behalf of the Lenders, hereby acknowledge
and agree that the security interest created hereby in the Collateral (i)
constitutes continuing collateral security for all of the Secured Obligations,
whether now existing or hereafter arising and (ii) is not to be construed as an
assignment in the nature of a sale of any Copyrights, Copyright Licenses,
Patents, Patent Licenses, Trademarks or Trademark Licenses.
3. Representations and Warranties. Each Obligor hereby represents and
warrants to the Agent, for the benefit of the Lenders, that so long as any of
the Secured Obligations remain outstanding or any Credit Document is in effect
or any Letter of Credit shall remain outstanding, and until all of the
Commitments shall have been terminated:
(a) Chief Executive Office; Books & Records. Each Obligor's chief
executive office and chief place of business is (and for the prior four
months have been) located at the locations set forth on Schedule 3(a)
hereto, and each Obligor keeps its books and records at such locations.
<PAGE>
(b) Location of Collateral, Etc. The location of all Collateral owned
by each Obligor (excluding Rental Equipment currently under lease) is as
shown on Schedule 3(b)(i) hereto.
(c) Ownership. Each Obligor is the legal and beneficial owner of its
Collateral and has the right to pledge, sell, assign or transfer the same.
Each Obligor's legal name is as shown in this Security Agreement and no
Obligor has in the past four months changed its name, been party to a
merger, consolidation or other change in structure or used any trade name,
d/b/a or other fictitious business name, except as set forth in Schedule
3(c) attached hereto.
(d) Security Interest/Priority. This Security Agreement creates a
valid security interest in favor of the Agent, for the benefit of the
Lenders, in the Collateral of such Obligor and, when properly perfected by
filing, shall constitute a valid perfected security interest in such
Collateral, to the extent such security can be perfected by filing under
the UCC, free and clear of all Liens, except for Permitted Liens.
(e) Farm Products. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.
(f) Accounts. (i) Each Account of the Obligors and the papers and
documents relating thereto are genuine and in all material respects what
they purport to be, (ii) each Account arises out of (A) a bona fide sale of
goods sold and delivered by such Obligor (or is in the process of being
delivered) or (B) services theretofore actually rendered by such Obligor
to, the account debtor named therein and (iii) no Account of an Obligor is
evidenced by any Instrument or Chattel Paper unless such Instrument or
Chattel Paper has been theretofore endorsed over and delivered to the
Agent.
(g) Copyrights, Patents and Trademarks.
(i) Schedule 1(b) hereto includes all Copyrights, Copyright
Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses
owned by the Obligors in their own names as of the date hereof.
(ii) To the best of each Obligor's knowledge, each Copyright,
Patent and Trademark of such Obligor is valid, subsisting, unexpired,
enforceable and has not been abandoned.
(iii) Except as set forth in Schedule 1(b) hereto, none of such
Copyrights, Patents and Trademarks is the subject of any licensing or
franchise agreement.
<PAGE>
(iv) No holding, decision or judgment has been rendered by any
court, tribunal, agency or other governmental body or authority which
would limit, cancel or question the validity of any Copyright, Patent
or Trademark.
(v) No action or proceeding is pending seeking to limit, cancel
or question the validity of any Copyright, Patent or Trademark, or
which, if adversely determined, would have a material adverse effect
on the value of such Copyright, Patent or Trademark.
(vi) All applications pertaining to the Copyrights, Patents and
Trademarks of each Obligor have been duly and properly filed, and all
registrations or letters pertaining to such Copyrights, Patents and
Trademarks have been duly and properly filed and issued, and all of
such Copyrights, Patents and Trademarks are valid and enforceable.
(vii) No Obligor has made any assignment or agreement in conflict
with the security interest in the Copyrights, Patents or Trademarks of
such Obligor hereunder.
(h) Inventory. No Inventory is held by an Obligor pursuant to
consignment, sale or return, sale on approval or similar arrangement.
4. Covenants. Each Obligor covenants that, so long as any of the Secured
Obligations remain outstanding or any Credit Document is in effect or any Letter
of Credit shall remain outstanding, and until all of the Commitments shall have
been terminated, such Obligor shall:
(a) Other Liens. Defend the Collateral against the claims and demands
of all other parties claiming an interest therein, keep the Collateral free
from all Liens, except for Permitted Liens, and not sell, exchange,
transfer, assign, lease or otherwise dispose of the Collateral or any
interest therein, except as permitted under the Credit Agreement.
(b) Preservation of Collateral. Keep the Collateral in good order,
condition and repair and not use the Collateral in violation of the
provisions of this Security Agreement or any other agreement relating to
the Collateral or any policy insuring the Collateral or any applicable
statute, law, bylaw, rule, regulation or ordinance which violation (in the
case of any such agreement, statute, law, bylaw, rule, regulation or
ordinance) could be reasonably expected to materially and adversely effect
the value of such Collateral or its utility to such Obligor in the conduct
of such Obligor's business in the ordinary course.
(c) Instruments/Chattel Paper. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
Instrument or Chattel Paper, promptly deliver such Instrument or Chattel
Paper to the Agent, duly endorsed in a manner satisfactory to the Agent, to
be held as Collateral pursuant to this Security Agreement;
<PAGE>
provided, however, that with respect to instruments or chattel paper where
the obligor is not an Obligor or a Subsidiary of an Obligor, such
instruments or chattel paper shall not be required to be delivered to the
Agent until such time as the Agent shall have requested delivery of the
same or until an Event of Default shall have occurred.
(d) Change in Location. Not, without providing 30 days prior written
notice to the Agent and without filing such amendments to any previously
filed financing statements as the Agent may require, (a) change the
location of its chief executive office and chief place of business (as well
as its books and records) from the locations set forth on Schedule 3(a)
hereto, (b) change the location of its Collateral from the locations set
forth for such Obligor on Schedule 3(b)(i) hereto, or (c) change its name,
be party to a merger, consolidation or other change in structure or use any
trade name, d/b/a or other fictitious business name other than as permitted
under the Credit Agreement.
(e) Inspection. Upon reasonable notice, at such reasonable times and
as often as may be reasonably desired, allow the Agent, any Lender or their
respective representatives free access to and right of inspection of the
tangible Collateral.
(f) Perfection of Security Interest. Execute and deliver to the Agent
such agreements, assignments or instruments (including affidavits, notices,
reaffirmations and amendments and restatements of existing documents, as
the Agent may reasonably request) and do all such other things as the Agent
may reasonably deem necessary or appropriate (i) to assure to the Agent its
security interests hereunder, including (A) such financing statements
(including renewal statements) or amendments thereof or supplements thereto
or other instruments as the Agent may from time to time reasonably request
in order to perfect and maintain the security interests granted hereunder
in accordance with the UCC, (B) with regard to Copyrights, a Notice of
Grant of Security Interest in Copyrights in the form of Schedule 4(f)(i),
(C) with regard to Patents, a Notice of Grant of Security Interest in
Patents for filing with the United States Patent and Trademark Office in
the form of Schedule 4(f)(ii) attached hereto and (D) with regard to
Trademarks, a Notice of Grant of Security Interest in Trademarks for filing
with the United States Patent and Trademark Office in the form of Schedule
4(f)(iii) attached hereto, (ii) to consummate the transactions contemplated
hereby and (iii) to otherwise protect and assure the Agent of its rights
and interests hereunder. To that end, each Obligor agrees that the Agent
may file one or more financing statements disclosing the Agent's security
interest in any or all of the Collateral of such Obligor without, to the
extent permitted by law, such Obligor's signature thereon, and further each
Obligor also hereby irrevocably makes, constitutes and appoints the Agent,
its nominee or any other person whom the Agent may designate, as such
Obligor's attorney in fact with full power and for the limited purpose to
sign in the name of such Obligor any such financing statements, or
amendments and supplements to financing statements, renewal financing
statements, notices or any similar documents which in the Agent's
reasonable discretion would be necessary, appropriate or convenient in
order to perfect and maintain perfection of the security interests
<PAGE>
granted hereunder, such power, being coupled with an interest, being and
remaining irrevocable so long as the Credit Agreement is in effect or any
amounts payable thereunder or under any other Credit Document or any Letter
of Credit shall remain outstanding, and until all of the Commitments
thereunder shall have terminated. Each Obligor hereby agrees that a carbon,
photographic or other reproduction of this Security Agreement or any such
financing statement is sufficient for filing as a financing statement by
the Agent without notice thereof to such Obligor wherever the Agent may in
its sole discretion desire to file the same. In the event for any reason
the law of any jurisdiction other than North Carolina becomes or is
applicable to the Collateral of any Obligor or any part thereof, or to any
of the Secured Obligations, such Obligor agrees to execute and deliver all
such instruments and to do all such other things as the Agent in its sole
discretion reasonably deems necessary or appropriate to preserve, protect
and enforce the security interests of the Agent under the law of such other
jurisdiction (and, if an Obligor shall fail to do so promptly upon the
request of the Agent, then the Agent may execute any and all such requested
documents on behalf of such Obligor pursuant to the power of attorney
granted hereinabove). If any Collateral is in the possession or control of
an Obligor's agents and the Agent so requests, such Obligor agrees to
notify such agents in writing of the Agent's security interest therein and,
upon the Agent's request, instruct them to hold all such Collateral for the
Lenders' account and subject to the Agent's further instructions. Each
Obligor agrees to mark its books and records to reflect the security
interest of the Agent in the Collateral.
(g) Covenants Relating to Accounts.
(i) Comply with all reporting requirements set forth in the
Credit Agreement with respect to Accounts.
(ii) Unless and until an Event of Default occurs and is
continuing, each Obligor may settle and adjust disputes and claims
with its customers and account debtors and grant discounts, credits
and allowances in the ordinary course of its business as presently
conducted and otherwise for amounts and on terms which such Obligor in
good faith considers advisable. Upon the occurrence of any Event of
Default and during the continuation thereof, if so instructed by the
Agent, such Obligor shall settle and adjust disputes and claims, at no
expense to the Agent, but no discount, credit or allowance other than
on normal trade terms in the ordinary course of business shall be
granted to any customer or account debtor without the Agent's consent.
The Agent may (but shall not be required to), at all times upon the
occurrence of any Event of Default and during the continuance thereof,
settle or adjust disputes and claims directly with customers or
account debtors for amounts and upon terms which the Agent considers
advisable.
(h) Covenants Relating to Inventory.
<PAGE>
(i) Maintain, keep and preserve the Inventory in good, rentable
condition at its own cost and expense.
(ii) Comply with all reporting requirements set forth in the
Credit Agreement with respect to Inventory.
(iii) If any of the Inventory is at any time evidenced by a
document of title, (A) promptly cause each such document of title to
name on the face thereof the Agent, for the Lenders, as lienholder of
such title and (B) promptly upon request by the Agent, deliver such
document of title to the Agent.
(i) Covenants Relating to Copyrights.
(i) Employ each Copyright with such notice of copyright as may be
required by law to secure copyright protection.
(ii) Not do any act or knowingly omit to do any act whereby any
Copyright may become invalidated and (A) not do any act, or knowingly
omit to do any act, whereby any Copyright may become injected into the
public domain; (B) notify the Agent immediately if it knows, or has
reason to know, that any Copyright may become injected into the public
domain or of any adverse determination or development (including,
without limitation, the institution of, or any such determination or
development in, any court or tribunal in the United States or any
other country) regarding an Obligor's ownership of any such Copyright
or its validity; (C) take all necessary steps as it shall deem
appropriate under the circumstances, to maintain and pursue each
application (and to obtain the relevant registration) and to maintain
each registration of each Copyright owned by an Obligor including,
without limitation, filing of applications for renewal where
necessary; and (D) promptly notify the Agent of any material
infringement of any Copyright of an Obligor of which it becomes aware
and take such actions as it shall reasonably deem appropriate under
the circumstances to protect such Copyright, including, where
appropriate, the bringing of suit for infringement, seeking injunctive
relief and seeking to recover any and all damages for such
infringement.
(iii) Not make any assignment or agreement in conflict with the
security interest in the Copyrights of each Obligor hereunder, except
for licenses thereof which such Obligor has reasonably determined to
be advisable or advantageous and which comply with the provisions of
Section 8.14 of the Credit Agreement.
(j) Covenants Relating to Patents and Trademarks.
<PAGE>
(i) (A) Continue to use each Trademark on each and every
trademark class of goods applicable to its current line as reflected
in its current catalogs, brochures and price lists in order to
maintain such Trademark in full force free from any claim of
abandonment for non-use, (B) maintain as in the past the quality of
products and services offered under such Trademark, (C) employ such
Trademark with the appropriate notice of registration, (D) not adopt
or use any mark which is confusingly similar or a colorable imitation
of such Trademark unless the Agent, for the ratable benefit of the
Lenders, shall obtain a perfected security interest in such mark
pursuant to this Security Agreement, and (E) not (and not permit any
licensee or sublicensee thereof to) do any act or knowingly omit to do
any act whereby any Trademark may become invalidated.
(ii) Not do any act, or omit to do any act, whereby any Patent
may become abandoned or dedicated.
(iii) Notify the Agent and the Lenders immediately if it knows,
or has reason to know, that any application or registration relating
to any Patent or Trademark may become abandoned or dedicated, or of
any adverse determination or development (including, without
limitation, the institution of, or any such determination or
development in, any proceeding in the United States Patent and
Trademark Office or any court or tribunal in any country) regarding an
Obligor's ownership of any Patent or Trademark or its right to
register the same or to keep and maintain the same.
(iv) Whenever an Obligor, either by itself or through an agent,
employee, licensee or designee, shall file an application for the
registration of any Patent or Trademark with the United States Patent
and Trademark Office or any similar office or agency in any other
country or any political subdivision thereof, an Obligor shall report
such filing to the Agent and the Lenders within five Business Days
after the last day of the fiscal quarter in which such filing occurs.
Upon request of the Agent, an Obligor shall execute and deliver any
and all agreements, instruments, documents and papers as the Agent may
request to evidence the Agent's and the Lenders' security interest in
any Patent or Trademark and the goodwill and general intangibles of an
Obligor relating thereto or represented thereby.
(v) Take all reasonable and necessary steps, including, without
limitation, in any proceeding before the United States Patent and
Trademark Office, or any similar office or agency in any other country
or any political subdivision thereof, to maintain and pursue each
application (and to obtain the relevant registration) and to maintain
each registration of the Patents and Trademarks, including, without
limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.
<PAGE>
(vi) Promptly notify the Agent and the Lenders after it learns
that any Patent or Trademark included in the Collateral is infringed,
misappropriated or diluted by a third party and promptly sue for
infringement, misappropriation or dilution, to seek injunctive relief
where appropriate and to recover any and all damages for such
infringement, misappropriation or dilution, or take such other actions
as it shall reasonably deem appropriate under the circumstances to
protect such Patent or Trademark.
(vii) Not make any assignment or agreement in conflict with the
security interest in the Patents or Trademarks of each Obligor
hereunder, except for licenses thereof which such Obligor has
reasonably determined to be advisable or advantageous and which comply
with the provisions of Section 8.14 of the Credit Agreement.
(k) New Patents, Copyrights and Trademarks. Promptly provide the Agent
with (i) a listing of all applications, if any, for new Copyrights, Patents
or Trademarks (together with a listing of the issuance of registrations or
letters on present applications), which new applications and issued
registrations or letters shall be subject to the terms and conditions
hereunder, and (ii) (A) with respect to Copyrights, a duly executed Notice
of Security Interest in Copyrights, (B) with respect to Patents, a duly
executed Notice of Security Interest in Patents, (C) with respect to
Trademarks, a duly executed Notice of Security Interest in Trademarks or
(D) such other duly executed documents as the Agent may request in a form
acceptable to counsel for the Agent and suitable for recording to evidence
the security interest in the Copyright, Patent or Trademark which is the
subject of such new application.
(l) Insurance. Have and maintain at all times with respect to the
Collateral the same types and amounts of insurance as the Obligors are
required to maintain pursuant to the Credit Agreement. All insurance
proceeds shall be subject to the Lien of the Agent hereunder; provided that
any such insurance proceeds may be retained by the Obligors to the extent
permitted under the Credit Agreement.
(m) Equipment.
(i) At all times, maintain its Equipment in good working order
(ordinary wear and tear and damages from casualty and condemnation
excepted) and in compliance with all applicable safety standards.
(ii) If any of the Equipment is at any time evidenced by a
document of title, (A) promptly cause each such document of title to
name on the face thereof the Agent, for the Lenders, as lienholder of
such title and (B) promptly upon request by the Agent, deliver such
document of title to the Agent.
<PAGE>
5. Special Provisions Relating to Accounts.
(a) Anything herein to the contrary notwithstanding, each of the
Obligors shall remain liable under each of the Accounts to observe and
perform all the conditions and obligations to be observed and performed by
it thereunder, all in accordance with the terms of any agreement giving
rise to each such Account. Neither the Agent nor any Lender shall have any
obligation or liability under any Account (or any agreement giving rise
thereto) by reason of or arising out of this Security Agreement or the
receipt by the Agent or any Lender of any payment relating to such Account
pursuant hereto, nor shall the Agent or any Lender be obligated in any
manner to perform any of the obligations of an Obligor under or pursuant to
any Account (or any agreement giving rise thereto), to make any payment, to
make any inquiry as to the nature or the sufficiency of any payment
received by it or as to the sufficiency of any performance by any party
under any Account (or any agreement giving rise thereto), to present or
file any claim, to take any action to enforce any performance or to collect
the payment of any amounts which may have been assigned to it or to which
it may be entitled at any time or times.
(b) At any time after the occurrence and during the continuation of an
Event of Default, the Agent shall have the right, but not the obligation,
to make test verifications of the Accounts in any manner and through any
medium that it reasonably considers advisable, and the Obligors shall
furnish all such assistance and information as the Agent may require in
connection with such test verifications. At any time and from time to time,
upon the Agent's request and at the expense of the Obligors, the Obligors
shall cause independent public accountants or others satisfactory to the
Agent to furnish to the Agent reports showing reconciliations, aging and
test verifications of, and trial balances for, the Accounts. The Agent in
its own name or in the name of others may communicate with account debtors
on the Accounts to verify with them to the Agent's satisfaction the
existence, amount and terms of any Accounts.
6. Special Provisions Regarding Inventory.
(a) Unless and until an Event of Default occurs and is continuing and
the Agent instructs such Obligor otherwise, each Obligor may, without
further consent or approval of the Agent, use, consume, sell, lease and
exchange the Inventory in the ordinary course of its business as presently
conducted. In the case of a sale or exchange of Inventory permitted by the
Credit Agreement, the security interest created hereby in the Inventory so
sold or exchanged (but not in any proceeds arising from such sale or
exchange) shall cease immediately without any further action on the part of
the Agent.
(b) Upon the Lenders' making any Loan pursuant to the Credit Agreement
or the Issuing Lender issuing any Letter of Credit pursuant to the Credit
Agreement, each Obligor shall be deemed to have warranted that all
warranties of such Obligor set forth in this Security Agreement with
respect to its Inventory are true and correct in all
<PAGE>
material respects with respect to such Inventory, including without
limitation that such Inventory is located at a location permitted by
Section 3(b) or 4(d) hereof.
7. Advances by Lenders. On failure of any Obligor to perform any of the
covenants and agreements contained herein, the Agent may, in its reasonable
discretion, but shall not be obligated to, perform the same and in so doing may
expend such sums as the Agent may reasonably deem advisable in the performance
thereof, including, without limitation, the payment of any insurance premiums,
the payment of any taxes, a payment to obtain a release of a Lien or potential
Lien (other than a Permitted Lien), reasonable expenditures made in defending
against any adverse claim (other than in respect of a Permitted Lien) and all
other reasonable expenditures which the Agent or the Lenders may make for the
protection of the security hereof or which may be compelled to make by operation
of law. All such sums and amounts so expended shall be repayable by the Obligors
on a joint and several basis promptly upon timely notice thereof and demand
therefor, shall constitute additional Secured Obligations and shall bear
interest from the date said amounts are expended at the default rate specified
in Section 3.1 of the Credit Agreement. No such performance of any covenant or
agreement by the Agent or the Lenders on behalf of any Obligor, and no such
advance or expenditure therefor, shall relieve the Obligors of any breach under
the terms of this Security Agreement or the other Credit Documents. The Lenders
may make any payment authorized pursuant to this Section 7 in accordance with
any bill, statement or estimate procured from the appropriate public office or
holder of the claim to be discharged without inquiry into the accuracy of such
bill, statement or estimate or into the validity of any tax assessment, sale,
forfeiture, tax lien, title or claim except to the extent such payment is being
contested in good faith by an Obligor in appropriate proceedings and against
which adequate reserves are being maintained in accordance with GAAP.
8. Events of Default.
The occurrence of an event which under the Credit Agreement would
constitute an Event of Default shall be an Event of Default hereunder (an "Event
of Default").
9. Remedies.
(a) General Remedies. Upon the occurrence of an Event of Default and
during continuation thereof, the Lenders shall have, in addition to the
rights and remedies provided herein, in the Credit Documents or by law
(including, but not limited to, the rights and remedies set forth in the
Uniform Commercial Code of the jurisdiction applicable to the affected
Collateral), the rights and remedies of a secured party under the UCC
(regardless of whether the UCC is the law of the jurisdiction where the
rights and remedies are asserted and regardless of whether the UCC applies
to the affected Collateral), and further, the Agent may, with or without
judicial process or the aid and assistance of others, (i) enter on any
premises on which any of the Collateral may be located and, without
resistance or interference by the Obligors, take possession of the
Collateral and remove from any premises where same may be located any and
all documents, instruments, files and records (including the copying
<PAGE>
of any computer records), and any receptacles or cabinets containing same,
relating to the Collateral, or the Agent may use (at the expense of the
Obligors) such of the supplies or space of any Obligor at such Obligor's place
of business or otherwise, as may be necessary to properly administer and control
the Collateral or the handling of collections and realizations thereon, (ii)
dispose of any Collateral on any such premises, (iii) maintain such possession
on any Obligor's premises (each Obligor hereby agreeing to lease warehouses and
storage facilities to the Agent or its designee if the Agent so requests), (iv)
require the Obligors to assemble and make available to the Agent at the expense
of the Obligors any Collateral at any place and time designated by the Agent
which is reasonably convenient to both parties, (v) remove any Collateral from
any such premises for the purpose of effecting sale or other disposition
thereof, and/or (vi) without demand and without advertisement, notice, hearing
or process of law, all of which each of the Obligors hereby waives to the
fullest extent permitted by law, at any place and time or times, sell and
deliver any or all Collateral held by or for it at public or private sale, by
one or more contracts, in one or more parcels, for cash, upon credit or
otherwise, at such prices and upon such terms as the Agent deems advisable, in
its sole discretion (subject to any and all mandatory legal requirements). If
the Agent exercises its right to take possession of the Collateral, each Obligor
shall also at its expense perform any and all other steps reasonably requested
by the Agent to preserve and protect the security interest hereby granted in the
Collateral, such as placing and maintaining signs indicating the security
interest of the Agent, appointing overseers for the Collateral and maintaining
inventory records. The Agent shall be entitled to use all proprietary rights and
computer software programs and data bases used by any Obligor in connection with
their respective businesses or in connection with the Collateral. In addition to
all other sums due the Agent and the Lenders with respect to the Secured
Obligations, the Obligors shall pay the Agent and each of the Lenders all
reasonable documented costs and expenses incurred by the Agent or any such
Lender, including, but not limited to, reasonable attorneys' fees and court
costs, in obtaining or liquidating the Collateral, in enforcing payment of the
Secured Obligations, or in the prosecution or defense of any action or
proceeding by or against the Agent or any Lender or the Obligors concerning any
matter arising out of or connected with this Security Agreement or the
Collateral or the Secured Obligations, including without limitation any of the
foregoing arising in, arising under or related to a case under the United States
Bankruptcy Code. To the extent the rights of notice cannot be legally waived
hereunder, each Obligor agrees that any requirement of reasonable notice shall
be met if such notice is personally served on or mailed, postage prepaid, to
such Obligor in accordance with the notice provisions of Section 11.1 of the
Credit Agreement at least 10 days before the time of sale or other event giving
rise to the requirement of such notice. The Agent and the Lenders shall not be
obligated to make any sale or other disposition of the Collateral regardless of
notice having been given. To the extent permitted by law, any Lender may be a
purchaser at any such sale. To the extent permitted by law, each of the Obligors
hereby waives all of its rights of redemption with respect to any such sale.
Subject to the provisions of applicable law, the Agent and the Lenders may
postpone or cause the postponement of the sale of all or any portion of the
Collateral by announcement at the time and place of such
<PAGE>
sale, and such sale may, without further notice, to the extent permitted by law,
be made at the time and place to which the sale was postponed, or the Agent and
the Lenders may further postpone such sale by announcement made at such time and
place. After the occurrence and during the continuance of an Event of Default,
each Obligor agrees that all returned, reclaimed or repossessed merchandise or
goods shall be set aside by such Obligor, marked with the Lenders' name and held
by such Obligor for the Lenders' account as owner and assignee.
(b) Remedies relating to Accounts. Upon the occurrence of an Event of
Default and during the continuation thereof, whether or not the Agent has
exercised any or all of its rights and remedies hereunder, the Agent or its
designee may notify any Obligor's customers and account debtors that the
Accounts of such Obligor have been assigned to the Agent or of the Agent's
security interest therein, and may (i) bring suit, in the name of any Obligor or
the Lenders, and generally shall have all other rights respecting said Accounts,
including without limitation the right to accelerate or extend the time of
payment, settle, compromise, release in whole or in part any amounts owing on
any Accounts and issue credits in the name of any Obligor or the Lenders, (ii)
in the Agent's discretion, file any claim or take any other action or proceeding
to protect and realize upon the security interest of the Lenders in the Accounts
and (iii) sell, assign and deliver the Accounts and any returned, reclaimed or
repossessed merchandise, with or without advertisement, at public or private
sale, which sale shall be conducted in a commercially reasonable manner, for
cash, on credit or otherwise, at Agent's sole option and discretion, and any
Lender may bid or become a purchaser at any such sale, free from any right of
redemption, which right is hereby expressly waived by each Obligor. Each Obligor
acknowledges and agrees that the Proceeds of its Accounts remitted to or on
behalf of the Agent in accordance with the provisions of this Section 9(b) shall
be solely for the Agent's own convenience and that such Obligor shall not have
any right, title or interest in such Accounts or in any such other amounts
except as expressly provided herein. The Agent may apply all or any part of any
Proceeds of Accounts or other Collateral received by it from any source to the
payment of the Secured Obligations (whether or not then due and payable). Each
Obligor hereby indemnifies the Agent from and against all liabilities, damages,
losses, actions, claims, judgments, costs, expenses, charges and reasonable
attorneys' fees (except such as result from the Agent's gross negligence or
willful misconduct) suffered or incurred by the Agent because of the maintenance
of the foregoing arrangements. The Agent shall have no liability or
responsibility to any Borrower for accepting any check, draft or other order for
payment of money bearing the legend "payment in full" or words of similar import
or any other restrictive legend or endorsement whatsoever or be responsible for
determining the correctness of any remittance.
(c) Remedies relating to Inventory. Immediately upon the occurrence of any
Event of Default, the Agent may foreclose the security interests created
pursuant to the Credit Documents by any available judicial procedure, or take
possession of any or all of
<PAGE>
the Inventory without judicial process and enter any premises where any
Inventory may be located for the purpose of taking possession of or removing the
same. The Agent shall have the right, without notice of advertisement, to sell,
lease, or otherwise dispose of all or any part of the Inventory whether in its
then condition or after further preparation or processing, in the name of any
Obligor or the Lenders, or in the name of such other party as the Agent may
designate, either at public or private sale or at any broker's board, in lots or
in bulk, for cash or for credit, with or without warranties or representations,
and upon such other terms and conditions as the Agent in its sole discretion may
deem advisable, and the Agent or any other Lender shall have the right to
purchase at any such sale. If any Inventory shall require rebuilding, repairing,
maintenance or preparation, the Agent shall have the right, at its option, to do
such of the aforesaid as is necessary, for the purpose of putting the Inventory
in such salable form as the Agent shall deem appropriate. Each Obligor agrees,
at the request of the Agent, to assemble the Inventory and to make it available
to the Agent at places which the Agent shall select, whether at the premises of
any Obligor or elsewhere, and to make available to the Agent the premises and
facilities of any Obligor for the purpose of the Agent's taking possession of,
removing or putting the Inventory in salable form.
(d) Nonexclusive Nature of Remedies. Failure by the Agent or the Lenders to
exercise any right, remedy or option under this Security Agreement, any other
Credit Document or as provided by law, or any delay by the Agent or the Lenders
in exercising the same, shall not operate as a waiver of any such right, remedy
or option. No waiver hereunder shall be effective unless it is in writing,
signed by the party against whom such waiver is sought to be enforced and then
only to the extent specifically stated, which in the case of the Agent or the
Lenders shall only be granted as provided herein. To the extent permitted by
law, neither the Agent, the Lenders, nor any party acting as attorney for the
Agent or the Lenders, shall be liable hereunder for any acts or omissions or for
any error of judgment or mistake of fact or law other than their gross
negligence or willful misconduct hereunder. The rights and remedies of the Agent
and the Lenders under this Security Agreement shall be cumulative and not
exclusive of any other right or remedy which the Agent or the Lenders may have.
(e) Retention of Collateral. Upon the occurrence and during the continuance
of an Event of Default, the Agent may, after providing the notices required by
Section 9-505(2) of the UCC or otherwise complying with the requirements of
applicable law of the relevant jurisdiction, to the extent the Agent is in
possession of any of the Collateral, retain the Collateral in satisfaction of
the Secured Obligations. Unless and until the Agent shall have provided such
notices, however, the Agent shall not be deemed to have retained any Collateral
in satisfaction of any Secured Obligations for any reason.
(f) Deficiency. In the event that the proceeds of any sale, collection or
realization are insufficient to pay all amounts to which the Agent or the
Lenders are legally entitled, the Obligors shall be jointly and severally liable
for the deficiency, together with interest thereon
<PAGE>
at the default rate specified in Section 3.1 of the Credit Agreement,
together with the costs of collection and the reasonable fees of any
attorneys employed by the Agent to collect such deficiency. Any surplus
remaining after the full payment and satisfaction of the Secured
Obligations shall be returned to the Obligors or to whomsoever a court of
competent jurisdiction shall determine to be entitled thereto.
10. Rights of the Agent.
-------------------
(a) Power of Attorney. In addition to other powers of attorney
contained herein, each Obligor hereby designates and appoints the Agent, on
behalf of the Lenders, and each of its designees or agents, as attorney-in-
fact of such Obligor, irrevocably and with power of substitution, with
authority to take any or all of the following actions upon the occurrence
and during the continuance of an Event of Default:
(i) to demand, collect or settle, compromise, adjust, give
discharges and releases, all as the Agent may reasonably determine;
(ii) to commence and prosecute any actions at any court for the
purposes of collecting any Collateral and enforcing any other right in
respect thereof;
(iii) to defend, settle or compromise any action brought and, in
connection therewith, give such discharge or release as the Agent may
deem reasonably appropriate;
(iv) receive, open and dispose of mail addressed to an Obligor
and endorse checks, notes, drafts, acceptances, money orders, bills of
lading, warehouse receipts or other instruments or documents
evidencing payment, shipment or storage of the goods giving rise to
the Collateral of such Obligor on behalf of and in the name of such
Obligor, or securing, or relating to such Collateral;
(v) sell, assign, transfer, make any agreement in respect of, or
otherwise deal with or exercise rights in respect of, any Collateral
or the goods or services which have given rise thereto, as fully and
completely as though the Agent were the absolute owner thereof for all
purposes;
(vi) adjust and settle claims under any insurance policy relating
thereto;
(vii) execute and deliver all assignments, conveyances,
statements, financing statements, renewal financing statements,
security
<PAGE>
agreements, affidavits, notices and other agreements, instruments and
documents that the Agent may determine necessary in order to perfect
and maintain the security interests and liens granted in this Security
Agreement and in order to fully consummate all of the transactions
contemplated therein;
(viii) institute any foreclosure proceedings that the Agent may
deem appropriate; and
(ix) do and perform all such other acts and things as the Agent
may reasonably deem to be necessary, proper or convenient in
connection with the Collateral.
This power of attorney is a power coupled with an interest and shall be
irrevocable (i) for so long as any of the Secured Obligations remain
outstanding or any Letter of Credit shall remain outstanding and (ii) until
all of the Commitments shall have been terminated. The Agent shall be under
no duty to exercise or withhold the exercise of any of the rights, powers,
privileges and options expressly or implicitly granted to the Agent in this
Security Agreement, and shall not be liable for any failure to do so or any
delay in doing so. The Agent shall not be liable for any act or omission or
for any error of judgment or any mistake of fact or law in its individual
capacity or its capacity as attorney-in-fact except acts or omissions
resulting from its gross negligence or willful misconduct. This power of
attorney is conferred on the Agent solely to protect, preserve and realize
upon its security interest in the Collateral.
(b) [reserved]
(c) Assignment by the Agent. Subject to Sections 10.7 and 11.3 of the
Credit Agreement, the Agent may from time to time assign the Secured
Obligations and any portion thereof and/or the Collateral and any portion
thereof, and the assignee shall be entitled to all of the rights and
remedies of the Agent under this Security Agreement in relation thereto.
(d) The Agent's Duty of Care. Other than the exercise of reasonable
care to assure the safe custody of the Collateral while being held by the
Agent hereunder, the Agent shall have no duty or liability to preserve
rights pertaining thereto, it being understood and agreed that the Obligors
shall be responsible for preservation of all rights in the Collateral, and
the Agent shall be relieved of all responsibility for the Collateral upon
surrendering it or tendering the surrender of it to the Obligors. The Agent
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which the Agent accords its
own property, which shall be no less than the treatment employed by a
reasonable and prudent agent in the industry, it being understood that the
Agent shall not have responsibility for taking any necessary steps to
preserve rights against any parties with respect to any of the Collateral.
<PAGE>
11. Application of Proceeds and Cash. Upon the occurrence and during the
continuance of an Event of Default, any payments in respect of the Secured
Obligations and any Proceeds of the Collateral, when received by the Agent or
any of the Lenders in cash or its equivalent, will be applied in reduction of
the Secured Obligations in the order set forth in Section 3.15(b) of the Credit
Agreement, and each Obligor irrevocably waives the right to direct the
application of such payments and proceeds and acknowledges and agrees that the
Agent shall have the continuing and exclusive right to apply and reapply any and
all such payments and proceeds in the Agent's sole discretion, notwithstanding
any entry to the contrary upon any of its books and records. The Obligors shall
remain liable to the Agent and the Lenders for any deficiency.
12. Costs of Counsel. If at any time hereafter, whether upon the
occurrence of an Event of Default or not, the Agent employs counsel to prepare
or consider amendments, waivers or consents with respect to this Security
Agreement, or to take action or make a response in or with respect to any legal
or arbitral proceeding relating to this Security Agreement or relating to the
Collateral, or to protect the Collateral or exercise any rights or remedies
under this Security Agreement or with respect to the Collateral, then the
Obligors agree to promptly pay upon demand any and all such reasonable
documented costs and expenses of the Agent or the Lenders, all of which costs
and expenses shall constitute Secured Obligations hereunder.
13. Continuing Agreement.
--------------------
(a) This Security Agreement shall be a continuing agreement in
every respect and shall remain in full force and effect so long as the
Credit Agreement is in effect or any amounts payable thereunder or
under any other Credit Document or any Letter of Credit shall remain
outstanding, and until all of the Commitments thereunder shall have
terminated (other than any contingent indemnity obligations not yet
due and payable). Upon such payment and termination, this Security
Agreement shall be automatically terminated and, the Lenders shall,
upon the request and at the expense of the Obligors, forthwith release
all of its liens and security interests hereunder and shall execute
and deliver all UCC termination statements and/or other documents
reasonably requested by the Obligors evidencing such termination.
Notwithstanding the foregoing all releases and indemnities provided
hereunder shall survive termination of this Security Agreement.
(b) This Security Agreement shall continue to be effective or be
automatically reinstated, as the case may be, if at any time payment,
in whole or in part, of any of the Secured Obligations is rescinded or
must otherwise be restored or returned by the Agent or any Lender as a
preference, fraudulent conveyance or otherwise under any bankruptcy,
insolvency or similar law, all as though such payment had not been
made; provided that in the event payment of all or any part of the
Secured Obligations is rescinded or must be restored or returned, all
reasonable costs and expenses (including without limitation, any
reasonable legal fees and disbursements) incurred by the Agent or any
Lender in defending
<PAGE>
and enforcing such reinstatement shall be deemed to be included as a part
of the Secured Obligations.
14. Amendments; Waivers; Modifications. This Security Agreement and the
provisions hereof may not be amended, waived, modified, changed, discharged or
terminated except as set forth in Section 11.6 of the Credit Agreement.
15. Successors in Interest. This Security Agreement shall create a
continuing security interest in the Collateral and shall be binding upon each
Obligor, its successors and assigns and shall inure, together with the rights
and remedies of the Agent and the Lenders hereunder, to the benefit of the Agent
and the Lenders and their successors and permitted assigns; provided, however,
that none of the Obligors may assign its rights or delegate its duties hereunder
without the prior written consent of the Agent. To the fullest extent permitted
by law, each Obligor hereby releases the Agent and each Lender, and its
successors and permitted assigns, from any liability for any act or omission
relating to this Security Agreement or the Collateral, except for any liability
arising from the gross negligence or willful misconduct of the Agent, or such
Lender, or its officers, employees or agents.
16. Notices. All notices required or permitted to be given under this
Security Agreement shall be in conformance with Section 11.1 of the Credit
Agreement.
17. Counterparts. This Security Agreement may be executed in any number of
counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Security Agreement to produce or
account for more than one such counterpart.
18. Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Security Agreement.
19. Governing Law; Submission to Jurisdiction; Venue; Arbitration. THIS
SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK. THE PROVISIONS OF THE CREDIT AGREEMENT RELATING TO SUBMISSION
TO JURISDICTION, VENUE AND ARBITRATION ARE HEREBY INCORPORATED BY REFERENCE
HEREIN, MUTATIS MUTANDIS.
<PAGE>
20. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH
OBLIGOR HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
ARISING OUT OF THIS SECURITY AGREEMENT, THE CREDIT DOCUMENTS OR ANY OTHER
AGREEMENTS OR TRANSACTIONS RELATED HERETO OR THERETO.
21. Severability. If any provision of the Security Agreement is determined
to be illegal, invalid or unenforceable, such provision shall be fully severable
and the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
22. Entirety. This Security Agreement and the other Credit Documents
represent the entire agreement of the parties hereto and thereto, and supersede
all prior agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Credit Documents or the
transactions contemplated herein and therein.
23. Survival. All representations and warranties of the Obligors hereunder
shall survive the execution and delivery of this Security Agreement and the
other Credit Documents, the delivery of the Notes and the making of the Loans
and the issuance of the Letters of Credit under the Credit Agreement.
24. Other Security. To the extent that any of the Secured Obligations are
now or hereafter secured by property other than the Collateral (including,
without limitation, real property and securities owned by Obligor), or by a
guarantee, endorsement or property of any other Person, then the Agent and the
Lenders shall have the right to proceed against such other property, guarantee
or endorsement upon the occurrence of any Event of Default, and the Agent and
the Lenders shall have the right, in their sole discretion, to determine which
rights, security, liens, security interests or remedies the Agent and the
Lenders shall at any time pursue, relinquish, subordinate, modify or take with
respect thereto, without in any way modifying or affecting any of them or any of
the Agent's and the Lender's rights or the Secured Obligations under this
Security Agreement or under any other of the Credit Documents.
25. Obligations of the Obligors.
(a) Each of the Obligors is accepting joint and several liability
hereunder in consideration of the financial accommodation to be provided by
the Lenders under the Credit Agreement, for the mutual benefit, directly
and indirectly, of each of the Obligors and in consideration of the
undertakings of each of the Obligors to accept joint and several liability
for the obligations of each of them.
<PAGE>
(b) Each Obligor jointly and severally hereby irrevocably and
unconditionally accepts, not merely as a surety but also as a co-debtor,
joint and several liability with the other Obligors with respect to the
payment and performance of all of the Secured Obligations arising under
this Security Agreement and the other Credit Documents, it being the
intention of the parties hereto that all the Secured Obligations shall be
the joint and several obligations of each of the Obligors without
preferences or distinction among them.
(c) Anything else in this Security Agreement notwithstanding, the
grant by each Obligor hereunder of a security interest in the Collateral
owned by such Obligor shall secure the Secured Obligations only for the
maximum amount that can be incurred without rendering this Security
Agreement, as it relates to such Obligor, void or voidable under applicable
law relating to fraudulent obligations, fraudulent conveyance or fraudulent
transfer, and not any greater amount.
26. Rights of Required Lenders. All rights of the Agent hereunder, if not
exercised by the Agent, may be exercised by the Required Lenders.
27. Conflicts with Credit Agreement. Notwithstanding any other provision
hereof, in the event of any conflict between the terms of this Agreement and the
Credit Agreement, the provisions of the Credit Agreement shall govern and apply.
[remainder of page intentionally left blank]
<PAGE>
Each of the parties hereto has caused a counterpart of this Security
Agreement to be duly executed and delivered as of the date first above written.
OBLIGOR: NATIONAL EQUIPMENT SERVICES, INC.,
- ------- a Delaware corporation
By: /s/ Paul R. Ingersoll
-------------------------------------
Name: Paul R. Ingersoll
-----------------------------------
Title: Vice President
----------------------------------
SUBSIDIARY GUARANTORS NES ACQUISITION CORP.,
- --------------------- a Delaware corporation
By: /s/ Paul R. Ingersoll
-------------------------------------
Name: Paul R. Ingersoll
-----------------------------------
Title: Vice President
----------------------------------
NES EAST ACQUISITION CORP.,
a Delaware corporation
By: /s/ Paul R. Ingersoll
-------------------------------------
Name: Paul R. Ingersoll
-----------------------------------
Title: Vice President
----------------------------------
NES MICHIGAN ACQUISITION CORP.,
a Delaware corporation
By: /s/ Paul R. Ingersoll
-------------------------------------
Name: Paul R. Ingersoll
-----------------------------------
Title: Vice President
----------------------------------
BAT ACQUISITION CORP.,
a Delaware corporation
<PAGE>
By: /s/ Paul R. Ingersoll
-------------------------------------
Name: Paul R. Ingersoll
-----------------------------------
Title: Vice President
----------------------------------
ALBANY LADDER COMPANY, INC.,
a New York corporation
By: /s/ Paul R. Ingersoll
-------------------------------------
Name: Paul R. Ingersoll
-----------------------------------
Title: Vice President
----------------------------------
FALCONITE, INC.,
an Illinois corporation
By: /s/ Paul R. Ingersoll
-------------------------------------
Name: Paul R. Ingersoll
-----------------------------------
Title: Vice President
----------------------------------
FALCONITE EQUIPMENT, INC.,
an Illinois corporation
By: /s/ Paul R. Ingersoll
-------------------------------------
Name: Paul R. Ingersoll
-----------------------------------
Title: Vice President
----------------------------------
M&M PROPERTIES, INC.,
an Alabama corporation
By: /s/ Paul R. Ingersoll
-------------------------------------
Name: Paul R. Ingersoll
-----------------------------------
Title: Vice President
----------------------------------
CARL'S MID SOUTH RENT-ALL CENTER
INCORPORATED,
a Tennessee corporation
By: /s/ Paul R. Ingersoll
-------------------------------------
Name: Paul R. Ingersoll
-----------------------------------
Title: Vice President
----------------------------------
FALCONITE REBUILD CENTER, INC.,
<PAGE>
a Kentucky corporation
By: /s/ Paul R. Ingersoll
-------------------------------------
Name: Paul R. Ingersoll
-----------------------------------
Title: Vice President
----------------------------------
FALCONITE AVIATION, INC.,
a Delaware corporation
By: /s/ Paul R. Ingersoll
-------------------------------------
Name: Paul R. Ingersoll
-----------------------------------
Title: Vice President
----------------------------------
MCCURRY & FALCONITE EQUIPMENT CO., INC.,
an Alabama corporation
By: /s/ Paul R. Ingersoll
-------------------------------------
Name: Paul R. Ingersoll
-----------------------------------
Title: Vice President
----------------------------------
AGENT: FIRST UNION NATIONAL BANK,
- ----- as Agent
By: /s/ Eric M. Butler
-------------------------------------
Name: Eric M. Butler
-----------------------------------
Title: Senior Vice President
----------------------------------
<PAGE>
EXHIBIT 10.4(iii)
-----------------
AMENDMENT NO.2 TO
REGISTRATION AGREEMENT
THIS AMENDMENT NO.2 to Registration Agreement (this "Agreement") is
dated as of July 24, 1998 by and among National Equipment Services, Inc., a
Delaware corporation (the "Company"), Golder, Thoma, Cressey, Rauner Fund IV,
L.P., a Delaware limited partnership (the "Investor"), and R & R Rentals, Inc.,
a Texas corporation ("R&R"). This Agreement amends the Registration Agreement,
dated as of June 4, 1996, among the Company, the Investor, Kevin Rodgers and
Paul Ingersoll, as amended by Amendment No.1 to Registration Agreement, dated as
of December 31, 1996, among the Company, the Investor, Kevin Rodgers, Paul
Ingersoll and Dennis O'Connor (the "Original Agreement"). Capitalized terms
used but not defined herein shall have the meanings assigned them in the
Original Agreement.
WHEREAS, the parties hereto now desire to amend the Original Agreement
as set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree to amend
the Original Agreement as follows:
SECTION I. AMENDMENTS TO ORIGINAL AGREEMENT. As of the date hereof, the
Original Agreement shall be amended as follows:
1.1. Sections 1(a), 1(b) and 1(c) of the Original Agreement shall be
and hereby are deleted in their entirety and replaced with the following new
Sections 1(a), 1(b) and 1(c):
"1(a) Requests for Registration. At any time, the holders
-------------------------
of a majority of the Registrable Securities may request registration under the
Securities Act of all or any portion of their Registrable Securities on Form S-1
or any similar long-form registration ("Long-Form Registrations"), and the
-----------------------
holders of a majority of the Registrable Securities may request registration
under the Securities Act of all or any portion of their Registrable Securities
on Form S-2 or S-3 or any similar short-form registration ("Short-Form
----------
Registrations") if available; provided that at any time after July 24, 1999, the
- -------------
holders of a majority of the R&R Registrable Securities may request a Long-Form
Registration of all or any portion of their R&R Registrable Securities. All
registrations requested pursuant to this paragraph 1(a) are referred to herein
as "Demand Registrations." Each request for a Demand Registration shall specify
--------------------
the approximate number of Registrable Securities requested to be registered and
the anticipated per share price range for such offering. Within ten days after
receipt of any such request, the Company shall give written notice of such
requested registration to all other holders of Registrable Securities and shall
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 15 days
after the receipt of the Company's notice.
<PAGE>
1(b) Long-Form Registrations. The holders of a majority of the
-----------------------
Registrable Securities shall be entitled to request (i) four Long-Form
Registrations in which the Company shall pay all Registration Expenses
("Company-paid Long-Form Registrations") and (ii) an unlimited number of Long-
------------------------------------
Form Registrations in which the holders of Registrable Securities shall pay
their share of the Registration Expenses as set forth in paragraph 5 hereof. At
any time after July 24, 1999, the holders of a majority of the R&R Registrable
Securities shall be entitled to request one Long-Form Registrations in which the
Company shall pay all Registration Expenses (the "R&R Long-Form Registration").
--------------------------
A registration shall not count as one of the permitted Long-Form Registrations
until it has become effective and no Company-paid Long-Form Registration shall
count as one of the permitted Long-Form Registrations unless the holders of
Registrable Securities are able to register and sell at least 90% of the
Registrable Securities requested to be included in such registration; provided
that in any event the Company shall pay all Registration Expenses in connection
with any registration initiated as a Company-paid Long-Form Registration whether
or not it has become effective and whether or not such registration has counted
as one of the permitted Company-paid Long-Form Registrations. A registration
shall not count as the one permitted R&R Long-Form Registration until it has
become effective and no R&R Long-Form Registration shall count as the one
permitted R&R Long-Form Registration unless the holders of R&R Registrable
Securities are able to register and sell at least 90% of the R&R Registrable
Securities requested to be included in such registration; provided that in any
event the Company shall pay all Registration Expenses in connection with any
registration initiated as an R&R Long-Form Registration whether or not it has
become effective and whether or not such registration has counted as the one
permitted R&R Long-Form Registration.
1(c) Short-Form Registrations. In addition to the Long-Form
------------------------
Registrations provided pursuant to paragraph 1(b), the holders of a majority of
the Registrable Securities shall be entitled to request an unlimited number of
Short-Form Registrations in which the Company shall pay all Registration
Expenses. Demand Registrations shall be Short-Form Registrations whenever the
Company is permitted to use any applicable short form; provided that in the
event the one permitted R&R Long-Form Registration may be consummated using any
applicable short form, such registration shall be consummated using such
applicable short form and shall nonetheless constitute the one permitted R&R
Long-Form Registration (provided that such registration has become effective and
the holders of R&R Registrable Securities are able to register and sell at least
90% of the R&R Registrable Securities requested to be included in such
registration). After the Company has become subject to the reporting
requirements of the Securities Exchange Act, the Company shall use its best
efforts to make Short-Form Registrations on Form S-3 available for the sale of
Registrable Securities."
1.2. Section 8 of the Original Agreement shall be and hereby is deleted in
its entirety and replaced with the following new Section 8:
"8. Definitions.
-----------
(a) "Executive Registrable Securities" means any shares of Common
--------------------------------
Stock held as of the date hereof, or acquired hereafter from the Company, by the
executive employees of the
2
<PAGE>
Company and its Subsidiaries who are or become parties to this Agreement,
including, without limitation, the Executives.
(b) "Investor Registrable Securities" means (i) any Class A Common
-------------------------------
issued pursuant to the Purchase Agreement (whether issued before, on or after
the date hereof), (ii) any Class B Common issued pursuant to the Purchase
Agreement (whether issued before or after the date hereof), (iii) any other
Common Stock issued or issuable with respect to the securities referred to in
clauses (i) and (ii) by way of a stock dividend or stock split or in connection
with an exchange or combination of shares, recapitalization, merger,
consolidation or other reorganization (a "Reorganization"), and (iv) any other
--------------
shares of Common Stock held by Persons holding securities described in clauses
(i) to (iii), inclusive, above; provided that in the event that pursuant to a
Reorganization, equity securities are issued which do not participate in the
residual equity of the Company ("Non-Participating Securities"), such Non-
----------------------------
Participating Securities will not be Investor Registrable Securities.
(c) "Registrable Securities" means Investor Registrable Securities,
----------------------
Executive Registrable Securities, Seller Registrable Securities and R&R
Registrable Securities. As to any particular Registrable Securities, such
securities shall cease to be Executive, Investor, Seller or R&R Registrable
Securities when they have been distributed to the public pursuant to a offering
registered under the Securities Act or sold to the public through a broker,
dealer or market maker in compliance with Rule 144 under the Securities Act (or
any similar rule then in force). For purposes of this Agreement, a Person shall
be deemed to be a holder of Registrable Securities whenever such Person has the
right to acquire such Registrable Securities (upon conversion or exercise in
connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected.
(d) "R&R Registrable Securities" means (i) any Common Stock issued to
--------------------------
R&R pursuant to the Asset Purchase Agreement, dated on or about July 24, 1998,
among NES Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of the Company, R&R and the stockholder of R&R (the "R&R Purchase
------------
Agreement") (whether issued before, on or after the date hereof), and (ii) any
- ---------
other Common Stock issued or issuable with respect to the securities referred to
in clause (i) by way of a Reorganization; provided that in the event that
pursuant to a Reorganization, equity securities are issued which are Non-
Participating Securities, such Non-Participating Securities will not be R&R
Registrable Securities.
(e) "Seller Registrable Securities" means (i) any Class A Common
-----------------------------
issued pursuant to the Stock Purchase Agreement, dated on or about January 6,
1997, between the Company and Industrial Crane Maintenance Systems, Inc. (the
"ICMS Purchase Agreement") (whether issued before, on or after the date hereof),
- ------------------------
(ii) any Class B Common issued pursuant to the ICMS Purchase Agreement (whether
issued before or after the date hereof), and (iii) any other Common Stock issued
or issuable with respect to the securities referred to in clauses (i) and (ii)
by way of a Reorganization; provided that in the event that pursuant to a
Reorganization, equity securities are issued which are Non-Participating
Securities, such Non-Participating Securities will not be Seller Registrable
Securities.
3
<PAGE>
(f) Unless otherwise stated, other capitalized terms contained herein
have the meanings set forth in the Purchase Agreement."
1.3. The Original Agreement shall be and hereby is amended by adding R&R as
a party thereto. R&R hereby agrees to be bound by all of the covenants, terms
and conditions contained in the Original Agreement, as amended. The parties
hereto agree that the signature page hereto bearing R&R's signature constitutes
a counterpart signature page to the Original Agreement.
SECTION II. MISCELLANEOUS.
2.1. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.2. Governing Law. This Agreement will be governed by and construed
-------------
in accordance with the domestic laws of the State of Illinois, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Illinois or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Illinois.
4
<PAGE>
Exhibit 10.36
-------------
================================================================================
ASSET PURCHASE AGREEMENT
BY AND AMONG
R & R RENTALS, INC.,
THE STOCKHOLDER OF R & R RENTALS, INC.,
AND
NES ACQUISITION CORP.
DATED AS OF JULY 24, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS................................................................. 1
1.1 Definitions........................................................... 1
1.2 Other Definitional Provisions......................................... 5
1.3 Cross Reference of Other Definitions.................................. 5
ARTICLE II
PURCHASE AND SALE; ASSUMPTION OF CERTAIN LIABILITIES; CLOSING............... 7
2.1 Purchase and Sale..................................................... 7
2.2 Purchase Price Adjustments............................................10
2.3 Closing Transactions..................................................12
2.4 Distribution of Holdback..............................................13
ARTICLE III
CONDITIONS TO CLOSING.......................................................13
3.1 Conditions to the Purchaser's Obligations.............................13
3.2 Conditions to the Seller's Obligation.................................15
ARTICLE IV
COVENANTS PRIOR TO CLOSING..................................................17
4.1 Affirmative Covenants of the Seller and the Stockholder...............17
4.2 Negative Covenants of the Seller and the Stockholder..................18
4.3 Covenants of Purchaser................................................19
ARTICLE V
REPRESENTATIONS AND WARRANTIES
CONCERNING THE SELLER AND THE STOCKHOLDER...................................19
5.1 Organization and Corporate Power......................................19
5.2 Authorization of Transactions.........................................20
5.3 Capitalization........................................................20
5.4 Subsidiaries; Investments.............................................20
5.5 Absence of Conflicts..................................................21
5.6 Financial Statements and Related Matters..............................21
5.7 Absence of Undisclosed Liabilities....................................21
5.8 Absence of Certain Developments.......................................22
5.9 Assets................................................................23
5.10 Title to Properties...................................................24
5.11 Taxes.................................................................26
5.12 Contracts and Commitments.............................................27
5.13 Proprietary Rights....................................................29
5.14 Litigation; Proceedings...............................................30
5.15 Brokerage.............................................................30
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
5.16 Governmental Licenses and Permits..................................30
5.17 Employees..........................................................30
5.18 Employee Benefit Matters...........................................31
5.19 Insurance..........................................................32
5.20 Officers and Directors; Bank Accounts..............................32
5.21 Affiliate Transactions.............................................33
5.22 Compliance with Laws...............................................33
5.23 Environmental Matters..............................................33
5.24 Disclosure.........................................................34
5.25 Closing Date.......................................................34
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
CONCERNING THE PURCHASER.................................................34
6.1 Organization and Corporate Power...................................34
6.2 Authorization......................................................35
6.3 No Violation.......................................................35
6.4 Governmental Authorities and Consents..............................35
6.5 Litigation.........................................................35
6.6 Brokerage..........................................................35
6.7 Closing Date.......................................................35
ARTICLE VII
TERMINATION..............................................................36
7.1 Termination........................................................36
7.2 Effect of Termination..............................................36
ARTICLE VIII
INDEMNIFICATION AND RELATED MATTERS......................................36
8.1 Survival...........................................................36
8.2 Indemnification....................................................37
ARTICLE IX
ADDITIONAL AGREEMENTS....................................................40
9.1 Continuing Assistance..............................................40
9.2 Tax Matters........................................................40
9.3 Press Releases and Announcements...................................41
9.4 Further Transfers..................................................41
9.5 Specific Performance...............................................41
9.6 Transition Assistance..............................................41
9.7 Expenses...........................................................41
9.8 Exclusivity........................................................41
9.9 Books and Records..................................................42
9.10 Noncompetition, Nonsolicitation and Confidentiality................42
9.11 Employees..........................................................43
9.12 Seller's Use of Name...............................................44
</TABLE>
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<PAGE>
<TABLE>
<C> <S> <C>
9.13 Allocation of Purchase Price.......................................44
9.14 Third Party Consents...............................................44
9.15 Bulk Sales Law.....................................................45
9.16 NES Stock..........................................................45
ARTICLE X
MISCELLANEOUS............................................................46
10.1 Amendment and Waiver...............................................46
10.2 Notices............................................................46
10.3 Binding Agreement; Assignment......................................47
10.4 Severability.......................................................47
10.5 No Strict Construction.............................................47
10.6 Captions...........................................................47
10.7 Entire Agreement...................................................47
10.8 Counterparts.......................................................48
10.9 Governing Law......................................................48
10.10 Parties in Interest................................................48
</TABLE>
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<PAGE>
INDEX OF SCHEDULES
------------------
Schedule of Stockholders
Excluded Assets Schedule
Organization Schedule
Subsidiaries Schedule
Conflicts Schedule
Financial Statements Schedule
Developments Schedule
Assets Schedule
Real Property Schedule
Leases Schedule
Taxes Schedule
Contracts Schedule
Proprietary Rights Schedule
Litigation Schedule
Brokerage Schedule
Permits Schedule
Employees Schedule
Benefit Plans Schedule
Insurance Schedule
Officers, Directors and Bank Accounts Schedule
Affiliated Transactions Schedule
Environmental Schedule
Excluded Employee Schedule
Purchase Price Allocation Schedule
-iv-
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of July 24, 1998, by and
among R & R Rentals, Inc., a Texas corporation (the "Seller"), Robert N.
Herrington, the sole stockholder of the Seller (the "Stockholder"), and NES
Acquisition Corp., a Delaware corporation (the "Purchaser"). The Seller, the
Stockholder and the Purchaser are referred to herein collectively as the
"Parties" and individually as a "Party."
WHEREAS, the Stockholder owns beneficially and of record 100% of the
issued and outstanding shares of capital stock of the Seller;
WHEREAS, the Seller is, among other things, engaged in the business of
equipment rental (the "Business"); and
WHEREAS, effective as of July 1, 1998 (the "Effective Date"), upon the
terms and subject to the conditions set forth in this Agreement, the Purchaser
desires to acquire from the Seller, and the Seller desires to sell to the
Purchaser, substantially all of the Seller's business, assets and properties
(operating as a going concern) constituting the Business.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties, intending to be
legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. For purposes hereof, the following terms, when used
herein with initial capital letters, shall have the respective meanings set
forth herein:
"Affiliate" of any Person means any other Person controlling,
controlled by or under common control with such first Person, where "control"
means the possession, directly or indirectly, of the power to direct the
management and policies of a Person whether through the ownership of voting
securities or otherwise.
"Affiliated Group" means an affiliated group as defined in Section
1504 of the Code (or any similar combined, consolidated or unitary group defined
under state, local or foreign income Tax law).
"Agreement" means this Asset Purchase Agreement, including all
Exhibits and Schedules hereto, as it may be amended from time to time in
accordance with its terms.
"Baseline Acquired Assets Amount" means $9,834,000.
<PAGE>
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks are authorized or required to close under the laws of
the United States.
"Cash" means cash, cash equivalents and marketable securities
(including, without limitation, all money market accounts, mutual fund accounts
and repurchase agreements).
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Environmental Affiliates" of any Person means, with respect to any
particular matter, all other Persons whose liabilities or obligations with
respect to that particular matter have been assumed by, or are otherwise deemed
by law to be those of, such first Person.
"Environmental and Safety Requirements" means all federal, state,
local and foreign statutes, regulations, ordinances and similar provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety and pollution or protection of the
environment, including all such standards of conduct and bases of obligations
relating to the presence, use, production, generation, handling, transport,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or by-products,
asbestos, polychlorinated biphenyls (or PCBs), noise or radiation.
"Environmental Lien" means any Lien, whether recorded or unrecorded,
in favor of any governmental entity or any department, agency or political
subdivision thereof relating to any liability of the Seller, any Subsidiary of
the Seller or any Stockholder or any Environmental Affiliate of the Seller, any
Subsidiary of the Seller or any Stockholder arising under any Environmental and
Safety Requirement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"GAAP" means, at a given time, United States generally accepted
accounting principles, consistently applied.
"Indebtedness" of any Person means, without duplication: (a)
indebtedness for borrowed money or for the deferred purchase price of property
or services in respect of which such Person is liable, contingently or
otherwise, as obligor or otherwise (other than trade payables and other current
liabilities incurred in the ordinary course of business) and any commitment by
which such Person assures a creditor against loss, including contingent
reimbursement obligations with respect to letters of credit; (b) indebtedness
guaranteed in any manner by such Person, including a guarantee in the form of an
agreement to repurchase or reimburse; and (c) obligations under capitalized
leases in respect of which such Person is liable, contingently or otherwise, as
obligor, guarantor or otherwise, or in respect of which obligations such Person
assures a creditor against loss.
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<PAGE>
"Insider" means, any officer, director, stockholder, partner or
Affiliate, as applicable, of the Seller or any individual related by marriage or
adoption to any such individual or any entity in which any such Person owns any
beneficial interest.
"Licenses" means all permits, licenses, franchises, certificates,
approvals and other authorizations of foreign, federal, state and local
governments or other similar rights.
"Liens" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Seller or any Affiliate, any filing or
agreement to file a financing statement as debtor under the Uniform Commercial
Code or any similar statute other than to reflect ownership by a third party of
property leased to the Seller or any of its Subsidiaries under a lease which is
not in the nature of a conditional sale or title retention agreement, or any
subordination arrangement in favor of another Person (other than any
subordination arising in the ordinary course of business).
"Loss" means, with respect to any Person, any diminution in value,
consequential or other damage, liability, demand, claim, action, cause of
action, cost, damage, deficiency, Tax, penalty, fine or other loss or expense,
whether or not arising out of a third party claim, including all interest,
penalties, reasonable attorneys' fees and expenses and all amounts paid or
incurred in connection with any action, demand, proceeding, investigation or
claim by any third party (including any governmental entity or any department,
agency or political subdivision thereof) against or affecting such Person or
which, if determined adversely to such Person, would give rise to, evidence the
existence of, or relate to, any other Loss and the investigation, defense or
settlement of any of the foregoing.
"Material Adverse Effect" means any material adverse effect on the
business, financial condition, operations, results of operations, employee
relations, customer or supplier relations, assets or future prospects of the
Business.
"Ordinary Course of Business" means the ordinary course of business of
the Business consistent with past practice (including, without limitation, with
respect to collection of accounts receivable, purchases of inventory and
supplies, repairs and maintenance, payment of accounts payable and accrued
expenses, levels of capital expenditures and operation of cash management
practices generally).
"Permitted Encumbrances" shall mean: (A) statutory liens for current
taxes or other governmental charges with respect to the Real Property not yet
due and payable or the amount or validity of which is being contested in good
faith and for which appropriate reserves have been established; (B) mechanics,
carriers, workers, repairers and similar statutory liens arising or incurred in
the ordinary course of business for amounts which are not delinquent and which
could not, individually or in the aggregate, have a Material Adverse Effect; (C)
zoning, entitlement, building and other land use regulations imposed by
governmental agencies having jurisdiction over the Real Property which are not
violated by the current use and operation of the Real Property; and (D)
covenants, conditions, restrictions, easements and other matters of record
affecting title to the Real
-3-
<PAGE>
Property which do not unreasonably interfere with the current use, occupancy, or
value, or the marketability of title, of the Real Property.
"Person" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization, a governmental entity or any
department, agency or political subdivision thereof and any other entity.
"Proprietary Rights" means all (i) patents, patent applications,
patent disclosures and inventions, (ii) trademarks, service marks, trade dress,
trade names, logos, internet domain names and corporate names and registrations
and applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and information),
(vii) other intellectual property rights and (viii) copies and tangible
embodiments thereof (in whatever form or medium).
"Release" has the meaning set forth in CERCLA.
"Subsidiary" means, with respect to any Person, any corporation a
majority of the total voting power of shares of stock of which is entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or any partnership, limited liability
company, association or other business entity a majority of the partnership or
other similar ownership interest of which is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof. For purposes of this definition, a Person is
deemed to have a majority ownership interest in a partnership, limited liability
company, association or other business entity if such Person is allocated a
majority of the gains or losses of such partnership, limited liability company,
association or other business entity or is or controls the managing director or
general partner of such partnership, limited liability company, association or
other business entity.
"Tax Returns" means returns, declarations, reports, claims for refund,
information returns or other documents (including any related or supporting
schedules, statements or information) filed or required to be filed in
connection with the determination, assessment or collection of Taxes of any
party or the administration of any laws, regulations or administrative
requirements relating to any Taxes.
"Taxes" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security,
-4-
<PAGE>
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, or other
tax, fee, assessment or charge of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Transaction Documents" means this Agreement, and all other
agreements, instruments, certificates and other documents to be entered into or
delivered by any Party in connection with the transactions contemplated to be
consummated pursuant to this Agreement.
"Treasury Regulations" means the United States Treasury Regulations
promulgated pursuant to the Code.
1.2 Other Definitional Provisions.
(a) Accounting Terms. Accounting terms which are not otherwise
defined in this Agreement have the meanings given to them under GAAP. To the
extent that the definition of accounting term that is defined in this Agreement
is inconsistent with the meaning of such term under GAAP, the definition set
forth in this Agreement will control.
(b) "Hereof," etc. The terms "hereof," "herein" and "hereunder" and
terms of similar import are references to this Agreement as a whole and not to
any particular provision of this Agreement. Section, clause, Schedule and
Exhibit references contained in this Agreement are references to Sections,
clauses, Schedules and Exhibits in or to this Agreement, unless otherwise
specified.
(c) Successor Laws. Any reference to any particular Code section or
any other law or regulation will be interpreted to include any revision of or
successor to that section regardless of how it is numbered or classified.
1.3 Cross Reference of Other Definitions. Each capitalized term
listed below is defined in the corresponding Section of this Agreement:
Term Section
- ---- -------
Acquired Assets.................................2.1(a)
Actual Acquired Assets Amount...................2.2(b)
Agreement.......................................Preface
Applicable Limitation Date......................8.1
Assumed Liabilities.............................2.1(c)
Business........................................Recitals
Cap.............................................8.2(b)(ii)
Cash Purchase Price.............................2.1(e)
Closing.........................................2.3(a)
Closing Date....................................2.3(a)
Closing Review..................................2.2(b)
Closing Transactions............................2.3(b)
COBRA...........................................5.18(a)
Confidential Information........................9.10(c)
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<PAGE>
<TABLE>
<S> <C>
Division............................... Recitals
Draft Balance Sheet.................... 2.2(b)
Effective Date......................... Recitals
Estimated Acquired Assets Amount....... 2.2(a)
Estoppel Letters....................... 3.1(k)(v)
Excluded Assets........................ 2.1(b)
Excluded Employees..................... 9.11(b)
Excluded Liabilities................... 2.1(d)
Financial Statements................... 5.6(a)
Firm................................... 2.2(b)
Holdback............................... 2.1(e)
HSR Act................................ 3.1(f)
Improvements........................... 5.10(f)
Indemnified Party...................... 8.2(e)
Indemnifying Party..................... 8.2(e)
Latest Balance Sheet................... 5.6(a)
Leased Real Property................... 5.10(b)
Leases................................. 5.10(b)
Licenses............................... 5.16
NES.................................... 2.1(e)
NES Stock.............................. 2.1(e)
Noncompete Period...................... 9.10(a)
Noncompeting Parties................... 9.10(a)
Objection Notice....................... 2.2(a)
Owned Real Property.................... 5.10(a)
Party.................................. Preface
Pending Claim.......................... 2.4
Prime Rate............................. 2.2(c)
Purchase Price......................... 2.1(e)
Purchaser.............................. Preface
Purchaser Parties...................... 8.2(a)
Real Property.......................... 2.1(a)(v)
Real Property Permits.................. 5.10(g)
Real Property Law...................... 5.10(h)
Remaining Holdback..................... 2.4
Seller................................. Preface
Seller Parties......................... 8.2(c)
Specified Liabilities.................. 2.1(c)(i)
Stockholder............................ Preface
Unassigned Contracts................... 9.14
</TABLE>
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<PAGE>
ARTICLE II
PURCHASE AND SALE; ASSUMPTION OF CERTAIN LIABILITIES; CLOSING
2.1 Purchase and Sale.
-----------------
(a) Acquired Assets. Upon the terms and subject to the conditions set
forth in this Agreement, at the Closing the Seller shall sell, assign, transfer
and deliver to the Purchaser, and the Purchaser shall purchase, all properties,
assets, rights and interests of every kind and nature, whether tangible or
intangible, and wherever located and by whomever possessed, owned by the Seller
and related to the Business as of the Closing Date, except as set forth in
Section 2.1(b) below (collectively, the "Acquired Assets"), including, without
limitation (in each case, to the extent related to the Business):
(i) all Proprietary Rights, along with all income, royalties,
damages and payments due or payable as of the Closing or thereafter,
including, without limitation, damages and payments for past, present or
future infringements or misappropriations thereof, the right to sue and
recover for past infringements or misappropriations thereof and any and all
corresponding rights that, now or hereafter, may be secured throughout the
world;
(ii) all of the Seller's rights existing under leases, contracts,
licenses, permits, distribution arrangements, sales and purchase
agreements, other agreements and business arrangements, including, without
limitation, all contracts and agreements described on the Contracts
Schedule attached hereto;
(iii) all real property owned or leased by the Seller, and all
plants, buildings and other improvements located on such owned or leased
property, and all easements, licenses, rights of way, permits and all
appurtenances to such owned or leased property, including, without
limitation, all appurtenant rights in and to public streets, whether or not
vacated (collectively, the "Real Property");
(iv) all leasehold improvements and all machinery, equipment
(including all transportation and office equipment), fixtures, trade
fixtures, tools, dyes and furniture owned by the Seller wherever located,
including, without limitation, all such items which are located in any
building, warehouse, office or other space leased, owned or occupied by the
Seller or used in connection with the Real Property;
(v) all rental equipment of any kind, wherever located, rented by
the Seller to or from any Person;
(vi) all inventories of work in process, semi-finished and
finished goods, stores, replacement and spare parts, packaging materials,
operating supplies, and fuels;
(vii) all office supplies, production supplies, spare parts,
other miscellaneous supplies, and other tangible property of any kind
wherever located, including, without limitation, all property of any kind
located in any building, office or other space
-7-
<PAGE>
leased, owned or occupied by the Seller or in any warehouse where any of
the Seller's properties and assets may be situated;
(viii) all prepayments and prepaid expenses;
(ix) except as specified in Section 2.1(b) below, all of the
Seller's claims, causes of action, choses in action, rights of recovery and
rights of set-off of any kind;
(x) the right to receive and retain mail and other
communications;
(xi) the right to bill and receive payment for products shipped
or delivered and services performed but unbilled as of the Closing;
(xii) all lists, records and other information pertaining to
accounts, personnel and referral sources, all lists and records pertaining
to suppliers and customers, and all books, ledgers, files and business
records of every kind, whether evidenced in writing, electronically
(including, without limitation, by computer) or otherwise;
(xiii) all advertising, marketing and promotional materials and
all other printed or written materials;
(xiv) all permits, licenses, certifications and approvals from
all permitting, licensing, accrediting and certifying agencies, and the
rights to all data and records held by such permitting, licensing and
certifying agencies;
(xv) all telephone numbers (e.g. "800" numbers) used by the
Seller;
(xvi) all goodwill as a going concern and all other intangible
properties;
(xvii) the name "R & R Rentals, Inc." (and all derivatives
thereof); and
(xviii) except as specified in Section 2.1(b) below, all other
property owned by the Seller, or in which it has an interest on the Closing
Date, including, without limitation, all fixed assets included on the
Latest Balance Sheet and any and all subsequent improvements or additions
thereon through the Closing Date.
(b) Excluded Assets. Notwithstanding Section 2.1(a) above, the
following assets are expressly excluded from the purchase and sale contemplated
hereby and, as such, are not Acquired Assets (collectively, the "Excluded
Assets"):
(i) all assets which are not related to the Business;
(ii) all accounts and notes receivables (whether current or
noncurrent) and all of the Seller's claims, causes of action, choses in action,
rights of recovery and rights of set-off of any kind relating primarily thereto
or arising primarily thereunder;
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<PAGE>
(iii) all Cash, securities and other investments;
(iv) all monies to be received by the Seller from the Purchaser
in connection with the consummation of the transactions contemplated by the
Transaction Documents;
(v) all rights of the Seller under this Agreement;
(vi) all qualifications to do business as a foreign corporation;
(vii) all arrangements with registered agents relating to foreign
qualifications;
(viii) all taxpayer and other identification numbers;
(ix) all seals, minute books, stock transfer books, blank stock
certificates, and other documents relating to the organization,
maintenance, and existence of the Seller as a corporation; and
(x) all of the Seller's claims, causes of action, rights of
recovery and rights of set-off of any kind against or relating to either
Orix Credit Alliance, Inc., Jerolde C. Parks or any member of his family,
Ben Floyd, Trustee of the bankruptcy estate of Jerolde C. Parks (or such
estate), or any other party who or which might be joined, or a necessary
party to, in each case solely to the extent relating primarily to,
Adversary No. 96-2107M, Case No. 91-21377-M-7, in the United States
Bankruptcy Court for the Southern District of Texas, McAllen Division.
(c) Assumed Liabilities. Subject to Section 2.1(d) below, as
additional consideration for the Acquired Assets, at the Closing the Purchaser
will assume the following liabilities and obligations of the Seller (the
"Assumed Liabilities"): all liabilities and obligations of the Business pursuant
to executory contracts, orders and commitments covering the purchase of
inventory and/or supplies or the sale or rental of equipment, merchandise or
services which are described on the attached Contracts Schedule.
(d) Excluded Liabilities. Except as set forth in Section 2.1(c) above,
the Purchaser shall not assume or become liable for, and shall not be deemed to
have assumed or have become liable for, any of the Seller's liabilities and
obligations not expressly assumed by the Purchaser pursuant to Section 2.1(c)
above, whether accrued, absolute or contingent, whether known or unknown,
whether disclosed or undisclosed, whether due or to become due and whether
related to the Acquired Assets or otherwise, and regardless of when asserted,
including, without limitation, any liabilities or obligations arising from or
relating to (i) the Acquired Assets, (ii) the Seller's operation of the Business
prior to the Closing Date or (iii) any Tax related to the Acquired Assets or the
Seller's operation of the Business (the "Excluded Liabilities").
(e) Purchase Price for Acquired Assets. The purchase price for the
Acquired Assets (the "Purchase Price") will consist of the assumption by
Purchaser of the Assumed Liabilities,
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<PAGE>
the delivery of 296,297 shares of common stock, par value $.01 per share (the
"NES Stock") of National Equipment Services, Inc., a Delaware corporation
("NES"), and the payment of an aggregate of $22,634,000 (as adjusted pursuant to
Section 2.2 below), which shall be paid at Closing as follows: (i) the Purchaser
shall deliver $22,134,000 (as adjusted pursuant to Section 2.2 below) (the "Cash
Purchase Price") in cash and (iii) the Purchaser shall maintain $500,000 in a
book entry account of the Purchaser (the "Holdback"). The Holdback shall be
available to satisfy any amounts owing to the Purchaser pursuant to Section 2.2
(Purchase Price Adjustment) and/or Section 8.2 (Indemnification). The Purchase
Price is subject to adjustment pursuant to Section 2.2 hereof.
2.2 Purchase Price Adjustments.
--------------------------
(a) Closing Date Adjustments. At the Closing, the Purchase Price will
be adjusted dollar-for-dollar as set forth in this Section 2.2(a).
(i) Acquired Assets. Not more than ten (10) Business Days, but in
no event less than five (5) Business Days, before the Closing Date, the
Seller and the Purchaser will, in good faith and in accordance with the
GAAP, jointly estimate the book value of the Acquired Assets as of the
close of business on June 30, 1998 on a reasonable basis using the Seller's
then available financial information; provided, however, that if the Seller
and the Purchaser cannot agree on an estimate of the book value of the
Acquired Assets, such estimate will be deemed to be equal to the average of
the Seller's and the Purchaser's good faith determinations thereof. The
book value of the Acquired Assets as finally estimated pursuant to this
Section 2.2(a), is referred to herein as the "Estimated Acquired Assets
Amount." At the Closing, if the Estimated Acquired Assets Amount is less
than the Baseline Acquired Assets Amount, then the Purchase Price will be
decreased by the amount of such deficiency, and if the Estimated Acquired
Assets Amount is greater than the Baseline Acquired Assets Amount, then the
Purchase Price will be increased by the amount of such excess.
(ii) Indebtedness. At the Closing, the Purchase Price will be
decreased dollar-for-dollar by an amount equal to the amount necessary to
discharge fully the then outstanding balance of the Seller's and its
Subsidiaries' Indebtedness secured by any of the Acquired Assets
(including, without limitation, prepayment penalties and premiums);
provided that at the election of the Purchaser any or all of such
Indebtedness may be assumed by the Purchaser rather than discharged, in
which case the Purchase Price will be decreased dollar-for-dollar by an
amount equal to the amount so assumed.
(b) Post-Closing Determination. Within 90 days after the Closing Date,
the Purchaser and its auditors will conduct a review (the "Closing Review") of
the book value of the Acquired Assets as of the close of business on June 30,
1998 and will prepare and deliver to the Seller a computation of the amount of
the book value of the Acquired Assets as of the close of business on June 30,
1998 (the "Draft Balance Sheet"). The Purchaser and its auditors will make
available to the Seller and its auditors all records and work papers used in
preparing the Draft Balance Sheet. If the Seller disagrees with the computation
of the book value of the Acquired Assets reflected on the Draft Balance Sheet,
the Seller may, within thirty (30) days after receipt of the Draft Balance
Sheet, deliver a notice (an "Objection Notice") to the Purchaser setting forth
the
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Seller's calculation of the amount of the book value of the Acquired Assets as
of the close of business on June 30, 1998. The Purchaser and the Seller will use
reasonable best efforts to resolve any disagreements as to the computation of
the book value of the Acquired Assets, but if they do not obtain a final
resolution within thirty (30) days after the Purchaser has received the
Objection Notice, the Purchaser and the Seller will jointly retain an
independent accounting firm of recognized national standing (the "Firm") to
resolve any remaining disagreements. If the Purchaser and the Seller are unable
to agree on the choice of the Firm, then the Firm will be a "big-six" accounting
firm selected by lot (after excluding one firm designated by the Purchaser and
one firm designated by the Seller). The Purchaser and the Seller will direct the
Firm to render a determination within 30 days of its retention and the
Purchaser, the Seller, the Stockholder and their respective agents will
cooperate with the Firm during its engagement. The Firm will consider only those
items and amounts in the Draft Balance Sheet set forth in the Objection Notice
which the Purchaser and the Seller are unable to resolve. In resolving any
disputed item, the Firm may not assign a value to any item greater than the
greatest value for such item claimed by either party or less than the smallest
value for such item claimed by either party. The Firm's determination will be
based solely on presentations by the Purchaser and the Seller (i.e., not on
independent review), and on the definition of Acquired Assets included herein.
The determination of the Firm will be conclusive and binding upon the Purchaser,
the Seller and the Stockholder. The Purchaser and the Seller shall bear the
costs and expenses of the Firm based on the percentage which the portion of the
contested amount not awarded to each party bears to the amount actually
contested by such party. The book value of the Acquired Assets, as finally
determined pursuant to this Section 2.2(b), is referred to herein as the "Actual
Acquired Assets Amount."
(c) Post-Closing Adjustment.
-----------------------
(i) Payment by the Purchaser. If the Actual Acquired Assets Amount is
greater than the Estimated Acquired Assets Amount, the Purchaser will,
within five (5) Business Days after the determination thereof, pay to the
Seller an amount equal to the sum of (A) the Actual Acquired Assets Amount
minus the Estimated Acquired Assets Amount plus (B) interest on such
difference from the Closing Date to the date of payment at an interest rate
equal to the "Prime Rate" as listed in The Wall Street Journal Midwest
Edition on the Closing Date (the "Prime Rate"). Such payment will be made
by wire transfer or delivery of other immediately available funds.
(ii) Payment by the Stockholder. If the Actual Acquired Assets Amount
is less than the Estimated Acquired Assets Amount, the Purchaser shall be
entitled to receive from the Holdback, within five (5) business days after
the determination thereof, the amount equal to the sum of (A) the Estimated
Acquired Assets Amount minus the Actual Acquired Assets Amount plus (B)
interest on such difference from the Closing Date to the date of payment at
an interest rate equal to the Prime Rate (provided, however, that if the
Holdback is less than the amount of such sum of (A) and (B) above, the
Stockholder shall pay to the Purchaser, within five (5) business days after
the determination of the Actual Acquired Assets Amount, the amount by which
the Holdback is less than the amount of such sum of (A) and (B) above).
Such payment will be made by wire transfer or delivery of other immediately
available funds.
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(iii) Dispute. If, pursuant to Section 2.2(b) above, there is a
dispute as to the final determination of the Actual Acquired Assets Amount,
the Purchaser and the Stockholder shall promptly pay to the other, as
appropriate, such amounts as are not in dispute, pending final
determination of such dispute pursuant to Section 2.2(b).
2.3 Closing Transactions.
--------------------
(a) Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Kirkland & Ellis,
200 East Randolph Drive, Chicago, Illinois 60601, commencing at 10:00 a.m. on
the Business Day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself), or at such other place or on such other date as may be
mutually agreeable to the Purchaser and the Seller; provided that in any event,
if the Purchaser's senior lenders require that the Closing take place at the
offices of their attorneys, the Parties agree that the Closing shall take place
at such offices. The date and time of the Closing are herein referred to as the
"Closing Date." The transactions contemplated hereby shall be effective as of
the Effective Date.
(b) Closing Transactions. Subject to the conditions set forth in this
Agreement, the Parties shall consummate the following transactions (the "Closing
Transactions") on the Closing Date:
(i) the Stockholder shall cause the Seller to, and the Seller shall
convey to the Purchaser good and marketable title to all of the Acquired
Assets, free and clear of all Liens (other than Permitted Encumbrances),
and deliver to the Purchaser warranty deeds, bills of sale, assignment of
leases and contracts and all other instruments of conveyance which are
necessary or desirable to effect transfer of the Acquired Assets, in form
and substance satisfactory to the Purchaser;
(ii) the Purchaser shall deliver to the Seller such instruments of
assumption as are required in order for the Purchaser to assume the Assumed
Liabilities;
(iii) pursuant to Section 2.2(a)(ii) above, the Purchaser shall repay,
or cause to be repaid, on behalf of the Seller and its Subsidiaries, all
amounts necessary to discharge fully the then outstanding balance of the
Seller's and its Subsidiary's Indebtedness secured by any of the Acquired
Assets (including, without limitation, prepayment penalties and premiums)
by wire transfer of immediately available funds as directed by the holders
of such Indebtedness at or prior to the Closing, and the Seller shall
deliver to the Purchaser all appropriate payoff letters at or prior to the
Closing and shall make arrangements reasonably satisfactory to Purchaser
for such holders to deliver lien releases and canceled notes as soon as
reasonably practicable after the Closing;
(iv) The Purchaser shall deliver to the Seller the Cash Purchase Price
by wire transfer of immediately available funds;
(v) The Purchaser shall deliver to the Seller the NES Stock;
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(vi) The Purchaser shall deliver to the Stockholder the amount set
forth in Section 9.10(a) by wire transfer of immediately available funds;
and
(vii) the Seller and the Purchaser, as applicable, shall deliver the
opinions, certificates and other documents and instruments required to be
delivered by or on behalf of such Party under Article III.
2.4 Distribution of Holdback. On the 120th day after the Closing
Date, the Purchaser shall pay to the Seller an amount equal to the amount of the
Holdback, if any, remaining after (i) all amounts owing to the Purchaser
pursuant to Section 2.2 (Purchase Price Adjustment) have been satisfied, and
(ii) all claims of the Purchaser under Section 8.2 (Indemnification) which have
theretofore been finally resolved have been satisfied (the "Remaining Holdback")
less any amount for which the Purchaser claims, prior to such 120th day, that it
is entitled to receive indemnification pursuant to Section 8.2 (each, a "Pending
Claim"). As soon as practicable following final resolution of all Pending
Claims, the Purchaser shall pay to the Sellers an aggregate amount equal to the
portion, if any, of the Holdback which remain after payment of the Remaining
Holdback and final resolution of all Pending Claims.
ARTICLE III
CONDITIONS TO CLOSING
---------------------
3.1 Conditions to the Purchaser's Obligations. The obligation of
the Purchaser to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of the following conditions as of the Closing Date:
(a) The representations and warranties set forth in Article V hereof
shall be true and correct in all material respects at and as of the Closing Date
as though then made and as though the Closing Date were substituted for the date
of this Agreement throughout such representations and warranties (without taking
into account any disclosures made by the Seller or the Stockholder to the
Purchaser pursuant to Sections 4.1(g) or 5.25 hereof);
(b) The Seller and the Stockholder shall have performed and complied
with all of the covenants and agreements required to be performed by each of
them under this Agreement on or prior to the Closing;
(c) All consents by third parties that are required for the transfer
of the Acquired Assets to the Purchaser and the consummation of the other
transactions contemplated hereby or that are required in order to prevent a
breach of, a default under, a termination or modification of, or any
acceleration of, any obligations under any material contract to which the Seller
or any of its Subsidiaries is a party shall have been obtained, all on terms
reasonably satisfactory to the Purchaser;
(d) All governmental filings, authorizations and approvals that are
required for the transfer of the Acquired Assets to the Purchaser and the
consummation of the other transactions
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contemplated hereby shall have been duly made and obtained on terms reasonably
satisfactory to the Purchaser;
(e) The purchase of Acquired Assets by the Purchaser hereunder shall
not be prohibited by any applicable law or governmental regulation, shall not
subject the Purchaser to any penalty, liability or other onerous condition under
or pursuant to any applicable law or governmental regulation, and shall be
permitted by laws and regulations of the jurisdictions to which the Purchaser is
subject;
(f) The applicable waiting periods, if any, under the Hart-Scott-
Rodino Antitrust Improvement Act of 1976, as amended (the "HSR Act") shall have
expired or been terminated;
(g) No action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable judgment, decree, injunction, order or ruling would prevent the
performance of this Agreement or any of the transactions contemplated hereby,
declare unlawful the transactions contemplated by this Agreement, cause such
transactions to be rescinded or materially and adversely affect the right of the
Purchaser to own, operate or control the Acquired Assets, and no judgment,
decree, injunction, order or ruling shall have been entered which has any of the
foregoing effects;
(h) Since the date hereof, there shall have been no Material Adverse
Effect;
(i) Payoff letters with respect to all of the Seller's and its
Subsidiaries' Indebtedness secured by any of the Acquired Assets outstanding as
of the Closing and releases of any and all Liens (other than Permitted
Encumbrances) held by third parties against the Acquired Assets shall have been
obtained, all on terms reasonably satisfactory to the Purchaser;
(j) The Purchaser shall have received an opinion, dated the Closing
Date, of Taylor & Norwood, counsel to the Seller and the Stockholder, in form
and substance satisfactory to the Purchaser;
(k) The Purchaser shall have received a copy of the new real estate
lease for the Mont Belvieu, Texas facility of the Business, and the rental rate
under such lease shall be no greater than the fair market rental rate for a
similar facility in such location, and shall be substantially the same as the
rental rate under the lease arrangement for such facility during the 1997 fiscal
year;
(l) On or prior to the Closing Date, the Stockholder shall have
delivered to the Purchaser all of the following:
(i) a certificate from the Seller and the Stockholder in a form
reasonably satisfactory to the Purchaser, dated the Closing Date, stating
that the preconditions specified in Sections 3.1(a) through (k) have been
satisfied;
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(ii) copies of all third party and governmental consents, approvals,
filings and releases required in connection with the consummation of the
transactions contemplated herein;
(iii) certified copies of the resolutions of the Stockholder and the
Seller's board of directors approving the transactions contemplated by this
Agreement;
(iv) certificates of the secretary of state of the State of Texas and
any other state where the Seller or any of its Subsidiaries is qualified to
do business providing that the Seller or such Subsidiary is in good
standing;
(v) landlord consent and estoppel letter (the "Estoppel Letter") with
respect to the Mont Belvieu, Texas facility from the landlords, lessors,
sublessors or licensors for such property in form and content reasonably
satisfactory to the Purchaser (and the Purchaser's lender, if any) and
containing such statements or agreements as the Purchaser or the
Purchaser's lender may reasonably request; and
(vi) such other documents or instruments as the Purchaser may
reasonably request to effect the transactions contemplated hereby;
(m) The Seller shall have obtained a non-disturbance agreement in form
and substance satisfactory to the Purchaser and the Purchaser's lender from each
lender encumbering the parcel of Leased Real Property at the Mont Belvieu, Texas
facility;
(n) The Purchaser and each of Robert N. Herrington and Chad Herrington
shall have entered into an agreement relating to such Person's employment or
consulting arrangement with the Purchaser and such Person's agreement not to
compete with the Purchaser, and such agreements shall be in full force and
effect; and
(o) All proceedings to be taken by the Seller, any of its Subsidiaries
and the Stockholder in connection with the consummation of the Closing
Transactions and the other transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to be delivered
by the Seller, any of its Subsidiaries and the Stockholder to effect the
transactions contemplated hereby reasonably requested by the Purchaser shall be
reasonably satisfactory in form and substance to the Purchaser.
Any condition specified in this Section 3.1 may be waived by the Purchaser;
provided that no such waiver shall be effective against the Purchaser unless it
is set forth in a writing executed by the Purchaser.
3.2 Conditions to the Seller's Obligation. The obligation of the
Seller to consummate the transactions contemplated by this Agreement is subject
to the satisfaction of the following conditions as of the Closing Date:
(a) The representations and warranties set forth in Article VI shall
be true and correct in all material respects at and as of the Closing Date as
though then made and as though the
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Closing Date were substituted for the date of this Agreement throughout such
representations and warranties (without taking into account any disclosures made
by the Purchaser to the Seller pursuant to Sections 4.3(a) and 6.7 hereof);
(b) The Purchaser shall have performed and complied with all of the
covenants and agreements required to be performed by it under this Agreement on
or prior to the Closing;
(c) All governmental filings, authorizations and approvals that are
required for the transfer of the Acquired Assets to the Purchaser and the
consummation of the other transactions contemplated hereby shall have been duly
made and obtained on terms reasonably satisfactory to the Seller;
(d) No action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an unfavorable judgment,
decree, injunction, order or ruling would prevent the performance of this
Agreement or any of the transactions contemplated hereby, declare unlawful the
transactions contemplated by this Agreement, cause such transactions to be
rescinded or materially and adversely affect the right of the Purchaser to own,
operate or control the Acquired Assets, and no judgment, decree, injunction,
order or ruling shall have been entered which has any of the foregoing effects;
(e) On or prior to the Closing Date, the Purchaser shall have
delivered to the Seller all of the following:
(i) a certificate from the Purchaser in a form reasonably
satisfactory to the Seller, dated the Closing Date, stating that the
preconditions specified in Sections 3.2(a) through (d), inclusive, have
been satisfied;
(ii) certificates of the secretary of state of the State of Delaware
providing that the Purchaser is in good standing;
(iii) certified copies of the resolutions of the Purchaser's board of
directors approving the transactions contemplated by this Agreement; and
(iv) such other documents or instruments as the Seller may reasonably
request to effect the transactions contemplated hereby;
(f) NES and the Seller shall have entered into a registration rights
agreement which sets forth certain registration rights relating to the NES
Stock, and such agreement shall be in full force and effect; and
(g) All proceedings to be taken by the Purchaser in connection with
the consummation of the Closing Transactions and the other transactions
contemplated hereby and all certificates, opinions, instruments and other
documents required to be delivered by the Purchaser to effect the transactions
contemplated hereby reasonably requested by the Seller shall be reasonably
satisfactory in form and substance to the Seller.
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Any condition specified in this Section 3.2 may be waived by the Seller;
provided that no such waiver shall be effective unless it is set forth in a
writing executed by the Seller.
ARTICLE IV
COVENANTS PRIOR TO CLOSING
4.1 Affirmative Covenants of the Seller and the Stockholder. Prior
to the Closing, unless the Purchaser otherwise agrees in writing and except as
expressly contemplated by this Agreement, the Stockholder shall cause the Seller
and each of its Subsidiaries to, the Seller and each of its Subsidiaries shall
and in the case of Sections 4.1(g), (h), (i) and (m) the Stockholder also shall:
(a) conduct the business and operations of the Business only in the
Ordinary Course of Business;
(b) keep in full force and effect its corporate existence and all
rights, franchises and intellectual property relating or pertaining to its
business and use its reasonable best efforts to cause its current insurance (or
reinsurance) policies not to be canceled or terminated or any of the coverage
thereunder to lapse;
(c) use its reasonable best efforts to carry on the Business in the
same manner as presently conducted and to keep the business organization and
properties of the Business intact, including its present business operations,
physical facilities, working conditions and employees and its present
relationships with lessors, licensors, suppliers and customers and others having
business relations with it;
(d) maintain the material assets of the Business in good repair,
order and condition (normal wear and tear excepted) consistent with current
needs, replace in accordance with prudent practices its inoperable, worn out or
obsolete assets with assets of good quality consistent with prudent practices
and current needs and, in the event of a casualty, loss or damage to any of such
assets or properties prior to the Closing Date, either repair or replace such
damaged property or use the proceeds of such insurance in such other manner as
mutually agreed upon by the Seller and the Purchaser;
(e) encourage employees to continue their employment with the
Purchaser and its Subsidiaries after the Closing;
(f) maintain the books, accounts and records of the Business in
accordance with past custom and practice as used in the preparation of the
Financial Statements;
(g) promptly (once the Seller or the Stockholder obtains knowledge
thereof) inform the Purchaser in writing of any variances from the
representations and warranties contained in Article V hereof or any breach of
any covenant hereunder by the Seller or the Stockholder;
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(h) cooperate with the Purchaser and use reasonable best efforts to
cause the conditions to the Purchaser's obligation to close to be satisfied
(including, without limitation, the execution and delivery of all agreements
contemplated hereunder to be so executed and delivered and the making and
obtaining of all third party and governmental notices, filings, authorizations,
approvals, consents, releases and terminations);
(i) use reasonable best efforts to obtain all third party and
governmental approvals and consents necessary or desirable to consummate the
transactions contemplated hereby and to cause the other conditions to the
Purchaser's obligations hereunder to be satisfied;
(j) maintain the existence of and use reasonable best efforts to
protect all Proprietary Rights used in the Business;
(k) maintain the existence of and protect all of the governmental
permits, licenses, approvals and other authorizations of the Business;
(l) comply with all applicable laws, ordinances, and regulations in
the operation of the Business; and
(m) cooperate with the Purchaser in the Purchaser's investigation of
the business and properties of the Business, to permit the Purchaser and its
employees, agents, accounting, legal and other authorized representatives to (i)
have full access to the premises, books and records of the Business at
reasonable hours, (ii) visit and inspect any of the properties of the Business,
and (iii) discuss the affairs, finances and accounts of the Business with the
directors, officers, partners, key employees, key customers, key sales
representatives, key suppliers and independent accountants of the Seller and
each of its Subsidiaries.
4.2 Negative Covenants of the Seller and the Stockholder . Prior to
the Closing, unless Purchaser otherwise agrees in writing and except as
expressly contemplated by this Agreement, the Stockholder shall cause the Seller
and each of its Subsidiaries to not and the Seller and each of its Subsidiaries
shall not (in each case, to the extent related to the Business):
(a) take any action that would require disclosure under Section 5.8;
(b) incur any Indebtedness other than Indebtedness to finance its
working capital needs;
(c) make any loans, enter into any transaction with any Insider, make
or grant any increase in any employee's, officer's or director's compensation,
authorize or pay any bonuses to any employee, officer, director or stockholder
or make or grant any increase in any employee benefit plan, incentive
arrangement or other benefit covering any of the employees of the Seller or its
Subsidiaries;
(d) establish or, except in the Ordinary Course of Business,
contribute to any pension, retirement, profit sharing or stock bonus plan or
multiemployer plan covering the employees of the Business;
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(e) except as specifically contemplated by this Agreement, enter into
any contract, agreement or transaction, other than in the Ordinary Course of
Business and at arm's length with unaffiliated Persons;
(f) declare, pay, make or otherwise effectuate any dividends,
distributions, redemptions, equity repurchases or other transactions involving
the Seller's or any of its Subsidiaries' capital stock or equity securities;
(g) engage in any activity other than in the Ordinary Course of
Business which would delay the payment of its accounts payable, delay its
capital expenditures, or reduce or otherwise restrict the amount of inventory on
hand; or
(h) sell, transfer, contribute, distribute, or otherwise dispose of
any securities, capital stock or assets (other than marketable securities) of
the Seller or of its Subsidiaries, or agree to do any of the foregoing, to any
Person, or negotiate or have any discussions with any Person with respect to any
of the foregoing, other than in the Ordinary Course of Business.
4.3 Covenants of Purchaser. Prior to the Closing, the Purchaser
shall:
(a) promptly (once it obtains knowledge thereof) inform the Seller in
writing of any variances from the representations and warranties contained in
Article VI or any breach of any covenant hereunder by Purchaser; and
(b) cooperate with Seller and use its reasonable best efforts to
cause the conditions to the Seller's obligation to close to be satisfied
(including, without limitation, the execution and delivery of all agreements
contemplated hereunder to be so executed and delivered and the making and
obtaining of all third party and governmental filings, authorizations,
approvals, consents, releases and terminations).
ARTICLE V
REPRESENTATIONS AND WARRANTIES
CONCERNING THE SELLER AND THE STOCKHOLDER
-----------------------------------------
As a material inducement to the Purchaser to enter into this Agreement, the
Seller and the Stockholder hereby jointly and severally represent and warrant
that:
5.1 Organization and Corporate Power. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas and is qualified to do business in every jurisdiction in which it
is required to be qualified. All jurisdictions in which the Seller is qualified
to do business are set forth on the "Organization Schedule" attached hereto. The
Seller has full power and authority and all licenses, permits and authorizations
necessary to own and operate its properties and to carry on its business as now
conducted. Correct and complete copies of the Seller's and each of its
Subsidiaries' articles of incorporation and by-laws have been furnished to the
Purchaser, which documents reflect all amendments made thereto at any time prior
to the date of this Agreement. Correct and complete copies of the minute books
containing the
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records of meetings of the stockholders and board of directors, the stock
certificate books and the stock record books of the Seller and each of its
Subsidiaries have been furnished to the Purchaser. Neither the Seller nor any of
its Subsidiaries is in default under or in violation of any provision of its
articles of incorporation or by-laws.
5.2 Authorization of Transactions. The Seller and the Stockholder
have full power and authority to execute and deliver the Transaction Documents
to which they are a party and to consummate the transactions contemplated hereby
and thereby. The Stockholder and the board of directors of the Seller, as
applicable, have duly approved the Transaction Documents to which the
Stockholder and/or the Seller are a party and have duly authorized the execution
and delivery of such Transaction Documents and the consummation of the
transactions contemplated thereby. No other corporate proceedings on the part of
the Stockholder or the Seller are necessary to approve and authorize the
execution and delivery of the Transaction Documents to which the Stockholder
and/or the Seller are a party and the consummation of the transactions
contemplated thereby. All Transaction Documents to which the Stockholder and/or
the Seller are a party have been duly executed and delivered by the Stockholder
and/or the Seller, as applicable, and constitute the valid and binding
agreements of the Stockholder and/or the Seller, as applicable, enforceable
against the Stockholder and/or the Seller in accordance with their terms.
5.3 Capitalization. The authorized, issued and outstanding stock of
the Seller consists of 10,000 shares of Common Stock, no par value per share, of
which 1,000 shares are issued and outstanding. All of the issued and outstanding
shares of the Seller's capital stock have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record and beneficially
by the Stockholder free and clear of all Liens and are not subject to, nor were
they issued in violation of, any preemptive rights or rights of first refusal.
There are no outstanding or authorized options, warrants, rights, contracts,
calls, puts, rights to subscribe, conversion rights or other agreements or
commitments to which the Seller is a party or which are binding upon the Seller
providing for the issuance, disposition or acquisition of any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom stock
or similar rights with respect to the Seller or any of its Subsidiaries. There
are no voting trusts, proxies or any other agreements or understandings with
respect to the voting of the capital stock of the Seller or any of its
Subsidiaries. Neither the Seller nor any of its Subsidiaries is subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock.
5.4 Subsidiaries; Investments. The attached "Subsidiaries Schedule"
correctly sets forth the name of each of the Seller's direct or indirect
Subsidiaries, the jurisdiction of its incorporation, the number of authorized,
issued and outstanding shares of capital stock of such Subsidiary and the
Persons owning the outstanding capital stock of such Subsidiary. Each Subsidiary
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, possesses all requisite corporate power and
authority and all material licenses, permits and authorizations necessary to own
its properties and to carry on its businesses as now being conducted and is
qualified to do business in every jurisdiction in which its ownership of
property or the conduct of business requires it to qualify. All of the
outstanding shares of capital stock of each Subsidiary are validly issued, full
paid and nonassessable, and all such shares are owned by the Seller or another
Subsidiary free and clear of any Lien and not subject to any option or right to
purchase any such shares. Except as set forth on the Subsidiaries Schedule,
neither the
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Seller nor any of its Subsidiaries owns or holds the right to acquire any shares
of stock or any other security or interest in any other Person.
5.5 Absence of Conflicts. Except as set forth on the "Conflicts
Schedule" attached hereto, the execution, delivery and performance of the
Transaction Documents and the consummation of the transactions contemplated
thereby by the Seller and the Stockholder do not and shall not (a) conflict with
or result in any breach of any of the terms, conditions or provisions of, (b)
constitute a default under, (c) result in a violation of, (d) give any third
party the right to modify, terminate or accelerate any obligation under, (e)
result in the creation of any Lien upon the Acquired Assets or (f) require any
authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or other
governmental body or agency, under the provisions of the articles of
incorporation or by-laws of the Seller or any of its Subsidiaries or any
indenture, mortgage, lease, loan agreement or other agreement or instrument to
which the Seller, any of its Subsidiaries or the Stockholder is bound or
affected, or any law, statute, rule or regulation to which the Seller, any of
its Subsidiaries or the Stockholder is subject or any judgment, order or decree
to which the Seller, any of its Subsidiaries or the Stockholder is subject.
5.6 Financial Statements and Related Matters.
-----------------------------------------
(a) Financial Statements. Attached hereto as the "Financial
Statements Schedule" are copies of the (i) unaudited balance sheet of the
Business as of April 30, 1998 (the "Latest Balance Sheet") and the related
statements of income and cash flows for the four-month period then ended and
(ii) unaudited balance sheets and statements of income and cash flows of the
Business for the fiscal years ended December 31, 1997, 1996 and 1995. Each of
the foregoing financial statements (including in all cases the notes thereto, if
any) (the "Financial Statements") is accurate and complete, is consistent with
the books and records of the Business (which, in turn, are accurate and
complete), presents fairly the financial condition and results of operations of
the Business as of the times and for the periods referred to therein, and has
been prepared in accordance with GAAP, subject in the case of unaudited
financial statements to changes resulting from normal year-end adjustments for
recurring accruals (which shall not be material individually or in the
aggregate) and to the absence of footnote disclosure.
(b) Inventory. The inventory of the Business, net of the reserves
applicable to such inventory, consists of a quantity and quality which, except
as reflected in such reserve, is usable or saleable in the Ordinary Course of
Business, and the items of such inventory are not defective, slow-moving,
obsolete or damaged and are merchantable and fit for their particular use. The
Business has good title to such inventory, free and clear of all Liens (other
than Permitted Encumbrances).
5.7 Absence of Undisclosed Liabilities. Neither the Seller nor any
of its Subsidiaries has any obligations or liabilities related to the Business
(whether accrued, absolute, contingent, unliquidated or otherwise, whether or
not known, whether due or to become due and regardless of when asserted) arising
out of transactions entered into at or prior to the Closing, or any action or
inaction at or prior to the Closing, or any state of facts existing at or prior
to the Closing, except (i) obligations under executory contracts or commitments
described on the Contracts Schedule attached hereto or under executory contracts
and commitments which are not required to
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be disclosed thereon (but not liabilities for breaches thereof), (ii)
liabilities reflected on the liabilities side of the Latest Balance Sheet, and
(iii) liabilities which have arisen after the date of the Latest Balance Sheet
in the Ordinary Course of Business or otherwise in accordance with the terms and
conditions of this Agreement (none of which is a liability for breach of
contract, breach of warranty, tort or infringement or a claim or lawsuit or an
environmental liability).
5.8 Absence of Certain Developments. Except as set forth on the
"Developments Schedule" attached hereto and except as expressly contemplated by
this Agreement, since the date of the Latest Balance Sheet, neither the Seller
nor any of its Subsidiaries has (in each case, to the extent related to the
Business):
(a) suffered any change that has had or could reasonably be expected
to have a Material Adverse Effect or suffered any theft, damage, destruction or
casualty loss in excess of $50,000, to its assets, whether or not covered by
insurance or suffered any substantial destruction of its books and records;
(b) redeemed or repurchased, directly or indirectly, any shares of
capital stock or other equity security or declared, set aside or paid any
dividends or made any other distributions (whether in cash or in kind) with
respect to any shares of its capital stock or other equity security;
(c) issued, sold or transferred any equity securities, any securities
convertible, exchangeable or exercisable into shares of its capital stock or
other equity securities, or warrants, options or other rights to acquire shares
of its capital stock or other of its equity securities;
(d) incurred or become subject to any liabilities, except liabilities
incurred in the Ordinary Course of Business;
(e) subjected any portion of its properties or assets to any Lien
(other than Permitted Encumbrances);
(f) sold, leased, assigned or transferred (including, without
limitation, transfers to the Stockholder or any Insider) a portion of its
tangible assets, except for sales of inventory in the Ordinary Course of
Business, or canceled without fair consideration any material debts or claims
owing to or held by it;
(g) sold, assigned, licensed or transferred (including, without
limitation, transfers to the Stockholder or any Insider) any Proprietary Rights
owned by, issued to or licensed to it or disclosed any confidential information
(other than pursuant to agreements requiring the disclosure to maintain the
confidentiality of and preserving all its rights in such confidential
information) or received any confidential information of any third party in
violation of any obligation of confidentiality;
(h) suffered any extraordinary losses or waived any rights of
material value;
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(i) entered into, amended or terminated any material lease, contract,
agreement or commitment, or taken any other action or entered into any other
transaction other than in the Ordinary Course of Business;
(j) entered into any other material transaction, or materially
changed any business practice;
(k) made or granted any bonus or any wage, salary or compensation
increase to any director, officer, employee or sales representative, group of
employees or consultant or made or granted any increase in any employee benefit
plan or arrangement, or amended or terminated any existing employee benefit plan
or arrangement or adopted any new employee benefit plan or arrangement;
(l) made any other change in employment terms for any of its
directors, officers, and employees outside the Ordinary Course of Business;
(m) conducted its cash management customs and practices other than in
the Ordinary Course of Business (including, without limitation, with respect to
collection of accounts receivable, purchases of inventory and supplies, repairs
and maintenance, payment of accounts payable and accrued expenses, levels of
capital expenditures and operation of cash management practices generally);
(n) made any capital expenditures or commitments for capital
expenditures that aggregate in excess of $50,000;
(o) made any loans or advances to, or guarantees for the benefit of,
any Person;
(p) made charitable contributions, pledges, association fees or dues
in excess of $50,000; or
(q) committed to do any of the foregoing.
5.9 Assets. Except as set forth on the attached "Assets Schedule,"
the Seller and each of its Subsidiaries have good and marketable title to, or a
valid leasehold interest in, the properties and assets used by them, located on
their premises or shown on the Latest Balance Sheet or acquired thereafter, free
and clear of all Liens, except for Permitted Encumbrances and except for
properties and assets disposed of in the ordinary course of business since the
date of the Latest Balance Sheet. Except as described on the Assets Schedule,
the Seller's and each of its Subsidiaries' buildings, equipment and other
tangible assets are in good operating condition and are fit for use in the
ordinary course of business. The Seller and each of its Subsidiaries owns or
leases all buildings, machinery, equipment, and other assets necessary for the
conduct of its business as presently conducted. The Acquired Assets constitute
all of the assets and rights necessary for the conduct of the Business as it is
presently conducted.
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5.10 Title to Properties.
--------------------
(a) Owned Properties. The "Real Property Schedule" sets forth a list
of all owned real property (collectively, the "Owned Real Property") used by the
Seller or any of its Subsidiaries in the operation of their businesses. With
respect to each such parcel of Owned Real Property: (i) the Seller owns such
parcel free and clear of all encumbrances, except Permitted Encumbrances; (ii)
there are no leases, subleases, licenses, concessions, or other agreements,
written or oral, granting to any person the right of use or occupance of any
portion of such parcel; and (iii) there are no outstanding actions or rights of
first refusal to purchase such parcel, or any portion thereof or interest
therein.
(b) Leased Properties. The "Leases Schedule" sets forth a list of all
of the written leases and subleases, and a description of all oral arrangements
with respect to real property, related to the Business (the "Leases") and each
leased and subleased parcel of real property related to the Business in which
the Seller or any of its Subsidiaries has a leasehold or subleasehold interest
(including, without limitation, any month to month or other oral lease
arrangements) (the "Leased Real Property"). Each of the Leases is in full force
and effect and the Seller or one of its Subsidiaries holds a valid and existing
leasehold or subleasehold interest under each of the Leases. The Seller has
delivered to the Purchaser true, correct, complete and accurate copies of each
of the written Leases described in the Leases Schedule. With respect to each
Lease listed on the Leases Schedule: (i) the Lease is legal, valid, binding,
enforceable and in full force and effect; (ii) the Lease will continue to be
legal, valid, binding, enforceable and in full force and effect on identical
terms following the Closing; (iii) neither the Seller nor, to the knowledge of
the Seller or the Stockholder, any other party to the Lease is in breach or
default, and no event has occurred which, with notice or lapse of time, would
constitute such a breach or default or permit termination, modification or
acceleration under the Lease; (iv) no party to the Lease has repudiated any
provision thereof; (v) there are no disputes or forbearance programs in effect
as to the Lease; (vi) the Lease has not been modified in any respect, except to
the extent that such modifications are disclosed by the documents delivered to
the Purchaser; and (vii) neither the Seller nor any of its Subsidiaries has
assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any
interest in the Lease.
(c) Real Property Disclosure. Except as disclosed on the Real
Property Schedule and the Leases Schedule, there is no Real Property leased or
owned by the Seller or any of its Subsidiaries used in the Business. The Owned
Real Property and Leased Real Property constitute collectively the Real
Property.
(d) No Proceedings. There are no proceedings in eminent domain or
other similar proceedings pending or, to the knowledge of the Seller or the
Stockholder, threatened, affecting any portion of the Real Property. There
exists no writ, injunction, decree, order or judgment outstanding, nor any
litigation, pending or threatened, relating to the ownership, lease, use,
occupancy or operation by any Person of the Real Property.
(e) Current Use. The current use of the Real Property does not
violate in any material respect any instrument of record or agreement affecting
such Real Property. There is no violation of any covenant, condition,
restriction, easement, agreement or order of any governmental authority having
jurisdiction over any of the Real Property that affects such real property or
the use
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or occupancy thereof. No damage or destruction has occurred with respect to any
of the Real Property that, individually or in the aggregate, has had or resulted
in, or will have or result in, a Material Adverse Effect.
(f) Condition and Operation of Improvements. All buildings and all
components of all buildings, structures and other improvements included within
the Real Property (the "Improvements"), including, without limitation, the roofs
and structural elements thereof and the heating, ventilation, air conditioning,
air pollution emission capture and abatement, plumbing, electrical, mechanical,
sewer, waste water and paving and parking equipment systems and facilities
included therein, are in good condition and repair and adequate to operate such
facilities as currently used and there are no facts or conditions affecting any
of the Improvements which would, individually or in the aggregate, interfere in
any significant respect with the use, occupancy or operation thereof as
currently used, occupied or operated or intended to be used, occupied or
operated. There are no structural deficiencies or latent defects affecting any
Improvements located upon the Real Property. All water, gas, electrical, steam,
compressed air, telecommunication, sanitary and storm sewage lines and systems
and other similar systems serving the Real Property are installed and operating
and are sufficient to enable the Real Property to continue to be used and
operated in the manner currently being used and operated, and any so-called
hook-up fees or other associated charges have been fully paid. Each such utility
or other service is provided by a public or private utility or service company
and enters the Real Property from an adjacent public street or valid private
easement owned by the supplier of such utility or other service. Each
Improvement has direct access to a public street adjoining the Real Property on
which such Improvement is situated over the driveways and accessways currently
being used in connection with the use and operation of such Improvement and no
existing accessway crosses or encroaches upon any property or property interest
not owned by the Seller or any of its Subsidiaries. No Improvement or portion
thereof is dependent for its access, operation or utility on any land, building
or other improvement not included in the Real Property.
(g) Permits. All certificates of occupancy, permits, licenses,
franchises, approvals and authorizations (collectively, the "Real Property
Permits") of all governmental authorities having jurisdiction over the Real
Property, required or appropriate to have been issued to the Seller or any of
its Subsidiaries to enable the Real Property to be lawfully occupied and used
for all of the purposes for which it is currently occupied and used have been
lawfully issued and are, as of the date hereof, in full force and effect. The
Seller has delivered complete and correct copies of the Real Property Permits to
the Purchaser. Neither the Seller nor any of its Subsidiaries has received or
been informed by a third party of the receipt by it of any notice from any
governmental authority having jurisdiction over the Real Property threatening a
suspension, revocation, modification or cancellation of any Real Property Permit
and, to the knowledge of the Seller or the Stockholder, there is no basis for
the issuance of any such notice or the taking of any such action.
(h) Compliance with Laws. The Real Property is in full compliance
with all applicable building, zoning, subdivision and other land use and similar
laws affecting the Real Property (collectively, the "Real Property Laws"), and
neither the Seller nor any of its Subsidiaries has received any notice of
violation or claimed violation of any Real Property Law. There is no pending or,
to the knowledge of the Seller or the Stockholder, any anticipated change in any
Real Property Law that will have or result in a significant adverse effect upon
the ownership, alteration,
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use, occupancy or operation of the Real Properties or any portion thereof. No
current use by the Seller or any of its Subsidiaries of the Real Properties is
dependent on a nonconforming use or other approval from a governmental
authority, the absence of which would significantly limit the use of any of the
properties or assets in the operation of the business of the Seller or any of
its Subsidiaries.
5.11 Taxes. To the extent related to the Business, and except as set
forth on the attached "Taxes Schedule,"
(a) the Seller and each of its Subsidiaries has timely filed all Tax
Returns which are required to be filed, and all such Tax Returns are true,
complete and accurate in all respects and have been prepared in compliance with
applicable law;
(b) all Taxes due and payable by the Seller and each of its
Subsidiaries, whether or not shown on a Tax Return, have been paid by the Seller
or each such Subsidiary and no Taxes are delinquent;
(c) the amount accrued as a current liability for taxes on the Latest
Balance Sheet shall be sufficient to pay in full all Taxes for taxable periods
(or portions thereof) ending on or before the date of the Latest Balance Sheet,
whether or not such Taxes are due on or before such date and, since the date of
the Latest Balance Sheet, neither the Seller nor any of its Subsidiaries have
incurred any liability for Taxes other than in the Ordinary Course of Business;
(d) no deficiency for any amount of Tax which has not been resolved
has been asserted or assessed by a taxing authority against the Seller or any of
its Subsidiaries, and neither the Seller nor the Stockholder has knowledge that
any such assessment or asserted Tax liability shall be made;
(e) there is no action, suit, taxing authority proceeding or audit
now in progress, pending or, to the knowledge of the Seller or the Stockholder,
threatened against or with respect to the Seller or any of its Subsidiaries;
(f) neither the Seller nor the Stockholders reasonably expect any
taxing authority to claim or assess any additional Taxes in respect of the
Seller or any of its Subsidiaries for any period;
(g) neither the Seller nor any of its Subsidiaries has (i) waived any
statute of limitations, (ii) agreed to any extension of the period for
assessment or collection or (iii) executed or filed any power of attorney, in
each case with respect to any Taxes which waiver, agreement or power of attorney
is currently in force;
(h) neither the Seller nor any of its Subsidiaries has been a member
of an Affiliated Group (as defined in Section 1504 of the Code), or any similar
group defined under local, state or foreign Tax law and neither the Seller nor
any of its Subsidiaries has any liability for Taxes of any Person other than the
Seller or its Subsidiaries under Treasury Regulations Section 1.1502-6 or any
similar provision of local, state or foreign Tax law;
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(i) neither the Seller nor any of its Subsidiaries is a party to or
bound by any Tax allocation, sharing, indemnity or similar agreement or
arrangement with any Person and neither the Seller nor any of its Subsidiaries
has current or potential contractual obligation to indemnify any other Person
with respect to Taxes;
(j) neither the Seller nor any of its Subsidiaries has any obligation
to make any payment that could be non-deductible under Section 280G of the Code
(or any corresponding provision of state, local or foreign Tax law);
(k) no claim has ever been made by a taxing authority in a
jurisdiction where the Seller or any of its Subsidiaries does not pay Taxes or
file Tax Returns that the Seller or any such Subsidiary is or may be subject to
Taxes assessed by such jurisdiction;
(l) the Seller and each of its Subsidiaries have withheld and paid
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, creditor, independent contractor or other third
party; and
(m) the Taxes Schedule contains a list of states, territories and
jurisdictions (whether foreign or domestic) in which the Seller and each of its
Subsidiaries are required to file Tax Returns relating to their respective
businesses.
5.12 Contracts and Commitments.
(a) Except as specifically contemplated by this Agreement and except
as set forth on the "Contracts Schedule" attached hereto, neither the Seller nor
any of its Subsidiaries is a party to or bound by, whether written or oral, any
(in each case, to the extent related to the Business):
(i) collective bargaining agreement or contract with any labor
union or any bonus, pension, profit sharing, retirement or any other form
of deferred compensation plan or any stock purchase, stock option,
hospitalization insurance or similar plan or practice, whether formal or
informal;
(ii) contract for the employment of any officer, individual employee
or other person on a full-time or consulting basis or any severance
agreements;
(iii) agreement or indenture relating to the borrowing of money or to
mortgaging, pledging or otherwise placing a Lien on any of its assets;
(iv) contract under which the Seller or any of its Subsidiaries has
advanced or loaned any other Person amounts in the aggregate exceeding
$25,000 (other than account and notes receivable incurred in the Ordinary
Course of Business);
(v) agreements with respect to the lending or investing of funds;
(vi) license or royalty agreements;
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(vii) guaranty of any obligation, other than endorsements made for
collection;
(viii) management, consulting, advertising, marketing, promotion,
technical services, advisory or other contract or other similar arrangement
relating to the design, marketing, promotion, management or operation of
the Business;
(ix) outstanding powers of attorney executed on behalf of the
Seller;
(x) lease or agreement under which it is lessee of, or holds or
operates, any personal property owned by any other party calling for
payments in excess of $25,000 annually;
(xi) lease or agreement under which it is lessor of or permits any
third party to hold or operate any property, real or personal, owned or
controlled by it;
(xii) contract or group of related contracts with the same party
continuing over a period of more than six months from the date or dates
thereof, not terminable by it on 30 days or less notice without penalties
or involving more than $25,000;
(xiii) any confidentiality agreement or similar arrangement;
(xiv) contract which prohibits it from freely engaging in business
anywhere in the world; or
(xv) other agreement material to it whether or not entered into in
the Ordinary Course of Business.
(b) Except as disclosed on the Contracts Schedule, (i) no contract or
commitment required to be disclosed on the Contracts Schedule has been breached
or canceled by the other party and neither the Seller nor the Stockholder has
knowledge of any anticipated breach by any other party to any contract required
to be disclosed on the Contracts Schedule, (ii) no customer or supplier has
indicated in writing or orally to the Seller, any of its Subsidiaries or the
Stockholder that it shall stop or decrease the rate of business done with the
Business or that it desires to renegotiate its contract or current arrangement
with the Seller or any of its Subsidiaries, (iii) the Seller and each of its
Subsidiaries have performed all the obligations required to be performed by them
in connection with the contracts or commitments required to be disclosed on the
Contracts Schedule and are not in default under or in breach of any contract or
commitment required to be disclosed on the Contracts Schedule, and no event has
occurred which with the passage of time or the giving of notice or both would
result in a default or breach thereunder, (iv) neither the Seller nor any of
its Subsidiaries has any present expectation or intention of not fully
performing any obligation pursuant to any contract required to be set forth on
the Contracts Schedule, and (vi) each agreement required to be set forth on the
Contracts Schedule is legal, valid, binding, enforceable and in full force and
effect and will continue as such following the consummation of the transactions
contemplated hereby.
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(c) The Seller has provided the Purchaser with a true and correct
copy of all written contracts which are required to be disclosed on the
Contracts Schedule, in each case together with all amendments, waivers or other
changes thereto (all of which are disclosed on the Contracts Schedule). The
Contracts Schedule contains an accurate and complete description of all material
terms of all oral contracts referred to therein.
5.13 Proprietary Rights.
(a) The attached "Proprietary Rights Schedule" contains a complete
and accurate list of all (a) patented or registered Proprietary Rights owned or
used by the Seller or any of its Subsidiaries in connection with the Business,
(b) pending patent applications and applications for registrations of other
Intellectual Property Rights filed by the Seller or any of its Subsidiaries in
connection with the Business, (c) unregistered trade names, internet domain
names and corporate names owned or used by the Seller or any of its Subsidiaries
in connection with the Business and (d) unregistered trademarks, service marks,
and computer software owned or used by the Seller or any of its Subsidiaries in
connection with the Business. The Proprietary Rights Schedule also contains a
complete and accurate list of all licenses and other rights granted by the
Seller or any of its Subsidiaries to any third party with respect to any
Proprietary Rights related to the Business and all licenses and other rights
granted by any third party to the Seller or any of its Subsidiaries with respect
to any Proprietary Rights related to the Business, in each case identifying the
subject Proprietary Rights. Except as set forth on the Proprietary Rights
Schedule, the Seller and each of its Subsidiaries own, free of all Liens (except
Permitted Encumbrances), all right, title and interest to, or have the right to
use pursuant to a valid written license, all Proprietary Rights necessary for
the operation of the Business as presently conducted and such rights will be
owned or made available for use by the Purchaser after the Closing on terms and
conditions identical to those under which they were owned or used prior to the
Closing. Except as set forth on the Proprietary Rights Schedule, the loss or
expiration of any Proprietary Rights or related group of Proprietary Rights
owned or used by the Seller or any of its Subsidiaries related to the Business
has not had a Material Adverse Effect on the conduct of the Business and is not
pending or, to the knowledge of the Seller or the Stockholder, threatened or
reasonably foreseeable.
(b) Except as set forth on the Proprietary Rights Schedule, (i) the
Seller and each of its Subsidiaries owns and possesses without restriction as to
use, all right, title and interest in and to the Proprietary Rights necessary
for the operation of the Business as currently conducted; (ii) neither the
Seller nor any of its Subsidiaries has received any notices of invalidity,
infringement or misappropriation from any third party with respect to any such
Proprietary Rights; (iii) neither the Seller nor any of its Subsidiaries has
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any Proprietary Rights of any third parties; and (iv) to the knowledge of
the Seller or the Stockholder, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any Proprietary
Rights of the Seller or its Subsidiaries related to the Business.
(c) The transactions contemplated by this Agreement shall have no
adverse effect on the Purchaser's right, title and interest in and to any of the
Proprietary Rights related to the Business. The Seller and each of its
Subsidiaries has taken all necessary and desirable actions to maintain
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and protect their Proprietary Rights related to the Business and shall continue
to maintain and protect those rights prior to the Closing so as to not adversely
affect the validity or enforcement of such Proprietary Rights.
5.14 Litigation; Proceedings. Except as set forth on the attached
"Litigation Schedule," there are no actions, suits, complaints, charges,
proceedings, orders, investigations or claims pending or, to the knowledge of
the Seller or the Stockholder, threatened against or affecting the Business (or
to the knowledge of the Seller or the Stockholder, pending or threatened against
or affecting any of the officers or key employees of the Business with respect
to the businesses or proposed business activities of the Business) at law or in
equity, or before or by any governmental department, commission, board, bureau,
agency or instrumentality (including, without limitation, any actions, suits,
complaints, charges, proceedings or investigations with respect to the
transactions contemplated by this Agreement); nor have there been any such
actions, suits, proceedings, orders, investigations or claims pending against or
affecting the Business during the past three years; and neither the Seller nor
any of its Subsidiaries is subject to any grievance arbitration proceedings
under collective bargaining agreements or otherwise or, to the knowledge of the
Seller or the Stockholder, any governmental investigations or inquiries related
to the Business. Neither the Seller nor any of its Subsidiaries is subject to
any judgment, order or decree of any court or other governmental agency (or
settlement enforceable therein), and neither the Seller nor any of its
Subsidiaries has received any opinion or memorandum or legal advice from legal
counsel to the effect that it is exposed, from a legal standpoint, to any
liability or disadvantage which may be material to the Business.
5.15 Brokerage. Except as set forth on the "Brokerage Schedule"
attached hereto, there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of the
Seller, any of its Subsidiaries or the Stockholder.
5.16 Governmental Licenses and Permits. The "Permits Schedule"
attached hereto contains a complete listing and summary description of all
permits, licenses, certificates, approvals and other authorizations of any
governmental entity or any department, agency or political subdivision thereof,
or other similar rights (collectively, the "Licenses") owned or possessed by the
Seller or any of its Subsidiaries or used by it in the conduct of the Business.
Except as indicated on the Permits Schedule, the Seller and each of its
Subsidiaries own or possess all right, title and interest in and to all of the
Licenses that are necessary to conduct the Business as presently conducted,
including, without limitation, all Licenses required under any federal, state or
local law relating to public health and safety, employee health and safety,
pollution or protection of the environment. The Seller and each of its
Subsidiaries are in compliance with the terms and conditions of such Licenses
and have received no notices that they are in violation of any of the terms or
conditions of such Licenses. The Seller and each of its Subsidiaries have taken
all necessary action to maintain such Licenses. No loss or expiration of any
such License is threatened, pending or reasonably foreseeable other than
expiration in accordance with the terms thereof. Except as indicated on the
Permits Schedule, all of the Licenses shall survive the transactions
contemplated hereby.
5.17 Employees. Except as set forth on the "Employees Schedule"
attached hereto, to the knowledge of the Seller or the Stockholder, no key
executive employee and no group
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of employees or independent contractors of the Business has any plans to
terminate his, her or its employment or relationship as an independent
contractor with the Business. The Seller and each of its Subsidiaries have
complied and remain in compliance with all applicable laws relating to the
employment of personnel and labor. Neither the Seller nor any of its
Subsidiaries is a party to or bound by any collective bargaining agreement, nor
has such party experienced any strikes, grievances, unfair labor practices
claims or other material employee or labor disputes related to the Business.
Neither the Seller nor any of its Subsidiaries has engaged in any unfair labor
practice. Neither the Seller nor the Stockholder has knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Business. Neither the Seller nor
any of its Subsidiaries has implemented any plant closing or mass layoff of
employees as those terms are defined in the Worker Adjustment Retraining and
Notification Act of 1988, as amended ("WARN"), or any similar state or local law
or regulation, and no layoffs that could implicate such laws or regulations will
have been implemented before Closing without advance notification to the
Purchaser.
5.18 Employee Benefit Matters.
------------------------
(a) Except as set forth on the "Benefit Plans Schedule" attached
hereto, neither the Seller nor any of its Subsidiaries maintains or contributes
to or has any actual or potential liability with respect to any (i) deferred
compensation or bonus or retirement plans or arrangements, (ii) qualified or
nonqualified defined contribution or defined benefit plans or arrangements which
are employee pension benefit plans (as defined in Section 3(2) of ERISA), or
(iii) employee welfare benefit plans, (as defined in Section 3(1) of ERISA),
stock option or stock purchase plans, or material fringe benefit plans or
programs whether in writing or oral and whether or not terminated. Neither the
Seller nor any of its Subsidiaries has ever contributed to any multiemployer
pension plan (as defined in Section 3(37) of ERISA), and neither the Seller nor
any of its Subsidiaries has ever maintained or contributed to any defined
benefit plan (as defined in Section 3(35) of ERISA). The plans, arrangements,
programs and agreements referred to in the preceding two sentences are referred
to collectively as the "Plans." Neither the Seller nor any of its Subsidiaries
maintains or contributes to any Plan which provides health, accident or life
insurance benefits to former employees of the Business, their spouses or
dependents, other than in accordance with Section 4980B of the Code ("COBRA").
(b) The Plans (and related trusts and insurance contracts) set forth
on the Benefit Plans Schedule comply in form and in operation with the
requirements of applicable laws and regulations, including ERISA and the Code
and the nondiscrimination rules thereof. All contributions, premiums or payments
which are due on or before the Closing Date under each Plan have been paid. Each
Plan which is intended to be qualified under Section 401(a) of the Code (i) has
been amended on a timely basis in compliance with the Code and (ii) has received
from the Internal Revenue Service a favorable determination letter which
considers the terms of such Plan as amended.
(c) All required reports and descriptions (including Form 5500 annual
reports, summary annual reports and summary plan descriptions) with respect to
the Plans set forth on the Benefit Plans Schedule have been properly and timely
filed with the appropriate government agency
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and distributed to participants as required. The Seller and each of its
Subsidiaries have complied with the requirements of COBRA.
(d) With respect to each Plan set forth on the Benefit Plans Schedule,
(i) there have been no prohibited transactions as defined in Section 406 of
ERISA or Section 4975 of the Code, (ii) no fiduciary (as defined in Section
3(21) of ERISA) has any liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or investment of
the assets of such Plans, and (iii) no actions, investigations, suits or claims
with respect to the assets thereof (other than routine claims for benefits) are
pending or threatened, and neither the Seller nor the Stockholder has knowledge
of any facts which would give rise to or could reasonably be expected to give
rise to any such actions, suits or claims.
(e) With respect to each of the Plans listed on the Benefit Plans
Schedule, the Seller has furnished to the Purchaser true and complete copies of
(i) the plan documents, summary plan descriptions and summaries of material
modifications and other material employee communications, (ii) the Form 5500
Annual Report (including all schedules and other attachments) for the most
recent three years, (iii) all related trust agreements, insurance contracts or
other funding agreements which implement such plans and (iv) all contracts
relating to each such plan, including, without limitation, service provider
agreements, insurance contracts, investment management agreements and
recordkeeping agreements.
(f) The Seller and each of its Subsidiaries has not incurred and has
no reason to expect that it will incur, any liability to the Pension Benefit
Guaranty Corporation (other than routine premium payments ) or otherwise under
Title IV of ERISA (including any withdrawal liability) or under the Code with
respect to any employee pension benefit plan (as defined in Section 3(2) of
ERISA) that the Seller or any member of its "controlled group" (within the
meaning of Section 414 of the Code) maintains or ever has maintained or to which
any of them contributes, ever has contributed, or ever has been required to
contribute.
5.19 Insurance. The "Insurance Schedule" attached hereto lists and
briefly describes each insurance policy maintained by the Seller and each of its
Subsidiaries with respect to the properties, assets and business of the
Business, together with a claims history for the past five years. All of such
insurance policies are in full force and effect, and neither the Seller nor any
of its Subsidiaries is in default with respect to its obligations under any such
insurance policies and neither the Seller nor any of its Subsidiaries has been
denied insurance coverage. Except as set forth on the Insurance Schedule,
neither the Seller nor any of its Subsidiaries has any self-insurance or co-
insurance programs related to the Business, and the reserves set forth on the
Latest Balance Sheet are adequate to cover all anticipated liabilities with
respect to self-insurance or coinsurance programs.
5.20 Officers and Directors; Bank Accounts. The "Officers, Directors
and Bank Accounts Schedule" attached hereto lists all officers and directors of
the Seller and each of its Subsidiaries, and all bank accounts, safety deposit
boxes and lock boxes (designating each authorized signatory with respect
thereto) for the Business.
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5.21 Affiliate Transactions. Except as disclosed on the "Affiliated
Transactions Schedule" attached hereto, no Insider is a party to any agreement,
contract, commitment or transaction with the Seller or any of its Subsidiaries
which is pertaining to the Business or has any interest in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Business.
5.22 Compliance with Laws. The Seller, each of its Subsidiaries and
their officers, directors, partners, agents and employees have complied with and
are in compliance with all applicable laws, regulations and ordinances of
foreign, federal, state and local governments and all agencies thereof which are
applicable to the Business, its business practices (including, but not limited
to, the marketing and sales of its products and services) or any owned or leased
properties of the Seller or any of its Subsidiaries related to the Business and
to which the Seller or any of its Subsidiaries may be subject, and no claims
have been filed against the Seller or any of its Subsidiaries alleging a
violation of any such laws or regulations, and neither the Seller nor any of its
Subsidiaries has received notice of any such violations.
5.23 Environmental Matters . Except as set forth on the "Environmental
Schedule" attached hereto:
(a) The Seller and each of its Subsidiaries have complied with and are
currently in compliance with all Environmental and Safety Requirements with
respect to the Business, and neither the Seller nor any of its Subsidiaries has
received any oral or written notice, report or information regarding any
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise)
or any corrective, investigatory or remedial obligations arising under
Environmental and Safety Requirements which relate to the Business or any of its
properties or facilities.
(b) Without limiting the generality of the foregoing, the Seller and
each of its Subsidiaries have obtained and complied with, and are currently in
compliance with, all permits, licenses and other authorizations that may be
required pursuant to any Environmental and Safety Requirements for the occupancy
of the properties or facilities of the Business or the operation of the
Business. A list of all such permits, licenses and other authorizations which
are material to the Business is set forth on the Environmental Schedule.
(c) Neither this Agreement or the other Transaction Documents nor the
consummation of the transactions contemplated hereby and thereby shall impose
any obligations on the Seller or its Subsidiaries or otherwise for site
investigation or cleanup, or notification to or consent of any government
agencies or third parties under any Environmental and Safety Requirements
(including, without limitation, any so called "transaction-triggered" or
"responsible property transfer" laws and regulations).
(d) None of the following exists at any property or facility owned,
occupied or operated by the Seller or any of its Subsidiaries related to the
Business: (i) underground storage tanks or surface impoundments; (ii) asbestos-
containing material in any form or condition; (iii) materials or equipment
containing polychlorinated biphenyls; or (iv) landfills.
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(e) Neither the Seller nor any of its Subsidiaries has treated,
stored, disposed of, arranged for or permitted the disposal of, transported,
handled or Released any substance (including, without limitation, any hazardous
substance) or owned, occupied or operated any facility or property, so as to
give rise to liabilities of the Seller or any of its Subsidiaries for response
costs, natural resource damages or attorneys' fees pursuant to CERCLA or any
other Environmental and Safety Requirements.
(f) Without limiting the generality of the foregoing, no facts, events
or conditions relating to the past or present properties, facilities or
operations of the Seller or any of its Subsidiaries shall prevent, hinder or
limit continued compliance with Environmental and Safety Requirements, give rise
to any corrective, investigatory or remedial obligations pursuant to
Environmental and Safety Requirements or give rise to any other liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise) pursuant to
Environmental and Safety Requirements, including, without limitation, those
liabilities relating to onsite or offsite Releases or threatened Releases of
hazardous materials, substances or wastes, personal injury, property damage or
natural resources damage.
(g) Neither the Seller nor any of its Subsidiaries has, either
expressly or by operation of law, assumed or undertaken any liability or
corrective investigatory or remedial obligation of any other Person relating to
any Environmental and Safety Requirements.
(h) No Environmental Lien has attached to any property owned, leased
or operated by the Seller or any of its Subsidiaries related to the Business.
5.24 Disclosure. Neither this Agreement, the other Transaction
Documents, nor any of the schedules, attachments or Exhibits hereto, contain any
untrue statement of a material fact or omit a material fact necessary to make
each statement contained herein or therein, not misleading. There is no fact
which has not been disclosed to the Purchaser of which the Seller or the
Stockholder has knowledge which has a Material Adverse Effect or could
reasonably be anticipated to have a Material Adverse Effect.
5.25 Closing Date. All of the representations and warranties
contained in this Article V and elsewhere in this Agreement and all information
delivered in any schedule, attachment or Exhibit hereto or in any writing
delivered to the Purchaser are true and correct on the date of this Agreement
and shall be true and correct on the Closing Date, except to the extent that the
Seller or the Stockholder has advised the Purchaser otherwise in writing prior
to the Closing.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES CONCERNING THE PURCHASER
-------------------------------------------------------
As a material inducement to the Seller to enter into this Agreement,
the Purchaser hereby represents and warrants to the Seller that:
6.1 Organization and Corporate Power. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full
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corporate power and authority to enter into this Agreement and the other
agreements contemplated hereby to which the Purchaser is a party and perform its
obligations hereunder and thereunder.
6.2 Authorization of Transaction. The execution, delivery and
performance of this Agreement and the other agreements contemplated hereby to
which the Purchaser is a party have been duly and validly authorized by all
requisite corporate action on the part of the Purchaser, and no other corporate
proceedings on its part are necessary to authorize the execution, delivery or
performance of this Agreement. This Agreement constitutes, and each of the
other agreements contemplated hereby to which the Purchaser is a party shall
when executed constitute, a valid and binding obligation of the Purchaser,
enforceable in accordance with their terms.
6.3 No Violation. The Purchaser is not subject to or obligated
under its certificate of incorporation, its by-laws, any applicable law, or rule
or regulation of any governmental authority, or any agreement or instrument, or
any license, franchise or permit, or subject to any order, writ, injunction or
decree, which would be breached or violated by its execution, delivery or
performance of this Agreement and the other agreements contemplated hereby to
which the Purchaser is a party.
6.4 Governmental Authorities and Consents. Except for the
filing pursuant to the HSR Act, the Purchaser is not required to submit any
notice, report or other filing with any governmental authority in connection
with the execution or delivery by it of this Agreement and the other agreements
contemplated hereby to which the Purchaser is a party or the consummation of the
transactions contemplated hereby or thereby. Except for approval in connection
with the filing under the HSR Act, no consent, approval or authorization of any
governmental or regulatory authority or any other party or person is required to
be obtained by the Purchaser in connection with its execution, delivery and
performance of this Agreement and the other agreements contemplated hereby to
which the Purchaser is a party or the transactions contemplated hereby or
thereby.
6.5 Litigation. There are no actions, suits, proceedings or
orders pending or, to the Purchaser's knowledge, threatened against or affecting
the Purchaser at law or in equity, or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which would adversely affect the
Purchaser's performance under this Agreement and the other agreements
contemplated hereby to which the Purchaser is a party or the consummation of the
transactions contemplated hereby or thereby.
6.6 Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Purchaser and which will not be paid in full by the Purchaser
at or prior to the Closing.
6.7 Closing Date. All of the representations and warranties
contained in this Article VI and elsewhere in this Agreement and all information
delivered in any schedule, attachment or Exhibit hereto or in any writing
delivered to Stockholders are true and correct on the date of this Agreement and
shall be true and correct on the Closing Date, except to the extent that the
Purchaser has advised the Seller otherwise in writing prior to the Closing.
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ARTICLE VII
TERMINATION
-----------
7.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Seller and the Purchaser;
(b) by the Seller or the Purchaser if there has been a material
misrepresentation or breach on the part of the other Party of the
representations, warranties or covenants set forth in this Agreement or if
events have occurred which have made it impossible to satisfy a condition
precedent to the terminating Party's obligations to consummate the transactions
contemplated hereby unless such terminating Party's willful or knowing breach of
this Agreement has caused the condition to be unsatisfied; or
(c) by the Seller or the Purchaser if the Closing has not occurred on
or prior to September 1, 1998; provided, however, that neither the Purchaser nor
the Seller shall be entitled to terminate this Agreement pursuant to this
Section 7.1(c) if such Party's willful or knowing breach of this Agreement has
prevented the consummation of the transactions contemplated hereby at or prior
to such time.
7.2 Effect of Termination. In the event of termination of this
Agreement by either the Seller or the Purchaser as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability on the
part of any Party to any other Party under this Agreement, except that the
provisions of Section 9.7 and Article X shall continue in full force and effect
and except that nothing herein shall relieve any Party from liability for any
breach of this Agreement prior to such termination.
ARTICLE VIII
INDEMNIFICATION AND RELATED MATTERS
8.1 Survival. All representations, warranties, covenants and
agreements set forth in this Agreement or in any writing or certificate
delivered in connection with this Agreement shall survive the Closing Date and
the consummation of the transactions contemplated hereby and shall not be
affected by any examination made for or on behalf of any Party, the knowledge of
any of such Party's officers, directors, stockholders, employees or agents, or
the acceptance of any certificate or opinion. Notwithstanding the foregoing, no
Party shall be entitled to recover for any Loss pursuant to Section 8.2(a)(i) or
Section 8.2(c)(i) unless written notice of a claim thereof is delivered to the
other Party prior to the Applicable Limitation Date. For purposes of this
Agreement, the term "Applicable Limitation Date" shall mean the third
anniversary of the Closing Date; provided that the Applicable Limitation Date
with respect to the following Losses shall be as follows: (i) with respect to
any Loss arising from or related to a breach of the representations and
warranties of the Seller or the Stockholder set forth in Sections 5.11 (Taxes)
and 5.18 (Employee Benefits Matters), the Applicable Limitation Date shall be
the 60th day after expiration of the statute of limitations (including any
extensions thereto to the extent that such statute of limitations may be tolled)
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applicable to the Tax or ERISA statute, regulation or other authority which gave
rise to such Loss, (ii) with respect to any Loss arising from or related to a
breach of the representations and warranties of the Seller or the Stockholder
set forth in Section 5.23 (Environmental), the Applicable Limitation Date shall
be the fifth anniversary of the Closing Date, and (iii) with respect to any Loss
arising from or related to a breach of the representations and warranties of the
Seller or the Stockholder set forth in Section 5.1 (Organization and Corporate
Power), Section 5.2 (Authorization of Transactions), Section 5.3
(Capitalization), Section 5.5 (Absence of Conflicts), or Section 5.15
(Brokerage) and with respect to any Loss arising from or related to a breach of
the representations and warranties of Purchaser set forth in Section 6.1
(Organization and Corporate Power), 6.2 (Authorization of Transactions), 6.3 (No
Violation) or 6.6 (Brokerage), there shall be no Applicable Limitation Date
(i.e., such representations and warranties shall survive forever).
8.2 Indemnification.
(a) The Seller and the Stockholder shall jointly and severally
indemnify the Purchaser and each of its officers, directors, stockholders,
employees, agents, representatives, affiliates, successors and assigns
(collectively, the "Purchaser Parties") and hold each of them harmless from and
against and pay on behalf of or reimburse such Purchaser Parties in respect of
the entirety of any Losses the Purchaser Parties may suffer, sustain or become
subject to, through and after the date of the claim for indemnification
resulting from, arising out of, relating to, in the nature of, or caused by:
(i) the breach of any representation or warranty made by the Seller or
the Stockholder contained in this Agreement or any certificate delivered by
the Seller or any Stockholder to the Purchaser with respect thereto in
connection with the Closing;
(ii) the breach of any covenant or agreement made by the Seller or the
Stockholder contained in this Agreement or any certificate delivered by the
Seller or any Stockholder to the Purchaser with respect thereto in
connection with the Closing; or
(iii) any Excluded Liabilities.
The Purchaser's remedy for any indemnification of Losses hereunder may be
satisfied by proceeding against the Seller or the Stockholder individually for
all or any portion of any such Loss.
(b) The indemnification provided for in Section 8.2(a)(i) above is
subject to the following limitations:
(i) The Seller and the Stockholder will be liable to the Purchaser
Parties with respect to claims referred to in Section 8.2(a)(i) only if
Purchaser gives the Seller written notice thereof within the Applicable
Limitation Date; and
(ii) The aggregate amount of all payments made by the Seller and the
Stockholder in satisfaction of claims for indemnification pursuant to
Section 8.2(a)(i) shall not exceed the Purchase Price (the "Cap").
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Notwithstanding any implication to the contrary contained in this Agreement, so
long as the Purchaser delivers written notice of a claim to the Seller no later
than the Applicable Limitation Date, the Seller and the Stockholder shall be
required to indemnify the Purchaser Parties for all Losses (up to the Cap) which
the Purchaser Parties may incur in respect of the matters which are the subject
of such claim, regardless of when incurred.
(c) The Purchaser shall indemnify the Stockholder, the Seller and its
officers, directors, employees, agents, representatives, affiliates, successors
and assigns (collectively, the "Seller Parties") and hold each of them harmless
from and against and pay on behalf of or reimburse such Seller Parties in
respect of the entirety of any Losses the Seller Parties may suffer, sustain or
become subject to, through and after the date of the claim for indemnification
resulting from, arising out of, relating to, in the nature of, or caused by:
(i) the breach of any representation or warranty made by the Purchaser
contained in this Agreement or any certificate delivered by the Purchaser
to the Seller with respect thereto in connection with the Closing;
(ii) the breach of any covenant or agreement made by the Purchaser
contained in this Agreement or any certificate delivered by the Purchaser
to the Seller with respect thereto in connection with the Closing; or
(iii) any Assumed Liabilities.
(d) The indemnification provided for in Section 8.2(c)(i) above is
subject to the following limitations:
(i) The Purchaser will be liable to the Seller Parties with respect to
claims referred to in Section 8.2(c)(i) only if the Seller gives the
Purchaser written notice thereof within the Applicable Limitation Date; and
(ii) The aggregate amount of all payments made by the Purchaser in
satisfaction of claims for indemnification pursuant to Section 8.2(c)(i)
shall not exceed the Cap.
Notwithstanding any implication to the contrary contained in this Agreement, so
long as the Seller delivers written notice of a claim to the Purchaser no later
than the Applicable Limitation Date, the Purchaser shall be required to
indemnify the Seller Parties for all Losses (up to the Cap) which the Seller
Parties may incur in respect of the matters which are the subject of such claim,
regardless of when incurred.
(e) If a party hereto seeks indemnification under this Article VIII,
such party (the "Indemnified Party") shall give written notice to the other
party (the "Indemnifying Party") after receiving written notice of any action,
lawsuit, proceeding, investigation or other claim against it (if by a third
party) or discovering the liability, obligation or facts giving rise to such
claim for indemnification, describing the claim, the amount thereof (if known
and quantifiable), and the basis thereof; provided that the failure to so notify
the Indemnifying Party shall not relieve the Indemnifying Party of its or his
obligations hereunder except to the extent such failure shall have
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prejudiced the Indemnifying Party. In that regard, if any action, lawsuit,
proceeding, investigation or other claim shall be brought or asserted by any
third party which, if adversely determined, would entitle the Indemnified Party
to indemnity pursuant to this Article VIII, the Indemnified Party shall promptly
notify the Indemnifying Party of the same in writing, specifying in detail the
basis of such claim and the facts pertaining thereto and the Indemnifying Party
shall be entitled to participate in the defense of such action, lawsuit,
proceeding, investigation or other claim giving rise to the Indemnified Party's
claim for indemnification at its expense, and at its option (subject to the
limitations set forth below) shall be entitled to appoint lead counsel of such
defense with reputable counsel reasonably acceptable to the Indemnified Party;
provided that if the Indemnifying Party assumes control of such defense, it will
be deemed to have agreed to be fully responsible for all Losses relating to such
claims and to provide full indemnification to the Indemnified Party for all
Losses relating to such claim; provided further that the Indemnifying Party
shall not have the right to assume control of such defense and shall pay the
fees and expenses of counsel retained by the Indemnified Party, if the claim
which the Indemnifying Party seeks to assume control (i) seeks non-monetary
relief, (ii) involves criminal or quasi-criminal allegations, (iii) involves a
claim to which the Indemnified Party reasonably believes an adverse
determination would be detrimental to or injure the Indemnified Party's
reputation or future business prospects, or (iv) involves a claim which, upon
petition by the Indemnified Party, the appropriate court rules that the
Indemnifying Party failed or is failing to vigorously prosecute or defend.
If the Indemnifying Party is permitted to assume and control the defense
and elects to do so, the Indemnified Party shall have the right to employ
counsel separate from counsel employed by the Indemnifying Party in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel employed by the Indemnified Party shall be at the expense of the
Indemnified Party unless (i) the employment thereof has been specifically
authorized by the Indemnifying Party in writing, or (ii) the Indemnifying Party
has been advised by counsel that a reasonable likelihood exists of a conflict of
interest between the Indemnifying Party and the Indemnified Party.
If the Indemnifying Party shall control the defense of any such claim, the
Indemnifying Party shall obtain the prior written consent of the Indemnified
Party (which shall not be unreasonably withheld) before entering into any
settlement of a claim or ceasing to defend such claim, if pursuant to or as a
result of such settlement or cessation, injunction or other equitable relief
will be imposed against the Indemnified Party or if such settlement does not
expressly unconditionally release the Indemnified Party from all liabilities and
obligations with respect to such claim, without prejudice.
(f) Amounts paid to or on behalf of the Seller, the Stockholder or
the Purchaser as indemnification shall be treated as adjustments to the Purchase
Price.
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ARTICLE IX
ADDITIONAL AGREEMENTS
---------------------
9.1 Continuing Assistance. Subsequent to the Closing, the Seller,
the Stockholder and the Purchaser (at their own cost) shall assist each other
(including making records available) in the preparation of their respective Tax
Returns and the filing and execution of Tax elections, if required, as well as
any audits or litigation that ensue as a result of the filing thereof, to the
extent that such assistance is reasonably requested.
9.2 Tax Matters.
(a) All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest thereon)
incurred in connection with this Agreement shall be paid by the Seller or the
Stockholder when due, and the Seller and the Stockholder shall, at his or its
own expense, file all necessary Tax Returns and other documentation with respect
to all such transfer, documentary, sales, use, stamp, registration and other
Taxes and fees, and if required by applicable law, the Purchaser shall, and
shall cause its affiliates to, join in the execution of any such Tax Returns and
other documentation.
(b) All real property taxes, personal property taxes, ad valorem
obligations and similar taxes imposed on a periodic basis, in each case levied
with respect to the Acquired Assets, other than conveyance taxes provided for in
Section 9.2(a), for a taxable period which includes (but does not end on) the
Closing Date shall be apportioned between the Seller and the Purchaser as of the
Closing Date based on the number of days of such taxable period included in the
pre-Closing Tax period and the number of days of such taxable period included in
the post-Closing period. The Seller shall be liable for the proportionate
amount of such Taxes that is attributable to the pre-Closing Tax period. Within
90 days after the Closing, the Seller and the Purchaser shall present a
reimbursement to which each is entitled under this Section 9.2(b) together with
such supporting evidence as is reasonably necessary to calculate the proration
amount. The proration amount shall be paid by the party owing it to the other
within 10 days after delivery of such statement. Thereafter, the Seller shall
notify the Purchaser upon receipt of any bill for real or personal property
taxes relating to the Acquired Assets, part or all of which are attributable to
the post-Closing Tax period, and shall promptly deliver such bill to the
Purchaser who shall pay the same to the appropriate taxing authority, provided
that if such bill covers the pre-Closing Tax period, the Seller shall also remit
prior to the due date of assessment to the Purchaser payment for the
proportionate amount of such bill that is attributable to the pre-Closing Tax
period. In the event that either the Seller or the Purchaser shall thereafter
make a payment for which it is entitled to reimbursement under this Section
9.2(b), the other party shall make such reimbursement promptly but in no event
later than 30 days after the presentation of a statement setting forth the
amount of reimbursement to which the presenting party is entitled along with
such supporting evidence as is reasonably necessary to calculate the amount of
reimbursement. Any payment required under this Section 9.2(b) and not made
within 10 days of delivery of the statement shall bear interest at the rate per
annum determined, from time to time, under the provisions of Section 6621(a)(2)
of the Code for each day until paid.
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9.3 Press Releases and Announcements. After the Closing Date, no
press releases related to this Agreement and the transactions contemplated
herein, or other announcements to the employees, customers or suppliers of the
Seller shall be issued without the Purchaser's consent (which shall not be
unreasonably withheld).
9.4 Further Transfers. The Seller shall execute and deliver such
further instruments of conveyance and transfer and take such additional action
as the Purchaser may reasonably request to effect, consummate, confirm or
evidence the transfer to the Purchaser of the Acquired Assets and any other
transactions contemplated hereby.
9.5 Specific Performance. The Seller and the Stockholders
acknowledge that the Business is unique and recognize and affirm that in the
event of a breach of this Agreement by the Seller or the Stockholder, money
damages may be inadequate and the Purchaser may have no adequate remedy at law.
Accordingly, the Seller and the Stockholder agree that the Purchaser shall have
the right, in addition to any other rights and remedies existing in its favor,
to enforce its rights and the Seller's and the Stockholder's obligations
hereunder not only by an action or actions for damages but also by an action or
actions for specific performance, injunctive and/or other equitable relief.
9.6 Transition Assistance. Neither the Seller nor the Stockholder
shall in any manner take any action which is designed, intended, or might be
reasonably anticipated to have the effect of discouraging customers, suppliers,
lessors, licensors and other business associates from maintaining the same
business relationships with the Purchaser after the date of this Agreement as
were maintained with the Seller with respect to the Business prior to the date
of this Agreement.
9.7 Expenses. Except as otherwise provided herein, the Seller and
the Stockholder and the Purchaser shall pay all of their own fees, costs and
expenses (including, without limitation, fees, costs and expenses of legal
counsel, investment bankers, brokers or other representatives and consultants
and appraisal fees, costs and expenses) incurred in connection with the
negotiation of this Agreement and the other agreements contemplated hereby, the
performance of its obligations hereunder and thereunder, and the consummation of
the transactions contemplated hereby and thereby.
9.8 Exclusivity. Until this Agreement is terminated by its terms,
neither the Seller nor the Stockholder (and neither the Seller nor the
Stockholder shall cause or permit any Insider or agent or any other Person
acting on behalf of the Stockholder, the Seller, or its Affiliates to), (a)
solicit, initiate or encourage the submission of any proposal or offer from any
Person (including any of them) relating to any (i) liquidation, dissolution or
recapitalization of, (ii) merger or consolidation with or into, (iii)
acquisition or purchase of assets of or any equity interest in or (iv) similar
transaction or business combination involving the Business or (b) participate in
any discussions or negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other manner any effort or
attempt by any other Person to do or seek any of the foregoing. The Seller and
the Stockholder agree that they will discontinue immediately any negotiations or
discussion with respect to any of the foregoing. Until this Agreement is
terminated by its terms, the Stockholder and the Seller shall notify the
Purchaser immediately if any Person makes any proposal, offer, inquiry or
contact with respect to any of the foregoing.
-41-
<PAGE>
9.9 Books and Records. Unless otherwise consented to in writing by
the Seller or the Purchaser (as the case may be), the Purchaser and the Seller
will not, for a period of seven years following the date hereof, destroy, alter
or otherwise dispose of any of the books and records of the Seller acquired by
the Purchaser hereunder or retained by the Seller or the Stockholder without
first offering to surrender to the Seller, the Stockholder or the Purchaser such
books and records or any portion thereof of which the Seller, the Stockholder or
the Purchaser may intend to destroy, alter or dispose. The Purchaser, the Seller
and the Stockholder will allow the other party's representatives, attorneys and
accountants access to such books and records, upon reasonable request during
such party's normal business hours, for the purpose of examining and copying the
same in connection with any matter whether or not related to or arising out of
this Agreement or the transactions contemplated hereby.
9.10 Noncompetition, Nonsolicitation and Confidentiality.
(a) Noncompetition. In consideration of the mutual covenants
provided for herein to the Seller and the Stockholder at the Closing and in
consideration of the additional payment set forth below, during the period
beginning on the Closing Date and ending on the fifth anniversary of the Closing
Date (the "Noncompete Period"), neither the Seller nor the Stockholder shall
(and the Seller and the Stockholder shall cause Chad Herrington to not) (the
Seller, the Stockholder and Chad Herrington are collectively referred to herein
as the "Noncompeting Parties") engage (whether as an owner, operator, manager,
employee, officer, director, consultant, advisor, representative or otherwise)
directly or indirectly in any business that competes with the Business as it is
conducted, or was conducted during the 12-month period ending on the Closing
Date, in any geographic area in which such Business is conducted as of the
Closing Date or during such 12-month period; provided that ownership of less
than 2% of the outstanding stock of any publicly-traded corporation shall not be
deemed to be engaging solely by reason thereof in any of its businesses. The
Parties acknowledge that as of the Closing Date the Business consists of the
rental of hydraulic cranes and self-propelled man lifts and the Business is
conducted in Texas and Louisiana. The parties hereto agree that the covenant set
forth in this Section 9.10 is reasonable with respect to its duration,
geographical area and scope. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 9.10(a) is
invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed. As further consideration for the
obligations of the Noncompeting Parties pursuant to this Section 9.10(a), the
Purchaser shall pay to the Stockholder $200,000 on the Closing Date.
(b) Nonsolicitation. During the Noncompete Period, neither the
Seller nor the Stockholder shall (and the Seller and the Stockholder shall cause
the other Noncompeting Parties to not) directly or indirectly through another
Person (i) induce or attempt to induce any employee of the Purchaser to leave
the employ of the Purchaser, or in any way interfere with the relationship
between the Purchaser and any employee thereof, (ii) hire any person who is then
an employee of the Purchaser or was an employee of the Seller or any of its
Subsidiaries in connection with the
-42-
<PAGE>
Business at any time during the three-year period immediately preceding the
Closing, or (iii) induce or attempt to induce any customer, supplier, licensee,
licensor, franchisee or other business relation of the Purchaser to cease doing
business with the Purchaser, or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Purchaser.
(c) Confidentiality. The Seller and the Stockholder shall (and the
Seller and the Stockholder shall cause the other Noncompeting Parties to) treat
and hold as confidential any information concerning the business and affairs of
the Business that is not already generally available to the public (the
"Confidential Information"), refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
the Purchaser or destroy, at the request and option of the Purchaser, all
tangible embodiments (and all copies) of the Confidential Information which are
in his or its possession or under his or its control. In the event that any
Noncompeting Party is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, such Noncompeting Party shall notify the Purchaser promptly of the
request or requirement so that the Purchaser may seek an appropriate protective
order or waive compliance with the provisions of this Section 9.10(c). If, in
the absence of a protective order or the receipt of a waiver hereunder, the
Noncompeting Party is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt, such
Noncompeting Party may disclose the Confidential Information to the tribunal;
provided that such disclosing Noncompeting Party shall use his or its reasonable
best efforts to obtain, at the request of the Purchaser, an order or other
assurance that confidential treatment shall be accorded to such portion of the
Confidential Information required to be disclosed as the Purchaser shall
designate.
(d) Trade Names. Neither the Seller nor the Stockholder shall use or
permit any of its or his Affiliates to use the "R & R Rentals, Inc." name or any
name confusingly similar thereto in any manner anywhere in the world after
Closing.
(e) Remedy for Breach. Each Noncompeting Party that is a party to
this Agreement acknowledges and agrees that in the event of a breach by any
Noncompeting Party of any of the provisions of this Section 9.10, monetary
damages shall not constitute a sufficient remedy. Consequently, in the event of
any such breach, the Seller, the Purchaser and/or their respective successors or
assigns may, in addition to other rights and remedies existing in their favor,
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce or prevent any
violations of the provisions hereof, in each case without the requirement of
posting a bond or proving actual damages.
9.11 Employees.
(a) The Seller has provided the Purchaser with a true, correct and
complete list of all of the employees of the Business indicating the rate of pay
of each such employee during the twelve months preceding the date hereof and the
status of each such employee as active, on leave, full-time, part-time or
otherwise.
-43-
<PAGE>
(b) Except for the employees set forth on the "Excluded Employees
Schedule" attached hereto (the "Excluded Employees"), the Purchaser will offer
at-will employment to all active full-time employees of the Business as of the
Closing Date (the "Continuing Employees") on terms and conditions which, in the
aggregate, are substantially equivalent to those applicable to such persons'
terms and conditions of employment with the Seller immediately prior to the
Closing Date. Nothing in this Section 9.11 shall obligate the Purchaser to
continue to employ any Continuing Employee for any period of time.
(c) The Seller will be responsible for and shall pay (and the
Stockholder shall cause the Seller to pay) to the employees of the Business (i)
all amounts of wages, bonuses and other renumeration (including, without
limitation, discretionary benefits and bonuses) payable to such employees with
respect to the period ending on the day prior to the Closing Date, (ii) any
workers' compensation claims, amounts payable under Plans maintained by the
Seller and other amounts payable on an ongoing basis to such employees in
connection with events or incidents occurring prior to the Closing Date, except
to the extent that such amounts are paid under insurance, (iii) amounts equal to
the vacation pay, sick leave pay and floating holiday pay earned or accrued by
such employees as of the close of business on the Closing Date, whether or not
such pay is vested or has been accrued on the books of the Business at such
close of business, based upon the remuneration of such employees, normally used
in computing such vacation pay, sick leave pay and floating holiday pay and (iv)
all severance payments, if any, due to such employees as a result of the
termination of their employment with the Seller. Seller shall also be
responsible for and shall pay any related payroll burden (including, without
limitation, FICA and other employment taxes) with respect to payments made under
this Section 9.11(c).
9.12 Seller's Use of Name. Upon consummation of the Closing, the
Seller will cease using the name "R & R Rentals, Inc." (and any name confusingly
similar thereto), it being the intent of the Parties that from and after the
Closing the Purchaser will have the sole right as against the Seller and all
other Persons to conduct business under such name and that the Purchaser will
commence doing so at the time of the Closing.
9.13 Allocation of Purchase Price. The allocation ("Allocation") of
the Purchase Price among the Acquired Assets shall be made as set forth on the
"Purchase Price Allocation Schedule" attached hereto. The Allocation shall be
determined jointly by the Purchaser and the Seller reasonably and in good faith,
and such Allocation shall be used by the Parties in preparing (a) Form 8594,
Asset Acquisition Statement, for each of the Purchaser and the Seller, and (b)
all Tax Returns. Each of the Purchaser and the Seller shall file Form 8594,
prepared in accordance with this Section, with its federal income Tax Return for
its Tax period including the Closing Date.
9.14 Third Party Consents. Notwithstanding anything to the contrary
contained in this Agreement, this Agreement shall not constitute an agreement to
transfer, sell or otherwise assign any instrument, contract, lease, license,
permit or other agreement or arrangement which is not permitted to be assigned
in connection with a transaction of the type contemplated by this Agreement
(collectively, the "Unassigned Contracts"). The beneficial interest in and to
each Unassigned Contract shall in any event pass to the Purchaser at the
Closing; and the Seller and the Stockholder covenant and agree to cooperate with
the Purchaser in any lawful and economically feasible arrangement to provide the
Purchaser with the Seller's entire interest in the benefits under
-44-
<PAGE>
each of the Unassigned Contracts. If and only if the Purchaser receives the
economic benefits under an Unassigned Contract, the Purchaser agrees to accept
the burdens and perform the obligations under such Unassigned Contract as
subcontractor of the Seller. Furthermore, if the other party(ies) to an
Unassigned Contract subsequently consent to the assignment of such contract to
the Purchaser (without modification thereto which is adverse to the Purchaser),
the Purchaser shall thereupon agree to assume and perform all liabilities and
obligations arising thereunder after the date of such consent, at which time
such Unassigned Contract shall be deemed an Acquired Asset. The Seller and the
Stockholder agree to indemnify the Purchaser and hold it harmless against any
Losses which the Purchaser may suffer, sustain or become subject to, as a result
of any claims by any party to any of the Unassigned Contracts for breach of
contract in connection with the consummation of the transactions contemplated by
this Agreement.
9.15 Bulk Sales Law. The Seller will bear any loss, liability,
obligation or cost suffered by the Seller or the Purchaser as a result of the
Parties' noncompliance with any provision of any bulk sales law which is
applicable to the transfer of the Acquired Assets pursuant to this Agreement.
9.16 NES Stock.
----------
(a) Each of the Seller and the Stockholder hereby irrevocably agree
not to sell, offer to sell, solicit an offer to buy, contract to sell, grant any
option to purchase or otherwise dispose of any shares of NES Stock, or any
securities convertible into or exercisable or exchangeable for shares of NES
Stock, until 180 days after the Closing Date. Prior to the expiration of such
period, neither the Seller nor the Stockholder shall announce or disclose any
intention to do anything after the expiration of such period which the Seller or
the Stockholder are prohibited, as provided in the preceding sentence, from
doing during such period.
(b) Each of the Seller and the Stockholder hereby acknowledge and
agree that the shares of NES Stock delivered pursuant to this Agreement will be
"restricted securities" within the meaning of Rule 144 as adopted by the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
(c) As a material inducement to the Purchaser to enter into this
Agreement, the Seller and the Stockholder hereby jointly and severally represent
and warrant that each of the Seller and the Stockholder (a) understands that the
shares of NES Stock delivered pursuant to this Agreement have not been, and will
not be, registered under the Securities Act of 1933, as amended, or under any
state securities laws, and are being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering, (b)
understands that the transfer of the shares of NES Stock delivered pursuant to
this Agreement is restricted, (c) is acquiring the shares of NES Stock delivered
pursuant to this Agreement solely for his or its own account for investment
purposes, and not with a view to the distribution thereof, (d) is a
sophisticated investor with knowledge and experience in business and financial
matters, (e) has received certain information concerning the Purchaser and NES
and has had the opportunity to obtain additional information as desired in order
to evaluate the merits and the risks inherent in holding the shares of NES Stock
delivered pursuant to this Agreement and (f) is able to bear the economic risk
and lack of liquidity inherent in holding the shares of NES Stock delivered
pursuant to this Agreement.
-45-
<PAGE>
(d) Each certificate representing shares of NES Stock delivered
pursuant to this Agreement will be imprinted with a legend in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
_______________, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). THE TRANSFER OF SUCH SECURITIES IS SUBJECT TO
THE CONDITIONS SET FORTH AND OTHERWISE REFERENCED IN THE ASSET PURCHASE
AGREEMENT, DATED AS OF JULY 24, 1998, BY AND AMONG NES ACQUISITION CORP., A
WHOLLY OWNED SUBSIDIARY OF THE ISSUER HEREOF, R & R RENTALS, INC. AND
ROBERT N. HERRINGTON, AND THE ISSUER HEREOF RESERVES THE RIGHT TO REFUSE TO
TRANSFER SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH
RESPECT TO SUCH TRANSFER. UPON WRITTEN REQUEST, A COPY OF SUCH CONDITIONS
WILL BE FURNISHED BY THE ISSUER HEREOF TO THE HOLDER HEREOF WITHOUT
CHARGE."
ARTICLE X
MISCELLANEOUS
-------------
10.1 Amendment and Waiver. This Agreement may be amended and any
provision of this Agreement may be waived, provided that any such amendment or
waiver shall be binding upon a Party only if such amendment or waiver is set
forth in a writing executed by Purchaser, the Seller and the Stockholder. No
course of dealing between or among any persons having any interest in this
Agreement shall be deemed effective to modify, amend or discharge any part of
this Agreement or any rights or obligations of any Party under or by reason of
this Agreement.
10.2 Notices. All notices, demands and other communications given or
delivered under this Agreement shall be in writing and shall be deemed to have
been given when personally delivered, mailed by first class mail, return receipt
requested, or delivered by express courier service or telecopied (with hard copy
to follow). Notices, demands and communications to the Stockholder, the Seller
and the Purchaser shall, unless another address is specified in writing, be sent
to the address or telecopy number indicated below:
Notices to the Seller and the Stockholder: with a copy to:
- ------------------------------------------- ----------------------------
R & R Rentals, Inc. Taylor & Norwood
11820 Highway 146 340 Main Street
Mount Belvieu, TX 77580 Liberty, TX 77575
Telecopy: (281) 576-2800 Telecopy: (409) 336-8167
Attention: Robert N. Herrington Attention: Ron Norwood, Esq.
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<PAGE>
Notices to Purchser with a copy to:
- ---------------------------------- --------------------------------
c/o Kirkland & Ellis
National Equipment Services, Inc. 200 East Randolph Drive
1800 Sherman Avenue, Suite 100 Chicago, Illinois 60601
Evanston, Illinois 60201 Telecopy: (312) 861-2200
Telecopy: (847) 733-1078 Attention: Sanford E. Perl, Esq.
Attention: Kevin P. Rodgers
10.3 Binding Agreement; Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the Parties
and their respective successors and permitted assigns; provided that neither
this Agreement nor any of the rights, interests or obligations hereunder may be
assigned by the Seller or the Stockholder without the prior written consent of
Purchaser or by Purchaser (except as otherwise provided in this Agreement)
without the prior written consent of the Seller; provided further that:
(a) the Purchaser may at any time prior to the Closing, at its sole
discretion, assign, in whole or in part, its rights and obligations pursuant to
this Agreement to one or more of its Affiliates;
(b) the Purchaser may assign its rights under this Agreement for
collateral security purposes to any lender providing financing to the Purchaser
or any of its Affiliates and any such lender may exercise all of the rights and
remedies of the Purchaser hereunder; and
(c) the Purchaser may assign its rights under this Agreement, in
whole or in part, to any subsequent purchaser of the Purchaser or any material
portion of its assets (whether such sale is structured as a sale of stock, a
sale of assets, a merger or otherwise).
10.4 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provisions or the remaining provisions of this Agreement.
10.5 No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the Parties to express their mutual
intent, and no rule of strict construction shall be applied against any Party.
10.6 Captions. The captions used in this Agreement are for
convenience of reference only and do not constitute a part of this Agreement and
shall not be deemed to limit, characterize or in any way affect any provision of
this Agreement, and all provisions of this Agreement shall be enforced and
construed as if no caption had been used in this Agreement.
10.7 Entire Agreement. This Agreement and the documents referred to
herein contain the entire agreement between the Parties and supersede any prior
understandings,
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<PAGE>
agreements or representations by or between the Parties, written or oral, which
may have related to the subject matter hereof in any way.
10.8 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same instrument.
10.9 Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Illinois, without giving
effect to any choice of law or conflict of law provision (whether of the State
of Illinois or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Illinois.
10.10 Parties in Interest. Nothing in this Agreement, express or
implied, is intended to confer on any person other than the Parties and their
respective successors and assigns any rights or remedies under or by virtue of
this Agreement.
* * * * *
-48-
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Asset Purchase
Agreement as of the date first written above.
NES ACQUISITION CORP.
By: /s/ PAUL R. INGERSOLL
-----------------------------------
Its: Vice President
R & R RENTALS, INC.
By: /s/ ROBERT N. HERRINGTON
------------------------------
Name: Robert N. Herrington
Title:President
/s/ ROBERT N. HERRINGTON
------------------------------------------
ROBERT N. HERRINGTON
<PAGE>
EXHIBIT 12.1
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in thousands of dollars, except ratios)
<TABLE>
<CAPTION>
For the Period
From Inception Pro Forma
(June 4, 1996) For the Year For the Year
Through Ended Ended
December 31, 1996 December 31, 1997 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Pre-tax income (loss) $(332) $1,923 $13,022
Fixed charges:
Interest expense on all indebtedness 0 4,545 28,024
Rental expense representative of an interest factor 0 220 1,105
----- ------ -------
Total fixed charges 0 4,765 29,129
----- ------ -------
Earnings before income taxes and fixed charges $(332) $6,688 $42,151
===== ====== =======
Ratio of earnings to fixed charges (A) 1.40 1.45
===== ====== =======
<CAPTION>
For the Pro Forma
Three Months For the Three Months
Ended Ended
March 31, 1998 March 31, 1998
-------------- --------------------
<S> <C> <C>
Pre-tax income (loss) $ 139 $ 806
Fixed charges:
Interest expense on all indebtedness 3,300 7,006
Rental expense representative of an interest factor 116 185
------ ------
Total fixed charges 3,416 7,191
------ ------
Earnings before income taxes and fixed charges $3,555 $7,997
====== ======
Ratio of earnings to fixed charges 1.04 1.11
====== ======
</TABLE>
(A) The company's operations during the period from inception (June 4, 1996)
through December 31, 1996 were limited to organizational and start-up
activities while no revenues were generated; accordingly, presentation of
this rate is not considered meaningful.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
State or Other
Jurisdiction of Each
Subsidiary's
Incorporation or
Registrant Subsidiary Organization
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
National Equipment Albany Ladder Company, Inc. (1) New York
Services, Inc. BAT Acquisition Corp. (2) Delaware
Carl's Mid South Rent-All Center Incorporated Tennessee
Falconite Aviation, Inc. Delaware
Falconite Equipment, Inc. (3) Illinois
Falconite, Inc. Illinois
Falconite Rebuild Center, Inc. Kentucky
McCurry & Falconite Equipment Co., Inc. Alabama
M&M Properties, Inc. (4) Alabama
NES Acquisition Corp. (5) Delaware
NES East Acquisition Corp. (6) Delaware
NES Michigan Acquisition Corp. (7) Delaware
- ----------------------------------------------------------------------------------------------
Albany Ladder None Not applicable
Company, Inc.
- ----------------------------------------------------------------------------------------------
BAT Acquisition None Not applicable
Corp.
- ----------------------------------------------------------------------------------------------
Carl's Mid South Rent- None Not applicable
All Center
Incorporated
- ----------------------------------------------------------------------------------------------
Falconite Aviation, None Not applicable
Inc.
- ----------------------------------------------------------------------------------------------
Falconite Equipment, None Not applicable
Inc.
- ----------------------------------------------------------------------------------------------
Falconite, Inc. Carl's Mid South Rent-All Center Incorporated Tennessee
Falconite Aviation, Inc. Delaware
Falconite Equipment, Inc. (3) Illinois
Falconite Rebuild Center, Inc. Kentucky
McCurry & Falconite Equipment Co., Inc. Alabama
M&M Properties, Inc. (4) Alabama
- ----------------------------------------------------------------------------------------------
Falconite Rebuild None Not applicable
Center, Inc.
- ----------------------------------------------------------------------------------------------
McCurry & Falconite None Not applicable
Equipment Co., Inc.
- ----------------------------------------------------------------------------------------------
M&M Properties, Inc. None Not applicable
- ----------------------------------------------------------------------------------------------
NES Acquisition Corp. None Not applicable
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
NES East Acquisition None Not applicable
Corp.
- ----------------------------------------------------------------------------------------------
NES Michigan None Not applicable
Acquisition Corp.
- ----------------------------------------------------------------------------------------------
</TABLE>
____________________________
Notes:
(1) Albany Ladder Company, Inc. also does business under the names Albany
Ladder Company and Albany Ladder Co.
(2) BAT Acquisition Corp. also does business under the names BAT Rentals,
Eagle, Eagle Scaffolding Equipment and Eagle Scaffolding.
(3) Falconite Equipment, Inc. also does business under the names Falconite
and Falconite, Inc.
(4) M&M Properties, Inc. also does business under the names M&M Equipment,
Inc. and Falconite Equipment.
(5) NES Acquisition Corp. also does business under the names Lone Star
Rentals, Industrial Hoist Services, Sprintank, Sprint Industrial
Services and Dragon Rentals.
(6) NES East Acquisition Corp. also does business under the names Equipco
Sales & Rentals, Equipco Rentals & Sales, Aerial Platforms, Inc.,
Aerial Platforms, CEC, Cormier Equipment Corporation and NES East
Acquisition Corp. of Delaware.
(7) NES Michigan Acquisition Corp. also does business under the names
Worksafe and Grand Hi-Reach.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of our reports relating to the respective
financial statements which appear in such Prospectus.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS DATE
-------------------- ----
<S> <C>
National Equipment Services, Inc. and Subsidiaries....... April 1, 1998
Aerial Platforms, Inc.................................... November 4, 1997
Lone Star Rentals, Inc................................... November 4, 1997
BAT Rentals, Inc......................................... November 4, 1997
Sprintank and Sprintank Mobile Storage
(divisions of Sprint Industrial Services, Inc.)......... November 4, 1997
MST Enterprises, Inc. d/b/a Equipco Rental and Sales..... November 4, 1997
Work Safe Supply Company, Inc. and Subsidiaries.......... March 4, 1998
Genpower Pump & Equipment, Inc........................... March 3, 1998
Albany Ladder Company, Inc. ............................. March 31, 1998
</TABLE>
We also consent to the application of the National Equipment Services, Inc.
and Subsidiaries report to the Financial Statement Schedules for the period
from inception (June 4, 1996) through December 31, 1996 and the year ended
December 31, 1997 listed under Item 21(b) of this Registration Statement when
such schedules are read in conjunction with the financial statements referred
to in our report. The audits referred to in such report also included these
schedules. We also consent to the reference to us under the heading "Experts."
/s/ Pricewaterhouse Coopers LLP
Chicago, Illinois
July 27, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Amendment No. 3 to Form S-4 of National Equipment
Services, Inc. of our report dated February 3, 1998, except for Note 8 as to
which the date is March 4, 1998, related to the financial statements of
Cormier Equipment Corporation, which appears in such Prospectus. We also
consent to the references to us under the heading "Experts" in such
Prospectus.
/s/ Albin, Randall & Bennett, CPA's
July 27, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of National
Equipment Services, Inc. on Amendment No. 3 to Form S-4 of our report dated
February 6, 1998 except for the information in Note 6 as to which the date is
March 23, 1998 and the information in Note 12 as to which the date is April 1,
1998, on our audit of the financial statements of Falconite, Inc. We also
consent to the references to our firm under the captions "Experts."
/s/ Price Waterhouse Coopers LLP
Louisville, Kentucky
July 27, 1998
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Falconite, Inc.
We consent to the use of our report dated February 20, 1997 with respect to
the consolidated balance sheet of Falconite, Inc. and subsidiaries as of
December 31, 1996, and the related consolidated statements of income,
shareholders' equity, and cash flows for the years ended December 31, 1995 and
1996 included herein, and to the reference to our firm under the heading
"Experts" in the prospectus.
/s/ KPMG Peat Marwick L.L.P.
St. Louis, Missouri
July 27, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement Amendment No. 3 to Form S-4 of National Equipment
Services, Inc. of our report dated March 3, 1998, relating to the financial
statements of Dragon Rentals (A Wholly Owned Division of The Modern Group,
Inc.--A Texas Corporation), which appears in such Prospectus. We also consent
to the references to us under the heading "Experts" in such Prospectus.
/s/ Lawrence, Blackburn, Meek, Maxey & Co. P.C.
July 27, 1998
<PAGE>
Exhibit 24.1(iv)
----------------
POWER OF ATTORNEY
-----------------
CARL'S MID SOUTH RENT-ALL CENTER INCORPORATED
KNOW ALL MEN BY THESE PRESENTS, that each person whose name appears
below constitutes and appoints Kevin P. Rodgers, Dennis J. O'Connor and Paul R.
Ingersoll and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for and in his name, place
and stead, in any and all capacities which such person serves or may serve with
respect to Carl's Mid South Rent-All Center Incorporated, to sign the
Registration Statement on Form S-4 of (i) National Equipment Services, Inc. and
(ii) Albany Ladder Company, Inc., BAT Acquisition Corp., Carl's Mid South Rent-
All Center Incorporated, Falconite Aviation, Inc., Falconite Equipment, Inc.,
Falconite, Inc., Falconite Rebuild Center, Inc., McCurry & Falconite Equipment
Co., Inc., M&M Properties, Inc., NES Acquisition Corp., NES East Acquisition
Corp. and NES Michigan Acquisition Corp. (collectively, the "Subsidiary
Guarantors") relating to the registration of $100,000,000 aggregate principal
amount of 10% Senior Subordinated Notes due 2007, Series B (the "Exchange
Notes") to be issued by National Equipment Services, Inc. and the related
guarantees of the Subsidiary Guarantors, and any or all amendments to such
registration statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitutes, may lawfully do or cause to be done by virtue hereof.
This power of attorney has been signed as of the 22nd day of July,
1998, by the following persons:
/s/ Kevin P. Rodgers /s/ Dennis J. O'Connor
- -------------------------------------- --------------------------------------
Kevin P. Rodgers, Dennis J. O'Connor,
President, Chief Executive Officer and Chief Financial Officer
Director
/s/ Carl D. Thoma /s/ William C. Kessinger
- -------------------------------------- --------------------------------------
Carl D. Thoma, William C. Kessinger,
Director Director
<PAGE>
POWER OF ATTORNEY
-----------------
FALCONITE AVIATION, INC.
KNOW ALL MEN BY THESE PRESENTS, that each person whose name appears
below constitutes and appoints Kevin P. Rodgers, Dennis J. O'Connor and Paul R.
Ingersoll and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for and in his name, place
and stead, in any and all capacities which such person serves or may serve with
respect to Falconite Aviation, Inc., to sign the Registration Statement on Form
S-4 of (i) National Equipment Services, Inc. and (ii) Albany Ladder Company,
Inc., BAT Acquisition Corp., Carl's Mid South Rent-All Center Incorporated,
Falconite Aviation, Inc., Falconite Equipment, Inc., Falconite, Inc., Falconite
Rebuild Center, Inc., McCurry & Falconite Equipment Co., Inc., M&M Properties,
Inc., NES Acquisition Corp., NES East Acquisition Corp. and NES Michigan
Acquisition Corp. (collectively, the "Subsidiary Guarantors") relating to the
registration of $100,000,000 aggregate principal amount of 10% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes") to be issued by
National Equipment Services, Inc. and the related guarantees of the Subsidiary
Guarantors, and any or all amendments to such registration statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitutes, may lawfully do or
cause to be done by virtue hereof.
This power of attorney has been signed as of the 22nd day of July,
1998, by the following persons:
/s/ Kevin P. Rodgers /s/ Dennis J. O'Connor
- -------------------------------------- --------------------------------------
Kevin P. Rodgers, Dennis J. O'Connor,
President, Chief Executive Officer and Chief Financial Officer
Director
/s/ Carl D. Thoma /s/ William C. Kessinger
- -------------------------------------- --------------------------------------
Carl D. Thoma, William C. Kessinger,
Director Director
<PAGE>
POWER OF ATTORNEY
-----------------
FALCONITE EQUIPMENT, INC.
KNOW ALL MEN BY THESE PRESENTS, that each person whose name appears
below constitutes and appoints Kevin P. Rodgers, Dennis J. O'Connor and Paul R.
Ingersoll and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for and in his name, place
and stead, in any and all capacities which such person serves or may serve with
respect to Falconite Equipment, Inc., to sign the Registration Statement on Form
S-4 of (i) National Equipment Services, Inc. and (ii) Albany Ladder Company,
Inc., BAT Acquisition Corp., Carl's Mid South Rent-All Center Incorporated,
Falconite Aviation, Inc., Falconite Equipment, Inc., Falconite, Inc., Falconite
Rebuild Center, Inc., McCurry & Falconite Equipment Co., Inc., M&M Properties,
Inc., NES Acquisition Corp., NES East Acquisition Corp. and NES Michigan
Acquisition Corp. (collectively, the "Subsidiary Guarantors") relating to the
registration of $100,000,000 aggregate principal amount of 10% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes") to be issued by
National Equipment Services, Inc. and the related guarantees of the Subsidiary
Guarantors, and any or all amendments to such registration statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitutes, may lawfully do or
cause to be done by virtue hereof.
This power of attorney has been signed as of the 22nd day of July,
1998, by the following persons:
/s/ Kevin P. Rodgers /s/ Dennis J. O'Connor
- -------------------------------------- --------------------------------------
Kevin P. Rodgers, Dennis J. O'Connor,
President, Chief Executive Officer and Chief Financial Officer
Director
/s/ Carl D. Thoma /s/ William C. Kessinger
- -------------------------------------- --------------------------------------
Carl D. Thoma, William C. Kessinger,
Director Director
<PAGE>
POWER OF ATTORNEY
-----------------
FALCONITE, INC.
KNOW ALL MEN BY THESE PRESENTS, that each person whose name appears
below constitutes and appoints Kevin P. Rodgers, Dennis J. O'Connor and Paul R.
Ingersoll and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for and in his name, place
and stead, in any and all capacities which such person serves or may serve with
respect to Falconite, Inc., to sign the Registration Statement on Form S-4 of
(i) National Equipment Services, Inc. and (ii) Albany Ladder Company, Inc., BAT
Acquisition Corp., Carl's Mid South Rent-All Center Incorporated, Falconite
Aviation, Inc., Falconite Equipment, Inc., Falconite, Inc., Falconite Rebuild
Center, Inc., McCurry & Falconite Equipment Co., Inc., M&M Properties, Inc., NES
Acquisition Corp., NES East Acquisition Corp. and NES Michigan Acquisition Corp.
(collectively, the "Subsidiary Guarantors") relating to the registration of
$100,000,000 aggregate principal amount of 10% Senior Subordinated Notes due
2007, Series B (the "Exchange Notes") to be issued by National Equipment
Services, Inc. and the related guarantees of the Subsidiary Guarantors, and any
or all amendments to such registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitutes, may lawfully do or cause to
be done by virtue hereof.
This power of attorney has been signed as of the 22nd day of July,
1998, by the following persons:
/s/ Kevin P. Rodgers /s/ Dennis J. O'Connor
- -------------------------------------- --------------------------------------
Kevin P. Rodgers, Dennis J. O'Connor,
President, Chief Executive Officer and Chief Financial Officer
Director
/s/ Carl D. Thoma /s/ William C. Kessinger
- -------------------------------------- --------------------------------------
Carl D. Thoma, William C. Kessinger,
Director Director
<PAGE>
POWER OF ATTORNEY
-----------------
FALCONITE REBUILD CENTER, INC.
KNOW ALL MEN BY THESE PRESENTS, that each person whose name appears
below constitutes and appoints Kevin P. Rodgers, Dennis J. O'Connor and Paul R.
Ingersoll and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for and in his name, place
and stead, in any and all capacities which such person serves or may serve with
respect to Falconite Rebuild Center, Inc., to sign the Registration Statement on
Form S-4 of (i) National Equipment Services, Inc. and (ii) Albany Ladder
Company, Inc., BAT Acquisition Corp., Carl's Mid South Rent-All Center
Incorporated, Falconite Aviation, Inc., Falconite Equipment, Inc., Falconite,
Inc., Falconite Rebuild Center, Inc., McCurry & Falconite Equipment Co., Inc.,
M&M Properties, Inc., NES Acquisition Corp., NES East Acquisition Corp. and NES
Michigan Acquisition Corp. (collectively, the "Subsidiary Guarantors") relating
to the registration of $100,000,000 aggregate principal amount of 10% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes") to be issued by
National Equipment Services, Inc. and the related guarantees of the Subsidiary
Guarantors, and any or all amendments to such registration statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitutes, may lawfully do or
cause to be done by virtue hereof.
This power of attorney has been signed as of the 22nd day of July,
1998, by the following persons:
/s/ Kevin P. Rodgers /s/ Dennis J. O'Connor
- -------------------------------------- --------------------------------------
Kevin P. Rodgers, Dennis J. O'Connor,
President, Chief Executive Officer and Chief Financial Officer
Director
/s/ Carl D. Thoma /s/ William C. Kessinger
- -------------------------------------- --------------------------------------
Carl D. Thoma, William C. Kessinger,
Director Director
<PAGE>
POWER OF ATTORNEY
-----------------
MCCURRY & FALCONITE EQUIPMENT CO., INC.
KNOW ALL MEN BY THESE PRESENTS, that each person whose name appears
below constitutes and appoints Kevin P. Rodgers, Dennis J. O'Connor and Paul R.
Ingersoll and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for and in his name, place
and stead, in any and all capacities which such person serves or may serve with
respect to McCurry & Falconite Equipment Co., Inc., to sign the Registration
Statement on Form S-4 of (i) National Equipment Services, Inc. and (ii) Albany
Ladder Company, Inc., BAT Acquisition Corp., Carl's Mid South Rent-All Center
Incorporated, Falconite Aviation, Inc., Falconite Equipment, Inc., Falconite,
Inc., Falconite Rebuild Center, Inc., McCurry & Falconite Equipment Co., Inc.,
M&M Properties, Inc., NES Acquisition Corp., NES East Acquisition Corp. and NES
Michigan Acquisition Corp. (collectively, the "Subsidiary Guarantors") relating
to the registration of $100,000,000 aggregate principal amount of 10% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes") to be issued by
National Equipment Services, Inc. and the related guarantees of the Subsidiary
Guarantors, and any or all amendments to such registration statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitutes, may lawfully do or
cause to be done by virtue hereof.
This power of attorney has been signed as of the 22nd day of July,
1998, by the following persons:
/s/ Kevin P. Rodgers /s/ Dennis J. O'Connor
- -------------------------------------- --------------------------------------
Kevin P. Rodgers, Dennis J. O'Connor,
President, Chief Executive Officer and Chief Financial Officer
Director
/s/ Carl D. Thoma /s/ William C. Kessinger
- -------------------------------------- --------------------------------------
Carl D. Thoma, William C. Kessinger,
Director Director
<PAGE>
POWER OF ATTORNEY
-----------------
M&M PROPERTIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that each person whose name appears
below constitutes and appoints Kevin P. Rodgers, Dennis J. O'Connor and Paul R.
Ingersoll and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for and in his name, place
and stead, in any and all capacities which such person serves or may serve with
respect to M&M Properties, Inc., to sign the Registration Statement on Form S-4
of (i) National Equipment Services, Inc. and (ii) Albany Ladder Company, Inc.,
BAT Acquisition Corp., Carl's Mid South Rent-All Center Incorporated, Falconite
Aviation, Inc., Falconite Equipment, Inc., Falconite, Inc., Falconite Rebuild
Center, Inc., McCurry & Falconite Equipment Co., Inc., M&M Properties, Inc., NES
Acquisition Corp., NES East Acquisition Corp. and NES Michigan Acquisition Corp.
(collectively, the "Subsidiary Guarantors") relating to the registration of
$100,000,000 aggregate principal amount of 10% Senior Subordinated Notes due
2007, Series B (the "Exchange Notes") to be issued by National Equipment
Services, Inc. and the related guarantees of the Subsidiary Guarantors, and any
or all amendments to such registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitutes, may lawfully do or cause to
be done by virtue hereof.
This power of attorney has been signed as of the 22nd day of July,
1998, by the following persons:
/s/ Kevin P. Rodgers /s/ Dennis J. O'Connor
- -------------------------------------- --------------------------------------
Kevin P. Rodgers, Dennis J. O'Connor,
President, Chief Executive Officer and Chief Financial Officer
Director
/s/ Carl D. Thoma /s/ William C. Kessinger
- -------------------------------------- --------------------------------------
Carl D. Thoma, William C. Kessinger,
Director Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF NATIONAL SERVICES EQUIPMENT, INC. AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001051381
<NAME> NATIONAL EQUIPMENT SERVICES, INC.
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS OTHER 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1997 JUN-04-1996 JAN-01-1998 JUN-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1996 MAR-31-1998 MAR-31-1997
<CASH> 35,682 12 3,773 2,264
<SECURITIES> 0 0 0 0
<RECEIVABLES> 8,610 0 24,832 2,561
<ALLOWANCES> 254 0 737 35
<INVENTORY> 2,239 0 7,158 1,695
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 55,198 20 120,031 17,930
<DEPRECIATION> 5,385 3 8,126 350
<TOTAL-ASSETS> 131,137 216 242,303 29,416
<CURRENT-LIABILITIES> 0 0 0 0
<BONDS> 98,782 0 193,954 21,000
0 0 0 0
0 0 0 0
<COMMON> 2 1 2 2
<OTHER-SE> 26,471 105 26,858 6,428
<TOTAL-LIABILITY-AND-EQUITY> 131,137 216 242,303 29,416
<SALES> 14,890 0 6,336 1,043
<TOTAL-REVENUES> 41,288 0 22,151 2,319
<CGS> 7,807 0 3,224 381
<TOTAL-COSTS> 25,715 0 13,500 1,476
<OTHER-EXPENSES> 9,386 336 5,338 871
<LOSS-PROVISION> 479 0 483 35
<INTEREST-EXPENSE> 4,545 (4) 3,300 268
<INCOME-PRETAX> 1,923 (332) 290 (290)
<INCOME-TAX> 818 (137) 151 (135)
<INCOME-CONTINUING> 1,105 (195) 139 (155)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,105 (195) 139 (155)
<EPS-PRIMARY> 0.09 (0.05) 0.01 (0.02)
<EPS-DILUTED> 0.08 (0.05) 0.01 (0.01)
</TABLE>
