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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1998
REGISTRATION NO. 333-43553
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
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 SEPTEMBER 9, 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 $329.2 million
of Senior Debt of the Company and the Subsidiary Guarantors outstanding and
$230.3 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.
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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 $228.8 million, an increase of 29.3% 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 $89.1 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 completed an initial public
offering of 7,375,000 shares of Common Stock (the "Initial Stock Offering").
The Company received net proceeds of approximately $92.6 million from the
Initial Stock Offering.
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 $8.6 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 $329.2 million
of Senior Debt of the Company and the Subsidiary
Guarantors outstanding and $230.3 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 June 30, 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 SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 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 $228,823 $12,372 $103,233 $66,281 $122,446
Gross profit........... 15,573 134,393 3,966 40,967 26,102 50,438
Operating income....... 6,187 40,465 1,658 16,614 12,082 21,736
Interest expense, net.. 4,336 28,468 894 14,234 8,036 14,234
Income before income
taxes................. 1,923 12,351 780 2,605 4,198 7,661
Income tax expense..... 818 5,182 345 1,093 1,733 3,103
Net income............. 1,105 7,169 435 1,512 2,465 4,558
PER SHARE DATA:
Basic earnings per
share................. $ 0.09 $ 0.32 $ 0.04 $ 0.07 $ 0.17 $ 0.20
Basic shares
outstanding........... 12,707 22,677 10,942 22,610 14,923 22,897
Diluted earnings per
share................. $ 0.08 $ 0.30 $ 0.03 $ 0.06 $ 0.15 $ 0.19
Diluted shares
outstanding........... 14,150 24,120 12,452 24,120 16,146 24,120
OTHER DATA:
Rental fleet purchases. $15,336 $ 93,239 $ 6,973 $ 55,533 $44,629 $ 56,548
EBITDA(b).............. 12,744 82,440 3,460 37,430 22,134 43,910
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1998
---------------------
ACTUAL PRO FORMA(A)
-------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Cash.......... $ 1,007 $ 1,007
Rental
equipment,
net.......... 132,317 250,681
Total assets.. 272,763 493,867
Total debt.... 224,240 329,246
Total
stockholders'
equity....... 29,186 127,529
</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 $329.2 million of indebtedness
outstanding (which amount includes the Old Notes), its stockholders' equity
would have been approximately $127.5 million and there would have been $94.6
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 $230.3 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 31% of total
assets and 122% 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 seven
businesses in the first six months 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 MILLIONS)
<S> <C> <C>
Cash............................................................ $ 1.0 $ 1.0
======= ======
Debt:
Notes.......................................................... $ 98.9 $ 98.9
New Credit Facility............................................ 125.3 230.3
------- ------
Total debt.................................................. 224.2 329.2
Total stockholders' equity.................................. 28.8 127.5
------- ------
Total capitalization........................................ $ 253.0 456.7
======= ======
</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 June 30, 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 $122,489 $ 5,144 $154,031
Rental equipment sales... 4,186 15,850 2,910 22,946
New equipment sales and
other................... 10,704 38,749 2,393 51,846
------- -------- ------- --------
Total revenues............. 41,288 177,088 10,447 228,823
COST OF REVENUES:
Rental equipment
depreciation............ 5,009 25,528 537 (d) 31,074
Cost of rental equipment
sales................... 2,935 10,708 2,561 16,204
Cost of new equipment
sales................... 4,872 17,444 1,579 23,895
Other operating expenses. 12,899 50,648 (327)(e) 63,220
------- -------- ------- --------
Total cost of revenues..... 25,715 104,328 4,350 134,393
------- -------- ------- --------
Gross profit............... 15,573 72,760 6,097 94,430
Selling, general and
administrative expenses... 7,910 40,024 (4,516)(f) 43,418
Non-rental depreciation and
amortization.............. 1,476 3,904 5,167 (g) 10,547
------- -------- ------- --------
Operating income........... 6,187 28,832 5,446 40,465
Other income (expense),
net....................... 72 (1,090) 1,372 (h) 354
Interest expense, net...... 4,336 11,793 12,339 (i) 28,468
------- -------- ------- --------
Income before income taxes. 1,923 15,949 (5,521) 12,351
Income tax expense......... 818 3,172 1,192 (j) 5,182
------- -------- ------- --------
Net income................. $ 1,105 $ 12,777 $(6,713) $ 7,169(k)
======= ======== ======= ========
Basic earnings per share... $ 0.32(k)
Diluted earnings per share. $ 0.30(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>
SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------------------
THE ACQUIRED
COMPANY(A) BUSINESSES(B) ADJUSTMENTS(C) PRO FORMA
---------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rental revenues.......... $ 6,750 $57,230 $ 2,517 $ 66,497
Rental equipment sales... 1,142 8,904 1,455 11,501
New equipment sales and
other................... 4,480 19,579 1,176 25,235
------- ------- ------- --------
Total revenues............. 12,372 85,713 5,148 103,233
COST OF REVENUES:
Rental equipment
depreciation............ 1,468 13,284 669 (d) 15,421
Cost of rental equipment
sales................... 960 5,811 1,280 8,051
Cost of new equipment
sales................... 1,891 8,756 790 11,437
Other operating expenses. 4,087 23,312 (42)(e) 27,357
------- ------- ------- --------
Total cost of revenues..... 8,406 51,163 2,697 62,266
------- ------- ------- --------
Gross profit............... 3,966 34,550 2,451 40,967
Selling, general and
administrative expenses... 1,990 19,025 (1,832)(f) 19,183
Non-rental depreciation and
amortization.............. 318 2,002 2,850 (g) 5,170
------- ------- ------- --------
Operating income (loss).... 1,658 13,523 1,433 16,614
Other income, net.......... 16 115 94 (h) 225
Interest expense, net...... 894 5,680 7,660 (i) 14,234
------- ------- ------- --------
Income (loss) before income
taxes..................... 780 7,958 (6,133) 2,605
Income tax expense
(benefit)................. 345 1,999 (1,251)(j) 1,093
------- ------- ------- --------
Net income (loss).......... $ 435 $ 5,959 $(4,882) $ 1,512(k)
======= ======= ======= ========
Basic earnings per share... $ 0.07(k)
Diluted earnings per share. $ 0.06(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>
SIX MONTHS ENDED JUNE 30, 1998
------------------------------------------------
THE ACQUIRED
COMPANY(A) BUSINESSES(B) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rental revenues........... $46,411 $39,277 $ 402 $ 86,090
Rental equipment sales.... 4,112 3,463 -- 7,575
New equipment sales and
other.................... 15,758 12,657 366 28,781
------- ------- ------- --------
Total revenues.............. 66,281 55,397 768 122,446
COST OF REVENUES:
Rental equipment
depreciation............. 7,831 9,447 (630)(d) 16,648
Cost of rental equipment
sales.................... 2,353 2,360 -- 4,713
Cost of new equipment
sales.................... 8,481 6,677 -- 15,158
Other operating expenses.. 21,514 14,309 (334)(e) 35,489
------- ------- ------- --------
Total cost of revenues...... 40,179 32,793 (964) 72,008
------- ------- ------- --------
Gross profit................ 26,102 22,604 1,732 50,438
Selling, general and
administrative expenses.... 11,951 13,184 (1,800)(f) 23,335
Non-rental depreciation and
amortization............... 2,069 1,719 1,579 (g) 5,367
------- ------- ------- --------
Operating income............ 12,082 7,701 1,953 21,736
Other income (expense), net. 152 (26) 33 159
Interest expense, net....... 8,036 5,702 496 (i) 14,234
------- ------- ------- --------
Income before income taxes.. 4,198 1,973 1,490 7,661
Income tax expense.......... 1,733 -- 1,370 (j) 3,103
------- ------- ------- --------
Net income.................. $ 2,465 $ 1,973 $ 120 $ 4,558(k)
======= ======= ======= ========
Basic earnings per share.... $ 0.20(k)
Diluted earnings per share.. $ 0.19(k)
</TABLE>
(See Notes to Selected Pro Forma Financial Data)
20
<PAGE>
PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT JUNE 30, 1998
---------------------------------------------------
THE ACQUIRED PRO
COMPANY(L) BUSINESSES(L) ADJUSTMENTS(M) FORMA
---------- ------------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents... $ 1,007 $ 2,351 $(2,351)(i) $ 1,007
Accounts receivable, net.... 27,972 13,083 (2,176) 38,879
Inventory, net.............. 6,736 3,172 -- 9,908
Rental equipment, net....... 132,317 125,665 (7,301)(ii) 250,681
Property and equipment, net. 9,888 12,118 2,150 (iii) 24,156
Intangible assets, net...... 84,961 16,860 56,516 (iv) 158,337
Loan origination costs, net. 6,008 -- (870)(v) 5,138
Prepaid and other assets,
net........................ 3,874 5,356 (3,469) 5,761
-------- -------- ------- --------
Total assets............ $272,763 $178,605 $42,499 $493,867
======== ======== ======= ========
LIABILITIES
Accounts payable............ $ 10,196 $ 5,373 $ (333) $ 15,236
Accrued interest............ 1,222 1,137 (339) 2,020
Accrued expenses and other
liabilities................ 7,919 12,120 (203) 19,836
Debt........................ 224,240 124,237 (19,231)(vi) 329,246
-------- -------- ------- --------
Total liabilities....... 243,577 142,867 (20,106) 366,338
Stockholders' equity........ 29,186 35,738 62,605 (vii) 127,529
-------- -------- ------- --------
Total liabilities and
stockholders' equity... $272,763 $178,605 $42,499 $493,867
======== ======== ======= ========
</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 six months ended
June 30, 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 six months ended
June 30, 1998 represent actual historical results for the Company,
including results for the Acquired Businesses purchased in the first six
months of 1998 from the date of acquisition.
(b) Results for the year ended December 31, 1997 and for the six months ended
June 30, 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 six months ended June 30, 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>
SIX MONTHS
ENDED
JUNE 30,
1997
----------
<S> <C>
Rental revenues.............................................. $ 130
New equipment sales and other................................ 21
-----
Total revenues............................................... 151
Rental equipment depreciation................................ 81
Other operating expenses..................................... 102
-----
Total cost of revenues....................................... 183
-----
Gross profit (loss).......................................... (32)
Selling, general and administrative expenses................. 72
Non-rental depreciation and amortization..................... 1
-----
Operating loss............................................... $(105)
=====
</TABLE>
In addition, reflects the acquisition of GenEquip, Inc., a business
acquired by Falconite in January 1998, and Aerial Equipment Rental, Inc., a
business acquired by Falconite in May 1998, as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED JUNE ENDED JUNE
1997 30, 1997 30, 1998
------------ ----------- -----------
<S> <C> <C> <C>
Rental revenues..................... $ 5,274 $2,647 $402
Rental equipment sales.............. 2,910 1,455 --
New equipment sales and other....... 2,415 1,197 365
------- ------ ----
Total revenues...................... 10,599 5,299 767
Rental equipment depreciation....... 1,808 900 76
Cost of rental equipment sales...... 2,561 1,281 --
Cost of new equipment sales......... 1,578 789 --
Other operating costs............... 2,503 1,304 435
------- ------ ----
Total cost of revenues.............. 8,450 4,274 511
------- ------ ----
Gross profit........................ 2,149 1,025 256
Selling, general and administrative
expenses........................... 1,789 790 144
Non-rental depreciation and
amortization....................... 121 61 5
------- ------ ----
Operating income.................... 239 174 107
Other income, net................... 179 32 33
Interest income (expense), net...... (25) (13) (16)
------- ------ ----
Income before income taxes.......... $ 393 $ 193 $124
======= ====== ====
</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>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -------------
1997 1997 1998
------------ ------ ------
<S> <C> <C> <C>
Non-rental depreciation....................... $1,320 $ 695 $ 499
Amortization of goodwill...................... 3,223 1,721 956
Amortization of non-compete agreements........ 624 434 124
------ ------ ------
$5,167 $2,850 $1,579
====== ====== ======
</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 $809 of cash on hand at
the Acquired Businesses purchased on or after June 30, 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 Initial Stock Offering and the mandatory
conversion of the 8% convertible subordinated promissory notes 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 six month periods ended June 30, 1997 and 1998:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
YEAR ENDED 30,
DECEMBER 31, -------------
1997 1997 1998
------------ ------ ------
<S> <C> <C> <C>
Net income.................................... $6,682 $1,269 $4,309
Basic earnings per share...................... $ 0.30 $ 0.06 $ 0.19
Diluted earnings per share.................... $ 0.28 $ 0.05 $ 0.18
</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 June 30, 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 June 30, 1998 of $809 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 $56,725 of goodwill representing the excess of the purchase
price over the fair value of net assets acquired consisting of $39,506
for Falconite and $17,219 for R&R Rentals. 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
on or after June 30, 1998 of $809 and the elimination of the Acquired
Businesses' indebtedness of $124,237, offset by additional borrowings
under the New Credit Facility of $102,730, 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
$99,562, the mandatory conversion at the initial public offering
price of $3,750 of 8% subordinated promissory notes issued in
connection with the Falconite acquisition and the issuance of $4,000
of Common Stock in connection with the R&R Rental acquisition, net of
estimated Initial Stock Offering costs of $8,969 and the elimination
of equity of Falconite of $34,882 and R&R Rentals of $856.
24
<PAGE>
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, R&R Rentals and the
Company as of and for the six months ended June 30, 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>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- ----------------
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 $12,372 $66,281
Operating income
(loss)................ (336) 6,187 1,658 12,082
Income (loss) before
income taxes.......... (332) 1,923 780 4,198
FALCONITE:(B)
Total revenues......... $35,661 $48,086 $63,646 $29,780 $35,761
Operating income....... 11,306 12,075 11,959 6,157 6,007
Income before income
taxes and minority
interests............. 8,094 7,959 3,817 3,037 1,503
R&R RENTALS:(B)
Total revenues......... $ 6,581 $ 6,341 $ 8,579 $ 3,536 $ 5,590
Operating income....... (194) (397) 124 (13) 846
Income before income
taxes and minority
interests............. (198) (1,004) (960) (487) 177
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
AT DECEMBER 31, AT
---------------------------------------- JUNE 30,
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 $132,317
Total assets................ 216 131,137 272,579
Total debt.................. -- 98,782 224,240
Total stockholders' equity.. 106 26,473 28,849
FALCONITE:
Rental equipment, net....... $ 81,583 $107,721 $116,315
Total assets................ 117,458 148,068 161,237
Total debt.................. 60,619 100,200 108,600
R&R RENTALS:
Rental equipment, net....... $ 7,613 $ 10,740 $ 9,350
Total assets................ 14,251 15,795 17,368
Total debt.................. 12,259 14,670 15,637
</TABLE>
- --------
(a) With respect to the Predecessor Companies, includes results prior to
acquisition by the Company. With respect to Falconite and R&R Rentals,
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>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 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% 67.3% 54.6% 64.4% 70.0% 70.3%
Rental equipment sales.. 9.7 10.2 10.0 9.2 11.1 6.2 6.2
New equipment sales and
other.................. 22.6 25.9 22.7 36.2 24.5 23.8 23.5
----- --------- --------- ----- ----- ----- -----
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 67.9 60.3 60.6 58.8
----- --------- --------- ----- ----- ----- -----
Gross profit............ 40.5% 37.7 41.3 32.1 39.7 39.4 41.2
=====
Selling, general and
administrative
expenses............... 19.2 19.0 16.1 18.6 18.1 19.1
Non-rental depreciation
and amortization....... 3.6 4.6 2.6 5.0 3.1 4.4
--------- --------- ----- ----- ----- -----
Operating income (loss). 14.9 17.7 13.4 16.1 18.2 17.7
Other income, net....... 0.2 0.1 0.1 0.2 0.2 0.1
Interest expense, net... 10.5 12.4 7.2 13.8 12.1 11.6
--------- --------- ----- ----- ----- -----
Income (loss) before
income taxes........... 4.6 5.4 6.3 2.5 6.3 6.2
Income tax expense
(benefit).............. 2.0 2.3 2.8 1.0 2.6 2.5
--------- --------- ----- ----- ----- -----
Net income (loss)....... 2.6% 3.1% (3.5)% 1.5% 3.7% 3.7%
========= ========= ===== ===== ===== =====
</TABLE>
PRO FORMA AND COMBINED RESULTS OF OPERATIONS--THE COMPANY
Pro Forma Six Months Ended June 30, 1998 as Compared to Pro Forma Six Months
Ended June 30, 1997
Revenues. Total revenues increased 18.6%, or $19,213, from $103,233 to
$122,446 from the six months ended June 30, 1997 to the six months ended June
30, 1998. Rental revenue growth accounted for $19,593 or 102% of the increase,
partially offset by a decline in rental equipment sales of $3,926. 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 $3,546 or 14.1%.
Gross Profit. Gross profit increased from $40,967 to $50,438 from the six
months ended June 30, 1997 to the six months ended June 30, 1998. Gross margin
increased from 39.7% to 41.2%. 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 $19,183 to $23,335 from the six months
ended June 30, 1997 to the six months ended June 30, 1998, primarily reflecting
costs incurred to support the growth in the Company's businesses. As a
percentage of total revenues, these costs increased from 18.6% to 19.0%.
Non-Rental Depreciation and Amortization. Non-rental depreciation and
amortization increased from $5,170 to $5,367 from the six months ended June 30,
1997 to the six months ended June 30, 1998. As a percentage of total revenues,
non-rental depreciation and amortization decreased from 5.0% to 4.4%.
Operating Income. As a result of the foregoing, operating income increased
30.8% from $16,614 or 16.1% of total revenues for the six months ended June 30,
1997 to $21,736 or 17.8% of total revenues for the six months ended June 30,
1998.
Interest Expense, Net. Interest expense, net was $14,234 for the first six
months of both 1997 and 1998.
28
<PAGE>
Income Tax Expense. Income tax expense was $1,093 for the first six months
of 1997 and $3,103 for the first six months of 1998.
Pro Forma Year Ended December 31, 1997 as Compared to Combined Year Ended
December 31, 1996
Revenues. Total revenues increased 29.3%, or $51,834, from $176,989 to
$228,823 from 1996 to 1997. Rental revenue growth accounted for $33,346 or
64.3% 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
$16,700 of rental revenue growth resulted primarily from increased capital
investment in rental equipment by the Company. Rental equipment sales
increased 40.2%, or $6,583, 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 $94,430 from 1996 to
1997. Gross margin increased from 40.0% to 41.3%.
Pro Forma Year Ended December 31, 1997
Revenues. Total revenues were $228,823. Rental revenues accounted for 67.3%
of total revenues.
Gross Profit. Gross profit was $94,430, or 41.3% of total revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $43,418 or 19.0% 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 $40,465, or 17.7% of total revenues.
Interest Expense, Net. Interest expense, net was $28,468, or 12.4% of total
revenues.
Income Tax Expense. Income tax expense was $5,182, or 2.3% 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 six months ended June 30, 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.
Six Months Ended June 30, 1998 as Compared to Six Months Ended June 30, 1997.
Revenues. Total revenues increased from $12,372 to $66,281 from the six
months ended June 30, 1997 to the six months ended June 30, 1998. Rental
revenues increased from $6,750 to $46,411. 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 $3,966 to $26,102 from the six
months ended June 30, 1997 to the six months ended June 30, 1998. Gross margin
increased from 32.1% to 39.4%. 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 $1,990 to $11,951 from the six months
ended June 30, 1997 to the six months ended June 30, 1998. As a percentage of
total revenues, selling, general and administrative expenses increased from
16.1% to 18.1%.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization increased from $318 to $2,069 from the six months ended June 30,
1997 to the six months ended June 30, 1998.
Operating Income (Loss). As a result of the foregoing, operating income
increased from $1,658 for the six months ended June 30, 1997 to $12,082 or
18.2% of total revenues for the six months ended June 30, 1998.
Interest Expense, Net. Interest expense, net increased from $894 to $8,036
from the six months ended June 30, 1997 to the six months ended June 30, 1998.
This increase was due to additional debt resulting from the acquisition of 10
additional businesses.
Income Tax Expense. Income tax expense increased from $345 to $1,733 from
the six months ended June 30, 1997 to the six months ended June 30, 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
Six Months Ended June 30, 1998 as Compared to Six Months Ended June 30, 1997.
Revenues. Total revenues increased 20.1% from $29,780 to $35,761 from the
six months ended June 30, 1997 to the six months ended June 30, 1998. Rental
revenues increased 31.2% from $19,645 to $25,776. 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 $13,257 for the six months ended
June 30, 1997 to $16,055 for the six months ended June 30, 1998. Gross margin
was 44.5% in 1997 as compared to 44.9% in 1998.
30
<PAGE>
Selling, General & Administrative Expenses. Selling, general and
administrative expenses increased from $5,917 to $8,643 from the six months
ended June 30, 1997 to the six months ended June 30, 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 19.9% to 24.2%,
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 $1,183 or 4.0% of total revenues for the six
months ended June 30, 1997 to $1,405 or 3.9% of total revenues for the six
months ended June 30, 1998.
Operating Income. As a result of the foregoing, operating income decreased
from $6,157 or 20.7% of total revenues for the six months ended June 30, 1997
to $6,007 or 16.8% of total revenues for the six months ended June 30, 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
31
<PAGE>
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--CERTAIN 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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<PAGE>
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.
33
<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.
34
<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.
ALBANY LADDER
Albany Ladder was purchased by NES in March 1998. All operating results of
Albany Ladder 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 23.0% or $6,388 from $27,816 to $34,204
from 1996 to 1997. Rental revenue growth accounted for $1,548 or 24.2% of the
increase.
Gross Profit. Gross profit increased $1,930 from $9,645 or 34.7% of total
revenues in 1996 to $11,575 or 33.8% of total revenues in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $695 from $7,101 or 25.5% of total revenues
in 1996 to $7,796 or 22.8% of total revenues in 1997.
35
<PAGE>
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 $56,548 in 1995, 1996, 1997 and
the first six months 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 $100,000 in
1998.
On an actual basis, for the years ended December 31, 1996 and 1997 and the
six months ended June 30, 1997 and 1998, the Company's net cash (used in)
provided by operations was $(269) and $7,378, respectively, and $1,546 and
$8,023, respectively. On an actual basis, for the years ended December 31,
1996 and 1997 and the six months ended June 30, 1997 and 1998, the Company's
net cash used in investing activities was $20 and $81,497, respectively, and
$42,813 and $154,093, respectively. On an actual basis, for the years ended
December 31, 1996 and 1997 and the six months ended June 30, 1997 and 1998,
the Company's net cash provided by financing activities was $301 and $109,789,
respectively, and $42,175 and $111,395, respectively. 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 the 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,
$89,100 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.
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<PAGE>
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 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 $228.8 million, an increase of 29.3% 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
<PAGE>
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 67.3% 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 8.7% 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 New 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 July 31, 1998, the Company had a total of 1,240 employees. Only 97 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 August 31, 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........ 61 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.
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<PAGE>
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.
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 daily installments over
the five year period ending July 13, 2003. The Company granted such options at
an option
46
<PAGE>
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 daily installments over the five year
period commencing on 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.
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.
47
<PAGE>
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 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.
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<PAGE>
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 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
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<PAGE>
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.
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 832,000 shares of Common Stock to certain directors and
members of management, including Messrs. O'Connor and Ingersoll who each
received options to purchase 40,000 shares of Common Stock at the initial
public offering price. Such options vest in equal daily installments over the
five year period ending July 13, 2003. The options have a term of ten years.
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<PAGE>
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 August 31, 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 August 31, 1998, there were 24,119,683 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(1) PERCENT(2)
---------- ----------
<S> <C> <C>
Golder, Thoma, Cressey, Rauner Fund V, L.P.(3)........... 13,861,142 57.5%
Kevin Rodgers(4)......................................... 1,112,100 4.6
Dennis O'Connor(5)....................................... 280,389 1.2
Paul Ingersoll(6)........................................ 141,389 *
Carl Thoma(7)............................................ 13,861,142 57.5
William Kessinger(7)..................................... 13,861,142 57.5
John Grove(8)............................................ 597 *
Ronald St. Clair......................................... 65,978 *
All Directors and Executive Officers as a Group (7
persons)(7)............................................. 15,461,595 64.1
</TABLE>
- --------
* Less than one percent.
(1) The number of shares includes shares of Common Stock subject to options
exercisable within 60 days of August 31, 1998.
(2) Shares subject to options exercisable within 60 days of August 31, 1998
are considered outstanding for the purpose of determining the percentage
of the class held by the holder of such option, but not for the purpose of
computing the percentage held by others.
(3) 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.
(4) 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.
(5) The shares of Common Stock beneficially owned by Mr. O'Connor include
2,389 shares subject to options.
(6) The shares of Common Stock beneficially owned by Mr. Ingersoll include
2,389 shares subject to options.
(7) 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.
(8) The shares of Common Stock beneficially owned by Mr. Grove include 597
shares subject to options.
(9) The shares of Common Stock beneficially owned by Mr. St. Clair include 597
shares subject to options.
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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 $300.0 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
53
<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.
54
<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, on a pro forma basis, there would have been $334.8 million of
Senior Debt of the Company and the Subsidiary Guarantors outstanding and
$235.9 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 $372.0
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,
$334.8 million of Senior Debt and $235.9 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
PricewaterhouseCoopers 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,
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 PricewaterhouseCoopers 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.
The financial statements of R&R Rentals, 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 PricewaterhouseCoopers LLP, independent accounts,
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-4
Consolidated Balance Sheets............................................ F-5
Consolidated Statements of Operations.................................. F-6
Consolidated Statements of Cash Flows.................................. F-7
Consolidated Statements of Changes in Stockholders' Equity............. F-8
Notes to Consolidated Financial Statements............................. F-9
AERIAL PLATFORMS, INC.
Financial Statements -- January 31, 1997 and February 17, 1997
Report of Independent Accountants...................................... F-19
Balance Sheets......................................................... F-20
Statements of Operations............................................... F-21
Statements of Cash Flows............................................... F-22
Statements of Changes in Stockholder's Equity.......................... F-23
Notes to Financial Statements.......................................... F-24
LONE STAR RENTALS, INC.
Financial Statements -- December 31, 1995 and 1996 and March 16, 1997
Report of Independent Accountants...................................... F-29
Balance Sheets......................................................... F-30
Statements of Operations............................................... F-31
Statements of Cash Flows............................................... F-32
Statements of Changes in Stockholder's Equity.......................... F-33
Notes to Financial Statements.......................................... F-34
BAT RENTALS, INC.
Financial Statements -- December 31, 1995 and 1996 and March 31, 1997
Report of Independent Accountants...................................... F-40
Balance Sheets......................................................... F-41
Statements of Operations............................................... F-42
Statements of Cash Flows............................................... F-43
Statements of Changes in Stockholder's Equity.......................... F-44
Notes to Financial Statements.......................................... F-45
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-50
Balance Sheets......................................................... F-51
Statements of Operations............................................... F-52
Statements of Cash Flows............................................... F-53
Statements of Changes in Divisional Equity............................. F-54
Notes to Financial Statements.......................................... F-55
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-60
Balance Sheets......................................................... F-61
Statements of Operations............................................... F-62
Statements of Cash Flows............................................... F-63
Statements of Changes in Stockholder's Equity.......................... F-64
Notes to Financial Statements.......................................... F-65
</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-70
Consolidated Balance Sheets............................................. F-71
Consolidated Statements of Operations................................... F-72
Consolidated Statements of Cash Flows................................... F-73
Consolidated Statements of Changes in Stockholder's Equity.............. F-74
Notes to Consolidated Financial Statements.............................. F-75
GENPOWER PUMP & EQUIPMENT, INC.
Financial Statements -- December 31, 1997
Report of Independent Accountants....................................... F-79
Balance Sheet........................................................... F-80
Statement of Operations................................................. F-81
Statement of Changes in Stockholder's Equity............................ F-82
Statement of Cash Flows................................................. F-83
Notes to Financial Statements........................................... F-84
CORMIER EQUIPMENT CORPORATION
Financial Statements -- December 31, 1995, 1996 and 1997
Independent Auditors' Report............................................ F-89
Balance Sheets.......................................................... F-90
Statements of Earnings and Retained Earnings............................ F-91
Statements of Cash Flows................................................ F-92
Notes to Financial Statements........................................... F-93
DRAGON RENTALS (DIVISION OF THE MODERN GROUP, INC.)
Financial Statements -- December 31, 1996 and 1997
Report of Independent Accountants....................................... F-95
Balance Sheets.......................................................... F-96
Statements of Income and Expenses....................................... F-97
Statements of Cash Flows................................................ F-98
Notes to Financial Statements........................................... F-99
ALBANY LADDER COMPANY, INC.
Financial Statements -- December 31, 1997
Report of Independent Accountants....................................... F-104
Balance Sheet........................................................... F-105
Statement of Operations................................................. F-106
Statement of Cash Flows................................................. F-107
Statement of Changes in Stockholder's Equity............................ F-108
Notes to Financial Statements........................................... F-109
FALCONITE, INC. AND SUBSIDIARIES
Consolidated Financial Statements--December 31, 1995, 1996, 1997 and
March 31, 1998
Reports of Independent Accountants...................................... F-113
Consolidated Balance Sheets............................................. F-115
Consolidated Statements of Income....................................... F-116
Consolidated Statements of Shareholders' Equity......................... F-117
Consolidated Statements of Cash Flows................................... F-118
Notes to Consolidated Financial Statements.............................. F-119
R&R RENTALS, INC.
Financial Statements -- December 31, 1997
Report of Independent Accountants....................................... F-131
Balance Sheet........................................................... F-132
Statement of Operations................................................. F-133
Statement of Changes in Stockholder's Equity............................ F-134
Statement of Cash Flows................................................. F-135
Notes to Financial Statements........................................... F-136
</TABLE>
F-2
<PAGE>
<TABLE>
<S> <C>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Financial Statements............... F-140
Unaudited Pro Forma Statements of Operations........................... F-141
Unaudited Pro Forma Balance Sheet...................................... F-144
Notes to Unaudited Pro Forma Financial Statements...................... F-145
</TABLE>
F-3
<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, except for the information in Note 13 as to which the date is
September 8, 1998
F-4
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, 1998
1996 1997 1998 (NOTE 14)
------------ ------------ ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents. $ 12 $ 35,682 $ 1,007 $ 1,007
Accounts receivable, net
of allowance for doubtful
accounts of $0, $254,
$737 and $737,
respectively............. -- 8,356 27,972 27,972
Inventory, net............ -- 2,239 6,736 6,736
Rental equipment, net..... -- 46,801 132,317 132,317
Property and equipment,
net...................... 17 3,012 9,888 9,888
Intangible assets, net.... -- 27,937 84,961 84,961
Loan origination costs,
net...................... -- 6,270 6,008 6,008
Prepaid and other assets,
net...................... 187 840 3,874 3,874
---- -------- -------- --------
Total assets............ $216 $131,137 $272,763 $272,763
==== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Accounts payable.......... $-- $ 2,489 $ 10,196 $ 10,196
Accrued interest.......... -- 1,066 1,222 1,222
Accrued expenses and other
liabilities.............. 110 2,327 7,919 7,919
Debt...................... -- 98,782 224,240 224,240
---- -------- -------- --------
Total liabilities....... 110 104,664 243,577 243,577
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 3,375 3,375
Stock subscriptions
receivable................ (1) (102) (102) (102)
---- -------- -------- --------
Total stockholders'
equity................. 106 26,473 29,186 29,186
---- -------- -------- --------
Total liabilities and
stockholders' equity... $216 $131,137 $272,763 $272,763
==== ======== ======== ========
</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 OPERATIONS
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
(JUNE 4,
1996) FOR THE FOR THE SIX MONTHS
THROUGH YEAR ENDED ENDED JUNE 30
DECEMBER 31, DECEMBER 31, -----------------------
1996 1997 1997 1998
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Rental revenues............ $ -- $26,398 $6,750 $46,411
Rental equipment sales..... -- 4,186 1,142 4,112
New equipment sales and
other..................... -- 10,704 4,480 15,758
------ ------- ------ -------
Total revenues........... -- 41,288 12,372 66,281
------ ------- ------ -------
COST OF REVENUES:
Rental equipment
depreciation.............. -- 5,009 1,468 7,831
Cost of rental equipment
sales..................... -- 2,935 960 2,353
Cost of new equipment
sales..................... -- 4,872 1,891 8,481
Other operating expenses... -- 12,899 4,087 21,514
------ ------- ------ -------
Total cost of revenues... -- 25,715 8,406 40,179
------ ------- ------ -------
Gross profit................ -- 15,573 3,966 26,102
Selling, general and
administrative expenses.... 333 7,910 1,990 11,951
Non-rental depreciation and
amortization............... 3 1,476 318 2,069
------ ------- ------ -------
Operating income (loss)..... (336) 6,187 1,658 12,082
Other income (expense), net. -- 72 16 152
Interest income (expense),
net........................ 4 (4,336) (894) (8,036)
------ ------- ------ -------
Income (loss) before income
taxes...................... (332) 1,923 780 4,198
Income tax expense
(benefit).................. (137) 818 345 1,733
------ ------- ------ -------
Net income (loss)........... $ (195) $ 1,105 $ 435 $ 2,465
====== ======= ====== =======
Historical net income per
share (unaudited):
Basic...................... $(0.05) $ 0.09 $ 0.04 $ 0.17
Diluted.................... $(0.05) $ 0.08 $ 0.04 $ 0.15
Historical weighted average
shares outstanding
(unaudited):
Basic...................... 4,185 12,793 11,037 14,977
Diluted.................... 4,185 14,150 12,452 16,146
</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 CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
(JUNE 4, FOR THE
1996 YEAR FOR THE SIX MONTHS
THROUGH ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -----------------------
1996 1997 1997 1998
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........... $(195) $ 1,105 $ 435 $ 2,465
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization.............. 3 6,892 1,787 9,900
Gain on sale of equipment.. -- (1,446) (190) (1,791)
Changes in operating assets
and liabilities:
Accounts receivable....... -- (1,335) (586) (4,614)
Inventory................. -- 202 (37) 9
Prepaid and other assets.. (187) 139 (874) (2,324)
Accounts payable.......... -- 1,620 168 3,778
Accrued expenses and other
liabilities.............. 110 201 843 600
----- --------- ------- ---------
Net cash provided by (used
in) operating activities... (269) 7,378 1,546 8,023
----- --------- ------- ---------
INVESTING ACTIVITIES:
Net cash paid for
acquisitions............... -- (68,910) (36,243) (110,086)
Purchases of rental
equipment.................. -- (15,336) (6,973) (44,629)
Proceeds from sale of rental
equipment.................. -- 4,186 1,142 4,112
Purchases of property and
equipment.................. (20) (1,473) (739) (3,540)
Proceeds from sale of
property and equipment..... -- 36 -- 50
----- --------- ------- ---------
Net cash used in investing
activities................. (20) (81,497) (42,813) (154,093)
----- --------- ------- ---------
FINANCING ACTIVITIES:
Proceeds from long-term
debt....................... -- 222,307 31,510 111,484
Payments on long-term debt.. -- (131,119) -- --
Net proceeds from sales of
common stock............... 301 25,263 11,522 (89)
Payments of loan origination
costs...................... -- (6,662) (857) --
----- --------- ------- ---------
Net cash provided by
financing activities....... 301 109,789 42,175 111,395
----- --------- ------- ---------
Net increase (decrease) in
cash and cash equivalents.. 12 35,670 908 (34,675)
Cash and cash equivalents at
beginning of period........ -- 12 12 35,682
----- --------- ------- ---------
Cash and cash equivalents at
end of period.............. $ 12 $ 35,682 $ 920 $ 1,007
===== ========= ======= =========
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-7
<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
(unaudited)............ -- -- 248 -- -- 248
Net income (unaudited).. -- -- -- 2,465 -- 2,465
---- ---- ------- ------ ----- -------
Balance at June 30, 1998
(unaudited)............ $ 1 $ 1 $25,911 $3,375 $(102) $29,186
==== ==== ======= ====== ===== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<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-9
<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 SIX MONTHS
THROUGH YEAR ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -----------------------
1996 1997 1997 1998
-------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss)........ $ (195) $ 1,105 $ 435 $2,465
====== ======= ====== ======
Weighted average shares
of Class A Common and
Class B Common.......... 30 101 89 115
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 12,707 10,942 14,923
Effect of dilutive
securities
Unvested stock.......... -- 1,443 1,510 1,223
------ ------- ------ ------
Diluted weighted average
shares.................. 4,185 14,150 12,452 16,146
====== ======= ====== ======
Basic EPS................ $(0.05) $ 0.09 $ 0.04 $ 0.17
====== ======= ====== ======
Diluted EPS.............. $(0.05) $ 0.08 $ 0.03 $ 0.15
====== ======= ====== ======
</TABLE>
Options to purchase 832,000 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-10
<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 SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ ----------
<S> <C> <C>
Pro forma net income per share (unaudited):
Basic......................................... $ 0.32 $ 0.20
Diluted....................................... $ 0.30 $ 0.19
Pro forma weighted average shares outstanding
(unaudited):
Basic......................................... 22,677 22,897
Diluted....................................... 24,120 24,120
</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-11
<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-12
<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-13
<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-14
<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-15
<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-16
<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-17
<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, in July 1998, NES acquired 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 acquisition closed concurrent with the initial public offering of the
Company's stock. In addition, the Company purchased R & R Rentals in July 1998
for $27.5 million
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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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-55
<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-56
<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-57
<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-58
<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-59
<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-60
<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-61
<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-62
<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-63
<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-64
<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-65
<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-66
<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-67
<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-68
<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-69
<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-70
<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-71
<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-72
<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-73
<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-74
<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-75
<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-76
<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-77
<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-78
<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-79
<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-80
<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-81
<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-82
<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-83
<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-84
<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-85
<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-86
<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-87
<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-88
<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-89
<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-90
<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-91
<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-92
<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-93
<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-94
<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-95
<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-96
<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-97
<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-98
<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-99
<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-100
<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-101
<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-102
<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-103
<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 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 Albany Ladder
Company, Inc. at December 31, 1996 and 1997, and the results of its operations
and its cash flows for each of the two years in the period 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/ PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
September 3, 1998
F-104
<PAGE>
ALBANY LADDER COMPANY, INC.
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents........................... $ 112 $ 87
Marketable securities............................... 74 104
Accounts receivable, net............................ 4,814 5,951
Inventory........................................... 2,786 2,878
Rental equipment, net............................... 12,945 15,116
Property and equipment, net......................... 2,506 2,139
Prepaid and other assets............................ 406 927
------- -------
Total assets..................................... $23,643 $27,202
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable.................................... $ 717 $ 980
Accrued expenses and other liabilities.............. 780 1,020
Notes payable--shareholder.......................... 370 370
Notes payable....................................... 10,425 11,900
------- -------
Total liabilities................................ 12,292 14,270
Commitments and contingencies (Note 9)
Common stock:
Class A shares, $100 par, 1,200 shares authorized,
246 shares issued and outstanding ................. 25 25
Class B shares, $100 par, 2,000 shares authorized,
941 shares issued and outstanding ................. 94 94
Additional paid-in capital........................... 333 333
Retained earnings.................................... 10,840 12,391
Unrealized gain on marketable securities available
for sale............................................ 59 89
------- -------
Total stockholders' equity....................... 11,351 12,932
------- -------
Total liabilities and stockholders' equity....... $23,643 $27,202
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-105
<PAGE>
ALBANY LADDER COMPANY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
REVENUES:
Rental revenues.......................................... $ 16,862 $ 18,410
Rental equipment sales................................... 1,056 1,885
New equipment sales...................................... 7,033 8,931
Other.................................................... 2,860 4,978
--------- ---------
Total revenues........................................ 27,811 34,204
--------- ---------
COST OF REVENUES:
Rental equipment depreciation............................ 3,014 3,445
Cost of rental equipment sales........................... 452 721
Cost of new equipment sales.............................. 5,851 7,725
Direct operating expense................................. 8,851 10,738
--------- ---------
Total cost of revenues................................ 18,168 22,629
--------- ---------
Gross profit.............................................. 9,643 11,575
Selling, general and administrative expenses.............. 7,101 7,796
Non-rental depreciation................................... 580 640
--------- ---------
Operating income.......................................... 1,962 3,139
Other income, net......................................... 59 117
Interest expense, net..................................... (716) (846)
--------- ---------
Net income................................................ $ 1,305 $ 2,410
========= =========
PRO FORMA TAX PROVISION (UNAUDITED):
Income before income taxes............................... $ 1,305 $ 2,410
Pro forma provision for income taxes..................... (522) (964)
--------- ---------
Pro forma net income..................................... $ 783 $ 1,446
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE>
ALBANY LADDER COMPANY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.............................................. $ 1,305 $ 2,410
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 3,594 4,085
Gain on sale of equipment.............................. (604) (987)
Changes in operating assets and liabilities:
Accounts receivable................................... (370) (1,172)
Inventories........................................... (90) (92)
Prepaid and other assets.............................. (186) (483)
Accounts payable...................................... 16 262
Accrued expenses and other liabilities................ 158 239
--------- ---------
Net cash provided by operating activities................ 3,823 4,262
--------- ---------
INVESTING ACTIVITIES:
Purchases of rental equipment........................... (4,545) (6,516)
Proceeds from sale of rental equipment.................. 1,056 1,885
Purchases of property and equipment..................... (864) (284)
Proceeds from sale of property and equipment............ 5 13
--------- ---------
Net cash used in investing activities.................... (4,348) (4,902)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from long-term debt............................ 11,475 12,104
Payments on long-term debt.............................. (10,350) (10,630)
Capital contribution.................................... 333 --
Dividends paid.......................................... (994) (859)
--------- ---------
Net cash provided by financing activities............... 464 615
--------- ---------
Net increase (decrease) in cash......................... (61) (25)
Cash at beginning of period............................. 173 112
--------- ---------
Cash at end of period................................... $ 112 $ 87
========= =========
SUPPLEMENTAL NON-CASH FLOW INFORMATION:
Cash paid for interest.................................. $ 710 $ 811
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-107
<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,
1995................... 246 941 $119 -- $40 $10,529 $10,688
Net income.............. -- -- -- -- -- 1,305 1,305
Increase in unrealized
gain................... -- -- -- -- 19 -- 19
Dividends............... -- -- -- -- -- (994) (994)
Capital contribution.... -- -- -- 333 -- -- 333
--- --- ---- ---- --- ------- -------
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-108
<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-109
<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, 1996 and 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 $329 and $372 at December 31, 1996 and
1997, respectively.
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 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
New equipment......................................... $ 671 $ 693
Parts and supplies.................................... 1,492 1,541
Scaffolding and ladders............................... 508 525
Other................................................. 115 119
------ ------
Total inventory....................................... $2,786 $2,878
====== ======
</TABLE>
3. RENTAL EQUIPMENT
Rental equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Rental equipment...................................... $27,225 $30,990
Less: accumulated depreciation........................ (14,280) (15,874)
------- -------
Rental equipment, net................................. $12,945 $15,116
======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Leasehold improvements.......................... $ 588 $ 617
Vehicles........................................ 3,421 3,370
Machinery and shop equipment.................... 468 471
Computer equipment.............................. 744 847
------ ------
Total property and equipment, at cost........... 5,221 5,305
Less: accumulated depreciation.................. (2,715) (3,166)
------ ------
Property and equipment, net..................... $2,506 $2,139
====== ======
</TABLE>
F-110
<PAGE>
ALBANY LADDER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. PREPAID AND OTHER ASSETS
Prepaid and other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Prepaid expenses...................................... $163 $225
Employee and other receivables........................ 243 702
---- ----
$406 $927
==== ====
</TABLE>
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Accrued salaries and benefits......................... $337 $ 388
Sales tax payable..................................... 126 163
Accrued insurance..................................... 117 232
Accrued professional fees............................. 77 107
Other................................................. 123 130
---- ------
$780 $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 were as follows (dollar
amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Interest at 6.97%..................................... $ 9,300 $ --
Interest at 8.00%..................................... 1,125 --
Interest at 7.31%..................................... -- 10,025
Interest at 8.25%..................................... -- 1,875
------- -------
Total notes payable................................... $10,425 $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 was $664 and $795 for the years ended
December 31, 1996 and 1997, respectively.
F-111
<PAGE>
ALBANY LADDER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. NOTES PAYABLE--SHAREHOLDER
Notes payable--shareholder consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Note payable, shareholder, unsecured, due on demand
with interest payable monthly at prime plus 3%...... $170 $170
Note payable, shareholder, unsecured, due on demand
with interest payable monthly at prime plus 1%...... 200 200
---- ----
Total notes payable--shareholder................. $370 $370
==== ====
</TABLE>
Interest expense on shareholder debt was $38 and $39 for the years ended
December 31, 1996 and 1997, respectively.
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 $487,000 and $570,000 for the years ended December
31, 1996 and 1997, respectively.
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
$153,000 and $157,000 to the plan during the years ended December 31, 1996 and
1997, respectively.
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-112
<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-113
<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-114
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- -----------------
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........ $ 416,000 $ 820,000 $ 809,000
Trade accounts receivable, less
allowance for doubtful accounts
of $522,000, $431,000 and
$447,000, respectively.......... 7,294,000 9,281,000 10,534,000
Due from affiliated companies and
related parties................. 453,000 -- --
Income taxes receivable.......... 136,000 382,000 373,000
Inventories...................... 1,615,000 1,596,000 3,171,000
Rental equipment, principally
machinery, at cost less
accumulated depreciation of
$12,989,000, $21,489,000 and
$27,105,000, respectively....... 81,583,000 107,721,000 116,315,000
Operating property and equipment,
net............................. 7,018,000 10,542,000 11,479,000
Excess of cost over net assets of
purchased businesses, less
accumulated amortization........ 17,059,000 16,279,000 16,860,000
Prepaid and other assets, at cost
less accumulated amortization... 1,884,000 1,447,000 1,696,000
------------ ------------ ------------
$117,458,000 $148,068,000 $161,237,000
============ ============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Trade accounts payable........... $ 13,587,000 $ 2,184,000 $ 5,040,000
Accrued expenses................. 657,000 2,196,000 1,613,000
Accrued interest payable......... 140,000 666,000 798,000
Revolving lines of credit........ 27,152,000 91,416,000 101,652,000
Obligations under capital lease.. 1,600,000 4,093,000 3,351,000
Term debt........................ 31,867,000 4,691,000 3,597,000
Deferred income taxes............ 7,801,000 9,645,000 9,644,000
Due to affiliated companies and
related parties................. 121,000 39,000 31,000
Other liabilities................ 377,000 742,000 629,000
------------ ------------ ------------
Total liabilities.............. 83,302,000 115,672,000 126,355,000
------------ ------------ ------------
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) (1,161,000)
Retained earnings................ 13,823,000 14,207,000 15,710,000
------------ ------------ ------------
Total shareholders' equity..... 34,156,000 32,396,000 34,882,000
------------ ------------ ------------
$117,458,000 $148,068,000 $161,237,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-115
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... $23,395,000 $32,883,000 $44,911,000 $19,645,000 $25,776,000
New equipment sales.... 4,393,000 4,058,000 4,659,000 2,096,000 3,602,000
Rental equipment sales. 5,448,000 7,674,000 9,222,000 5,485,000 2,729,000
Sales of parts,
supplies, and
equipment............. 979,000 1,391,000 1,680,000 1,052,000 1,550,000
Service revenues and
other income.......... 1,446,000 2,080,000 3,174,000 1,502,000 2,104,000
----------- ----------- ----------- ----------- -----------
Total revenues....... 35,661,000 48,086,000 63,646,000 29,780,000 35,761,000
----------- ----------- ----------- ----------- -----------
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 4,651,000 7,332,000 10,284,000 4,634,000 6,494,000
Equipment rental
depreciation.......... 4,437,000 6,823,000 11,114,000 5,095,000 6,767,000
Cost of new equipment
sales................. 3,651,000 3,104,000 4,103,000 1,823,000 3,058,000
Cost of rental
equipment sales....... 4,332,000 6,697,000 7,582,000 4,349,000 2,142,000
Cost of sales of parts,
supplies, equipment,
and other services.... 1,014,000 1,306,000 1,111,000 622,000 1,245,000
----------- ----------- ----------- ----------- -----------
Total cost of
revenues............ 18,085,000 25,262,000 34,194,000 16,523,000 19,706,000
----------- ----------- ----------- ----------- -----------
Gross profit........ 17,576,000 22,824,000 29,452,000 13,257,000 16,055,000
Selling, general, and
administrative
expenses............... 5,858,000 9,985,000 15,065,000 5,917,000 8,643,000
Depreciation and
amortization, excluding
equipment rental
depreciation........... 412,000 764,000 2,428,000 1,183,000 1,405,000
----------- ----------- ----------- ----------- -----------
Operating income..... 11,306,000 12,075,000 11,959,000 6,157,000 6,007,000
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income........ 41,000 32,000 55,000 21,000 38,000
Interest expense....... (3,213,000) (4,330,000) (7,382,000) (3,158,000) (4,570,000)
Non-capitalized
offering costs........ -- -- (1,000,000) -- --
Other, net............. (40,000) 182,000 185,000 17,000 28,000
----------- ----------- ----------- ----------- -----------
(3,212,000) (4,116,000) (8,142,000) (3,120,000) (4,504,000)
----------- ----------- ----------- ----------- -----------
Income before income
taxes and minority
interests........... 8,094,000 7,959,000 3,817,000 3,037,000 1,503,000
Income taxes............ 2,893,000 2,328,000 1,859,000 1,264,000 --
Minority interests...... 1,429,000 1,714,000 -- -- --
----------- ----------- ----------- ----------- -----------
Net income........... $ 3,772,000 $ 3,917,000 $ 1,958,000 1,773,000 $ 1,503,000
=========== =========== =========== =========== ===========
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-116
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND THE SIX MONTHS ENDED
JUNE 30, 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 income (unaudited).. -- -- -- -- -- -- 1,503,000 1,503,000
Due from affiliated
companies and related
parties (unaudited).... -- -- -- -- -- 983,000 -- 983,000
--------- ------- -------- ---------- ----------- ----------- ----------- -----------
Balance at June 30, 1998
(unaudited)............ 8,330,000 $83,000 -- -- $20,250,000 $(1,161,000) $15,710,000 $34,882,000
========= ======= ======== ========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-117
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- --------------------------
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 $ 1,773,000 $ 1,503,000
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 6,277,000 8,172,000
Minority interests.... 1,429,000 1,714,000 -- -- --
Provision for losses
on trade accounts
receivable........... 323,000 891,000 297,000 166,000 59,000
Provision for deferred
income taxes......... 2,308,000 2,208,000 1,844,000 1,036,000 --
Net gain on sale of
rental equipment and
operating property
and equipment........ (987,000) (978,000) (1,788,000) (1,187,000) (608,000)
Change in operating
assets and
liabilities, net of
effect of business
acquisitions:
Trade accounts
receivable.......... (2,302,000) (2,139,000) (2,284,000) (207,000) (1,310,000)
Due from affiliated
companies and
related parties..... (173,000) (140,000) (1,691,000) (1,062,000) 983,000
Income taxes
receivable.......... -- (136,000) (246,000) -- 6,000
Inventories.......... 226,000 (989,000) 19,000 204,000 (1,574,000)
Prepaid and other
assets.............. (89,000) (752,000) 420,000 (464,000) (1,429,000)
Trade accounts
payable, accrued
expenses, and
accrued interest
payable............. 245,000 12,052,000 (9,338,000) (4,454,000) 2,405,000
Income taxes payable. (274,000) (33,000) -- 228,000 --
Due to affiliated
companies and
related parties..... (97,000) (240,000) (82,000) 742,000 (8,000)
Other liabilities.... 64,000 299,000 365,000 (114,000) (114,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by
(used in) operating
activities......... 9,294,000 23,261,000 3,016,000 2,938,000 8,085,000
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisitions of rental
operations, net of
cash acquired........ (451,000) (3,094,000) -- -- (8,934,000)
Proceeds from sales of
rental equipment and
operating assets..... 5,622,000 7,936,000 11,419,000 5,835,000 2,903,000
Capital expenditures
for rental equipment. (29,100,000) (41,092,000) (42,552,000) (32,120,000) (8,840,000)
Capital expenditures
for operating
property and
equipment............ (1,829,000) (3,229,000) (5,726,000) (3,783,000) (1,097,000)
------------ ------------ ------------ ------------ ------------
Net cash used in
investing
activities......... (25,758,000) (39,479,000) (36,859,000) (30,068,000) (15,968,000)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net borrowings under
revolving lines of
credit............... 7,899,000 12,746,000 64,264,000 39,475,000 9,824,000
Proceeds form issuance
of term debt......... 33,261,000 22,100,000 15,559,000 7,420,000 5,000
Principal payments on
term debt and
obligations under
capital lease........ (25,190,000) (18,039,000) (44,002,000) (19,155,000) (1,957,000)
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 27,740,000 7,872,000
------------ ------------ ------------ ------------ ------------
Net increase (decrease)
in cash and cash
equivalents........... (813,000) 158,000 404,000 610,000 (11,000)
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 $ 1,026,000 $ 809,000
============ ============ ============ ============ ============
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Cash paid for:
Interest.............. $ 3,227,000 $ 4,319,000 $ 6,857,000 $ 3,159,000 $ 4,437,000
Income taxes.......... 912,000 505,000 382,000 200,000 --
NONCASH FINANCING
ACTIVITIES:
Refinancings of term
debt................. -- 8,346,000 -- -- --
Purchase of equipment
with capital leases.. 1,119,000 296,000 3,376,000 560,000 529,000
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>
F-118
<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-119
<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-120
<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-121
<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-122
<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-123
<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-124
<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-125
<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-126
<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-127
<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-128
<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-129
<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-130
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
R&R Rentals, 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 stockholder's equity present
fairly, in all material respects, the financial position of R&R Rentals, Inc.
at December 31, 1997, and the results of its operations and its cash flows for
the year then ended, 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.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
September 3, 1998
F-131
<PAGE>
R&R RENTALS, INC.
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Assets
Cash and cash equivalents........................................ $ 991
Restricted cash.................................................. 500
Trade accounts receivable, net................................... 1,425
Rental equipment, net............................................ 10,740
Property and equipment, net...................................... 260
Prepaids and other assets........................................ 11
Notes receivable--related party.................................. 1,868
-------
Total assets.................................................. $15,795
=======
Liabilities and Stockholder's Equity
Accounts payable................................................. $ 232
Accrued expenses and other liabilities........................... 409
Notes payable.................................................... 14,670
-------
Total liabilities............................................. 15,311
-------
Commitments and contingencies (Note 7)
Common stock, $1.00 par value; 1,000,000 shares authorized;
1,000 shares issued and outstanding............................. 1
Retained earnings................................................ 483
-------
Total stockholder's equity.................................... 484
-------
Total liabilities and stockholder's equity.................... $15,795
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-132
<PAGE>
R&R RENTALS, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
REVENUES:
Rental revenues............................................. $ 6,811
Other....................................................... 1,556
Revenue from rental equipment sales......................... 212
-------
Total revenues............................................ 8,579
-------
COST OF REVENUES:
Rental equipment expenses................................... 2,320
Rental equipment depreciation............................... 2,208
Direct operating expenses................................... 1,734
Cost of equipment sales..................................... 128
-------
Total cost of revenues.................................... 6,390
-------
Gross profit.................................................. 2,189
Selling, general and administrative expenses.................. 1,937
Nonrental depreciation........................................ 128
-------
Operating income.............................................. 124
Other income (expense), net................................... 87
Interest income (expense), net................................ (1,171)
-------
Net loss...................................................... $ (960)
=======
PRO FORMA TAX BENEFIT (UNAUDITED):
Loss before income taxes.................................... $ (960)
Pro forma benefit for income taxes.......................... 326
-------
Pro forma net loss.......................................... $ (634)
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-133
<PAGE>
R&R RENTALS, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------
STATED RETAINED
SHARES VALUE EARNINGS TOTAL
------ ------ -------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1996..................... 1 $ 1 $1,443 $1,444
Net loss......................................... (960) (960)
--- --- ------ ------
Balance at December 31, 1997..................... 1 $ 1 $ 483 $ 484
=== === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-134
<PAGE>
R&R RENTALS, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $ (960)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation............................................... 2,336
Gain on sale of equipment.................................. (91)
Changes in operating assets and liabilities:
Trade accounts receivable................................. (449)
Restricted cash........................................... 500
Notes receivable.......................................... (1,616)
Prepaid and other assets.................................. 17
Accounts payable.......................................... 21
Accrued expenses and other liabilities.................... 137
-------
Net cash provided by operating activities................ (105)
-------
INVESTING ACTIVITIES:
Purchases of rental equipment............................... (5,110)
Proceeds from sale of rental equipment...................... 212
Purchases of property and equipment......................... (67)
Proceeds from sale of property and equipment................ 26
-------
Net cash used in investing activities.................... (4,939)
-------
FINANCING ACTIVITIES:
Proceeds from debt.......................................... 5,295
Payments on debt............................................ (1,651)
-------
Net cash provided by financing activities................ 3,644
-------
Net decrease in cash and cash equivalents................... (1,400)
Cash and cash equivalents at beginning of period............ 2,391
-------
Cash and cash equivalents at end of period.................. $ 991
=======
SUPPLEMENTAL NONCASH FLOW INFORMATION:
Cash paid for interest...................................... $ 1,135
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-135
<PAGE>
R&R RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
R&R Rentals, Inc. (R&R) is an S Corporation primarily involved in the rental
of cranes and air lift equipment to various customers in the petrochemical and
construction industries throughout the Texas Gulf Coast, with minimal rentals
in the Louisiana Gulf Coast area. R&R's Corporate offices and main rental
yards, located in Mont Belvieu, Texas, is owned by R&R's sole shareholder who
leases this facility to R&R for $3,500 per month.
RENTAL REVENUES
Rental revenues are recognized ratably over the contract period.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less when purchased.
RENTAL EQUIPMENT
Rental equipment is recorded at cost. Depreciation for rental equipment
acquired is computed using the straight-line method over a 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 straight-line method over the estimated useful lives of the assets.
The estimated useful lives for property and equipment is five years for
vehicles and 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for trade accounts
receivable, notes 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 debt at December 31, 1997
approximates carrying value as the debt instruments reflect current interest
rates for similar instruments or because the underlying instruments include
variable interest rates that fluctuate with the market rate.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject R&R to significant
concentrations of credit risk consist primarily of trade accounts receivable
from petrochemical and construction customers. Concentrations of credit
F-136
<PAGE>
R&R RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
risk with respect to trade accounts receivable are limited due to the large
number of customers and R&R's geographic dispersion. R&R performs credit
evaluations of its customers' financial condition and generally does not
require collateral on accounts receivable. The allowance for doubtful accounts
was $239,000 at December 31, 1997.
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 financial statements and the related reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
ADVERTISING COSTS
R&R advertises primarily through trade journals. Advertising costs are
expensed as incurred.
INCOME TAXES
R&R has elected S corporation status under the U.S. Internal Revenue Code.
Pursuant to this election, R&R's income, deductions and credit are reported on
the income tax returns of its sole shareholder 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
As disclosed in these financial statements, R&R has participated in certain
transactions with related parties.
2. RESTRICTED CASH
Restricted cash of $500,000 at December 31, 1997 represents amounts pledged
to Debis Financial Services in accordance with the terms and provisions of the
Debis Financial Services debt agreement.
3. RENTAL EQUIPMENT
Rental equipment consist of the following at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
Cranes........................................................... $14,417
Truck cranes..................................................... 2,775
Lifts............................................................ 1,996
-------
19,188
Less--accumulated depreciation................................... 8,448
-------
$10,740
=======
</TABLE>
Rental equipment depreciation expense for the year ended December 31, 1997
is $2,208,000.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
Vehicles and delivery equipment..................................... $685
Leasehold improvements.............................................. 135
Furniture and equipment............................................. 127
----
947
Less--accumulated depreciation...................................... (687)
----
$260
====
</TABLE>
Depreciation on property and equipment for the year ended December 31, 1997
is $128,000.
F-137
<PAGE>
R&R RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. NOTES RECEIVABLE--RELATED PARTY
Notes receivable at December 31, 1997 consists of $1,648,000 due from the
Company's sole shareholder and $220 due from certain associates of the
Company's sole shareholder. These demand notes receivable accrue interest at
6%, which approximated Applicable Federal Rates (AFR) at December 31, 1997.
6. ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued expenses and other liabilities consists of the following at December
31, 1997 (in thousands):
<TABLE>
<S> <C>
Interest payable.................................................... $141
Insurance premiums payable.......................................... 28
Sales taxes payable................................................. 155
Property taxes payable.............................................. 70
Payroll taxes payable............................................... 6
Other liabilities................................................... 9
----
$409
====
</TABLE>
7. DEBT
Debt consists of the following at December 31, 1997 (in thousands):
<TABLE>
<S> <C>
Notes payable to Debis Financial Services, secured by rental
equipment, payable through various dates ending July 2004, interest
rate fixed through month 48; at which time the rate is reset to prime
plus 1.75% for the remainder of the note term; requires $500,000 to
be pledged to Debis Financial Services (Note 2)...................... $ 6,267
Notes payable to Federal Financial Credit Inc., secured by rental
equipment, payable through various dates ending December 2003,
interest rates ranging from 0% for the first twelve months to prime
plus 2.50%, reset monthly............................................ 3,369
Note payable to Contractor's Finance Co., secured by rental equipment,
payable April 2002, interest rate ranging from 8.9% to 9.5%.......... 1,191
Floor plan payable to Mitsubishi Acceptance Corp. Financing, secured
by rental equipment, payable through various dates ending October
2002; interest rate fixed at 8.50%................................... 3,341
Note payable to Associates Leasing Inc., secured by rental equipment,
payable May 2000, interest rate of 14.15%............................ 380
Notes payable to Bayshore National Bank, secured by vehicles, payable
through various dates ending October 2000, fixed interest rates
ranging from 7.0% to 9.0% ........................................... 122
-------
Total debt........................................................ 14,670
Less--current maturities.............................................. 2,126
-------
Total long-term debt.............................................. 12,544
=======
</TABLE>
On July 24, 1998, pursuant to the Purchase Agreement, all of the outstanding
debt of the Company was paid off (see Note 11).
Maturities of R&R debt are as follows at December 31, 1997:
<TABLE>
<S> <C>
1998.............................................................. $ 2,126
1999.............................................................. 2,238
2000.............................................................. 2,252
2001.............................................................. 2,372
2002.............................................................. 2,320
Thereafter........................................................ 3,362
-------
$14,670
=======
</TABLE>
F-138
<PAGE>
R&R RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
R&R leases certain rental equipment, facilities and vehicles under operating
leases. Rental expense was $479,000 for the year ended December 31, 1997.
Future minimum rental commitments at December 31, 1997 under noncancelable
operating leases, expiring through 2003, are (in thousands):
<TABLE>
<S> <C>
1998............................................................... $ 675
1999............................................................... 663
2000............................................................... 642
2001............................................................... 620
2002............................................................... 221
Thereafter......................................................... 5
------
$2,826
======
</TABLE>
9. LEGAL MATTERS
R&R 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 R&R's
financial position, results of operations or cash flows.
10. SUBSEQUENT EVENT
On June 30, 1998, R&R's sole shareholder sold all of the outstanding common
stock to NES Acquisition Corp., a wholly-owned subsidiary of National
Equipment Services, Inc. for $27,600,000 (subject to a customary purchase
price adjustment mechanism). The terms of the stock sale and purchase
agreement required $14,073,000 of the purchase price to be used at closing to
discharge fully the outstanding balance of R&R's indebtedness secured by the
assets acquired in the stock purchase.
F-139
<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 June 30, 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-140
<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 $6,811 $ 5,144 $154,031
Rental equipment
sales........... 1,885 9,222 212 2,910 22,946
New equipment
sales and other. 13,909 9,513 1,556 2,393 51,846
------- --------- -------- ------------ -----------
Total revenues... 34,204 63,646 8,579 10,447 228,823
------- --------- -------- ------------ -----------
Cost of Revenues:
Rental equipment
depreciation.... 3,445 11,114 2,208 537 (c) 31,074
Cost of rental
equipment sales. 721 7,582 128 2,561 16,204
Cost of new
equipment sales. 7,725 4,103 -- 1,579 23,895
Other operating
expenses........ 10,738 11,395 4,054 (327)(d) 63,220
------- --------- -------- ------------ -----------
Total cost of
revenues......... 22,629 34,194 6,390 4,350 134,393
------- --------- -------- ------------ -----------
Gross profit
(loss)........... 11,575 29,452 2,189 6,097 94,430
------- --------- -------- ------------ -----------
Selling, general
and
administrative
expenses......... 7,796 15,065 1,937 (4,516)(e) 43,418
Non-rental
depreciation and
amortization..... 640 2,428 128 5,167 (f) 10,547
------- --------- -------- ------------ -----------
Operating income
(loss)........... 3,139 11,959 124 5,446 40,465
------- --------- -------- ------------ -----------
Other income
(expense), net... 117 (815) 87 1,372 (g) 354
Interest expense,
net.............. 846 7,327 1,171 12,339 (h) 28,468
------- --------- -------- ------------ -----------
Income (loss)
before income
taxes............ 2,410 3,817 (960) (5,521) 12,351
Income tax
expense
(benefit)........ -- 1,859 -- 1,192 (i) 5,182
------- --------- -------- ------------ -----------
Net income
(loss)........... $ 2,410 $ 1,958 $ (960) $(6,713) $ 7,169(j)
======= ========= ======== ============ ===========
</TABLE>
(See Notes to Unaudited Pro Forma Financial Statements)
F-141
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS(A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 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........ $ 6,750 $ 406 $1,455 $1,457 $5,715 $1,962 $1,006 $3,230 553 $5,509 $3,647 $2,386
Rental equipment
sales........... 1,142 51 188 995 -- 290 184 81 -- 404 -- 364
New equipment
sales and other. 4,480 237 -- 1,350 327 800 18 2,507 290 1,420 690 479
------- ----- ------ ------ ------ ------ ------ ------ ---- ------ ------ ------
Total revenues... 12,372 694 1,643 3,802 6,042 3,052 1,208 5,818 843 7,333 4,337 3,229
------- ----- ------ ------ ------ ------ ------ ------ ---- ------ ------ ------
Cost of Revenues:
Rental equipment
depreciation.... 1,468 47 242 707 1,110 695 277 242 40 1,324 365 458
Cost of rental
equipment sales. 960 34 119 352 -- 82 121 56 -- 143 -- 217
Cost of new
equipment sales. 1,891 180 -- 1,010 -- 521 -- 1,592 11 242 -- 111
Other operating
expenses........ 4,087 277 1,010 462 643 570 684 1,273 398 3,304 2,259 1,227
------- ----- ------ ------ ------ ------ ------ ------ ---- ------ ------ ------
Total cost of
revenues......... 8,406 538 1,371 2,531 1,753 1,868 1,082 3,163 449 5,013 2,624 2,013
------- ----- ------ ------ ------ ------ ------ ------ ---- ------ ------ ------
Gross profit
(loss)........... 3,966 156 272 1,271 4,289 1,184 126 2,655 394 2,320 1,713 1,216
------- ----- ------ ------ ------ ------ ------ ------ ---- ------ ------ ------
Selling, general
and
administration
expenses......... 1,990 249 475 489 2,028 582 511 1,207 167 1,444 936 586
Non-rental
depreciation and
amortization..... 318 8 26 25 83 33 31 16 -- 121 26 60
------- ----- ------ ------ ------ ------ ------ ------ ---- ------ ------ ------
Operating income
(loss)........... 1,658 (101) (229) 757 2,178 569 (416) 1,432 227 755 751 570
------- ----- ------ ------ ------ ------ ------ ------ ---- ------ ------ ------
Other income
(expense), net... 16 -- 139 (1) (10) 19 38 4 -- -- (247) 1
Interest expense,
net.............. 894 16 164 46 553 64 11 40 16 130 249 243
------- ----- ------ ------ ------ ------ ------ ------ ---- ------ ------ ------
Income (loss)
before income
taxes............ 780 (117) (254) 710 1,615 524 (389) 1,396 211 625 255 328
Income tax
expense
(benefit)........ 345 (6) -- -- -- 207 -- 466 -- 10 58 --
------- ----- ------ ------ ------ ------ ------ ------ ---- ------ ------ ------
Net income
(loss)........... $ 435 $(111) $ (254) $ 710 $1,615 $ 317 $ (389) $ 930 $211 $ 615 $ 197 $ 328
======= ===== ====== ====== ====== ====== ====== ====== ==== ====== ====== ======
<CAPTION>
ALBANY R&R PRO
LADDER FALCONITE RENTALS ADJUSTMENTS(B) FORMA
------ --------- -------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Rentals
revenues........ $7,356 $19,645 $2,903 $ 2,517 $66,497
Rental equipment
sales........... 862 5,485 -- 1,455 11,501
New equipment
sales and other. 6,178 4,650 633 1,176 25,235
------ --------- -------- --------------- -----------
Total revenues... 14,396 29,780 3,536 5,148 103,233
------ --------- -------- --------------- -----------
Cost of Revenues:
Rental equipment
depreciation.... 1,667 5,095 1,015 669 (c) 15,421
Cost of rental
equipment sales. 338 4,349 -- 1,280 8,051
Cost of new
equipment sales. 3,256 1,823 10 790 11,437
Other operating
expenses........ 4,332 5,256 1,617 (42)(d) 27,357
------ --------- -------- --------------- -----------
Total cost of
revenues......... 9,593 16,523 2,642 2,697 62,266
------ --------- -------- --------------- -----------
Gross profit
(loss)........... 4,803 13,257 894 2,451 40,967
------ --------- -------- --------------- -----------
Selling, general
and
administration
expenses......... 3,591 5,917 843 (1,832)(e) 19,183
Non-rental
depreciation and
amortization..... 326 1,183 64 2,850 (f) 5,170
------ --------- -------- --------------- -----------
Operating income
(loss)........... 886 6,157 (13) 1,433 16,614
------ --------- -------- --------------- -----------
Other income
(expense), net... 40 17 115 94 (g) 225
Interest expense,
net.............. 422 3,137 589 7,660 (h) 14,234
------ --------- -------- --------------- -----------
Income (loss)
before income
taxes............ 504 3,037 (487) (6,133) 2,605
Income tax
expense
(benefit)........ -- 1,264 -- (1,251)(i) 1,093
------ --------- -------- --------------- -----------
Net income
(loss)........... $ 504 $ 1,773 $ (487) $(4,882) $ 1,512 (j)
====== ========= ======== =============== ===========
</TABLE>
(See Notes to Unaudited Pro Forma Financial Statements)
F-142
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS (A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 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. $46,411 $ 24 $54 $1,770 $1,871 $ 336 $4,612 $25,776 $4,832 $ 402 $86,090
Rental equipment
sales........... 4,112 -- -- 257 -- 30 449 2,729 -- -- 7,575
New equipment
sales and other. 15,758 23 30 900 125 28 3,537 7,256 758 366 28,781
------- ----- --- ------ ------ ----- ------ ------- ------ ------ -------
Total revenues... 66,281 47 84 2,927 1,996 394 8,598 35,761 5,590 768 122,446
------- ----- --- ------ ------ ----- ------ ------- ------ ------ -------
Cost of revenue:
Rental equipment
depreciation.... 7,831 23 5 376 160 47 877 6,767 1,192 (630) (c) 16,648
Cost of rental
equipment sales. 2,353 -- -- 52 -- 21 146 2,142 -- -- 4,713
Cost of new
equipment sales. 8,481 13 1 441 -- -- 1,918 4,303 -- -- 15,158
Other operating
expenses........ 21,514 61 29 1,170 989 282 2,816 6,494 2,468 (334)(d) 35,489
------- ----- --- ------ ------ ----- ------ ------- ------ ------ -------
Total cost of
revenues......... 40,179 97 35 2,039 1,149 350 5,757 19,706 3,660 (964) 72,008
------- ----- --- ------ ------ ----- ------ ------- ------ ------ -------
Gross profit..... 26,102 (50) 49 888 847 44 2,841 16,055 1,930 1,732 50,438
------- ----- --- ------ ------ ----- ------ ------- ------ ------ -------
Selling, general
and
administrative
expenses......... 11,951 60 12 429 410 129 2,486 8,643 1,015 (1,800)(e) 23,335
Non-rental
depreciation and
amortization..... 2,069 28 -- 39 11 7 160 1,405 69 1,579 (f) 5,367
------- ----- --- ------ ------ ----- ------ ------- ------ ------ -------
Operating income
(loss)........... 12,082 (138) 37 420 426 (92) 195 6,007 846 1,953 21,736
------- ----- --- ------ ------ ----- ------ ------- ------ ------ -------
Other income
(expense), net... 152 -- 12 -- (126) 2 58 28 -- 33 159
Interest expense,
net.............. 8,036 46 3 90 127 19 216 4,532 669 496 (h) 14,234
------- ----- --- ------ ------ ----- ------ ------- ------ ------ -------
Income (loss)
before income
taxes............ 4,198 (184) 46 330 173 (109) 37 1,503 177 1,490 7,661
Income tax
expense.......... 1,733 -- -- -- -- -- -- -- -- 1,370 (i) 3,103
------- ----- --- ------ ------ ----- ------ ------- ------ ------ -------
Net income
(loss)........... $ 2,465 $(184) $46 $ 330 $ 173 $(109) $ 37 $ 1,503 $ 177 $ 120 $ 4,558 (j)
======= ===== === ====== ====== ===== ====== ======= ====== ====== =======
</TABLE>
(See Notes to Unaudited Pro Forma Financial Statements)
F-143
<PAGE>
PRO FORMA BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT JUNE 30, 1998
-------------------------------------------------------------
THE R&R PRO
COMPANY(K) FALCONITE(K) RENTALS(K) ADJUSTMENTS(L) FORMA
---------- ------------ ---------- -------------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ 1,007 $ 809 $ 1,542 $(2,351)(i) $ 1,007
Accounts receivable,
net.................... 27,972 10,907 2,176 (2,176) 38,879
Inventory, net.......... 6,736 3,171 1 -- 9,908
Rental equipment, net... 132,317 116,315 9,350 (7,301)(ii) 250,681
Property and equipment,
net.................... 9,888 11,479 639 2,150 (iii) 24,156
Intangible assets, net.. 84,961 16,860 -- 56,516 (iv) 158,337
Loan origination costs,
net.................... 6,008 -- -- (870)(v) 5,138
Prepaid and other
assets, net............ 3,874 1,696 3,660 (3,469) 5,761
-------- -------- ------- ------- --------
Total assets.......... $272,763 $161,237 $17,368 $42,499 $493,867
======== ======== ======= ======= ========
LIABILITIES
Accounts payable........ $ 10,196 $ 5,040 $ 333 $ (333) $ 15,236
Accrued interest........ 1,222 798 339 (339) 2,020
Accrued expenses and
other liabilities...... 7,919 11,917 203 (203) 19,836
Debt.................... 224,240 108,600 15,637 (19,231)(vi) 329,246
-------- -------- ------- ------- --------
Total liabilities..... 243,577 126,355 16,512 (20,106) 366,338
Stockholders' equity.... 29,186 34,882 856 62,605 (vii) 127,529
-------- -------- ------- ------- --------
Total liabilities and
stockholders' equity. $272,763 $161,237 $17,368 $42,499 $493,867
======== ======== ======= ======= ========
</TABLE>
(See Notes to Unaudited Pro Forma Financial Statements)
F-144
<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
six months ended June 30, 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
six months ended June 30, 1998 represent actual historical results for the
Company, including results for the Acquired Businesses purchased in the
first six months of 1998 from the date of acquisition. For the Acquired
Businesses, results for the year ended December 31, 1997 and for the six
months ended June 30, 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 six months ended June 30,
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>
SIX MONTHS
ENDED JUNE 30,
1997
--------------
<S> <C>
Rental revenues............................................ $ 130
New equipment sales and other.............................. 21
-----
Total revenues............................................. 151
Rental equipment depreciation.............................. 81
Other operating expenses................................... 102
-----
Total cost of revenues..................................... 183
-----
Gross profit (loss)........................................ (32)
Selling, general and administrative expenses............... 72
Non-rental depreciation and amortization................... 1
-----
Operating loss............................................. $(105)
=====
</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>
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
Rental revenues....................... $5,274 $2,647 $402
Rental equipment sales................ 2,910 1,455 --
New equipment sales and other......... 2,415 1,197 365
------ ------ ----
Total revenues........................ 10,599 5,299 767
Rental equipment depreciation......... 1,808 900 76
Cost of rental equipment sales........ 2,561 1,281 --
Cost of new equipment sales........... 1,578 789 --
Other operating costs................. 2,503 1,304 435
------ ------ ----
Total cost of revenues................ 8,450 4,274 511
------ ------ ----
Gross profit.......................... 2,149 1,025 256
Selling, general and administrative
expenses............................. 1,789 790 144
Non-rental depreciation and
amortization......................... 121 61 5
------ ------ ----
Operating income...................... 239 174 107
Other income, net..................... 179 32 33
Interest income (expense), net........ (25) (13) (16)
------ ------ ----
Income before income taxes............ $ 393 $ 193 $124
====== ====== ====
</TABLE>
F-145
<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>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -------------
1997 1997 1998
------------ ------ ------
<S> <C> <C> <C>
Non-rental depreciation....................... $1,320 $ 695 $ 499
Amortization of goodwill...................... 3,223 1,721 956
Amortization of non-compete agreements........ 624 434 124
------ ------ ------
$5,167 $2,850 $1,579
====== ====== ======
</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 $809 of cash on
hand at the Acquired Businesses purchased on or after June 30, 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-146
<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 Initial Stock Offering and the conversion of
the 8% convertible subordinated promissory notes 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 six month periods ended June 30, 1997 and 1998:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED
ENDED JUNE 30,
DECEMBER 31, -------------
1997 1997 1998
------------ ------ ------
<S> <C> <C> <C>
Net income.................................... $6,682 $1,269 $4,309
Basic earnings per share...................... $ 0.30 $ 0.06 $ 0.19
Diluted earnings per share.................... $ 0.28 $ 0.05 $ 0.18
</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 June 30, 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 June 30, 1998 of $809 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 $56,725 of goodwill representing the excess of the purchase
price over the fair value of net assets acquired consisting of $39,506
for Falconite and $17,219 for R&R Rentals. 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 on or after June 30, 1998 of $809 and the elimination of the
Acquired Businesses' indebtedness of $124,237, offset by additional
borrowings under the New Credit Facility of $102,730, 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
$99,562, the mandatory conversion at the initial public offering
price of $3,750 of 8% subordinated promissory notes issued in
connection with the Falconite acquisition and the issuance of $4,000
of Common Stock in connection with the R&R Rentals acquisition, net
of estimated Initial Stock Offering cost of $8,969 and the
elimination of equity of Falconite of $34,882 and R&R Rentals of
$856.
F-147
<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.
II-3
<PAGE>
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.
II-4
<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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<PAGE>
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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<PAGE>
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.
<TABLE>
<C> <S> <C>
3.1 Restated Certificate of Incorporation of the Company. (1)
3.2 Restated By-laws of the Company (1)
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.*
</TABLE>
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<PAGE>
<TABLE>
<C> <S> <C>
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(i) 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.*
4.6(ii) Syndication Amendment and Assignment dated as of August 7, 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.*
</TABLE>
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<PAGE>
<TABLE>
<C> <S> <C>
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 the
Company and Golder, Thoma, Cressey, Rauner Fund IV, L.P. and
certain Executives named therein.*
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.*
</TABLE>
II-9
<PAGE>
<TABLE>
<C> <S> <C>
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.*
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 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.*
10.37 Form of Underwriting Agreement among the Company, Salomon Smith
Barney, Smith Barney, Inc., William Blair & Company, L.L.C.,
Credit Suisse First Boston Corporation, Donaldson, Lufkin &
Jenrette Securities Corporation and NationsBanc Montgomery
Securities LLC. (1)
</TABLE>
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<PAGE>
<TABLE>
<C> <S> <C>
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 PricewaterhouseCoopers LLP.
23.2 Consent of Albin, Randall & Bennett.
23.3 Consent of PricewaterhouseCoopers LLP.
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>
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*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
II-11
<PAGE>
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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, National
Equipment Services, Inc. has duly caused this Amendment No. 4 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 September 9,
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. 4 to Registration Statement on Form S-4 has been signed on September 9,
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>
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* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 4 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>
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, NES Acquisition
Corp. has duly caused this Amendment No. 4 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 September 9, 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. 4 to Registration Statement on Form S-4 has been signed on September 9,
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. 4 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-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, NES Michigan
Acquisition Corp. has duly caused this Amendment No. 4 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 September 9,
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. 4 to Registration Statement on Form S-4 has been signed on September 9,
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. 4 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-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, NES East
Acquisition Corp. has duly caused this Amendment No. 4 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 September 9,
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. 4 to Registration Statement on Form S-4 has been signed on September 9,
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. 4 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-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, BAT Acquisition
Corp. has duly caused this Amendment No. 4 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 September 9, 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. 4 to Registration Statement on Form S-4 has been signed on September 9,
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. 4 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-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Albany Ladder
Company, Inc. has duly caused this Amendment No. 4 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 September 9, 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. 4 to Registration Statement on Form S-4 has been signed on September 9,
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. 4 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-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Falconite, Inc.
has duly caused this Amendment No. 4 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 September 9, 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. 4 to Registration Statement on Form S-4 has been signed on September 9,
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. 4 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-19
<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. 4 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 September 9, 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. 4 to Registration Statement on Form S-4 has been signed on September 9,
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. 4 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-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Falconite
Aviation, Inc. has duly caused this Amendment No. 4 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 September 9, 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. 4 to Registration Statement on Form S-4 has been signed on September 9,
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. 4 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-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Falconite
Equipment, Inc. has duly caused this Amendment No. 4 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 September 9, 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. 4 to Registration Statement on Form S-4 has been signed on September 9,
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. 4 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-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Falconite
Rebuild Center, Inc. has duly caused this Amendment No. 4 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 September 9,
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. 4 to Registration Statement on Form S-4 has been signed on September 9,
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. 4 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-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, McCurry &
Falconite Equipment Co., Inc. has duly caused this Amendment No. 4 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 September 9, 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. 4 to Registration Statement on Form S-4 has been signed on September 9,
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. 4 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-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, M&M Properties,
Inc. has duly caused this Amendment No. 4 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 September 9, 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. 4 to Registration Statement on Form S-4 has been signed on September 9,
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. 4 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-25
<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 4.6(ii)
SYNDICATION AMENDMENT AND ASSIGNMENT
THIS SYNDICATION AMENDMENT AND ASSIGNMENT (this "Amendment"), dated as of
August 10, 1998, is by and among NATIONAL EQUIPMENT SERVICES, INC., a Delaware
corporation (the "Borrower"), certain Subsidiaries of the Borrower (each a
"Subsidiary Guarantor", and collectively, the "Subsidiary Guarantors"), THE
PERSONS IDENTIFIED AS "EXISTING LENDERS" ON THE SIGNATURE PAGES HERETO (the
"Existing Lenders"), THE PERSONS IDENTIFIED AS "NEW LENDERS" ON THE SIGNATURE
PAGES HERETO (the "New Lenders" and, together with the Existing Lenders, the
"Lenders") and FIRST UNION NATIONAL BANK, as Agent for the Lenders (the
"Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement dated as of July 17, 1998 (the
"Existing Credit Agreement") among the Borrower, the Subsidiary Guarantors, the
Existing Lenders and the Agent, the Existing Lenders have extended commitments
to make certain credit facilities available to the Borrower; and
WHEREAS, the parties hereto have agreed to amend the Existing Credit
Agreement as set forth herein;
NOW, THEREFORE, in consideration of the agreements herein contained, the
parties hereby agree as follows:
PART I
DEFINITIONS
SUBPART 1.1. Certain Definitions. Unless otherwise defined
herein or the context otherwise requires, the following terms
used in this Amendment, including its preamble and recitals, have
the following meanings:
"Amended Credit Agreement" means the Existing Credit
Agreement as amended hereby.
"Amendment Effective Date" is defined in Subpart 4.1.
SUBPART 1.2. Other Definitions. Unless otherwise defined
herein or the context otherwise requires, terms used in this
Amendment, including its preamble and recitals, have the meanings
provided in the Amended Credit Agreement.
<PAGE>
PART II
AMENDMENTS TO EXISTING CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Amendment Effective
Date, the Existing Credit Agreement is hereby amended in accordance with this
Part II. Except as so amended, the Existing Credit Agreement shall continue in
full force and effect.
SUBPART 2.1. Amendment to Section 1.1.
(a) The following definitions of "Additional Commitment" and "New
Commitment Agreement" appearing in Section 1.1 of the Credit Agreement are
hereby deleted in their entireties.
(b) The definition of "Eligible Assignee" appearing in Section 1.1 of the
Credit Agreement is hereby amended and restated in its entirety to read as
follows:
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender; and (iii) any other Person approved by the Agent (such approval not
to be unreasonably withheld or delayed) 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.
SUBPART 2.2. Amendment to Section 2.1(a). The first sentence of Section
2.1(a) of the Credit Agreement is hereby amended and restated in its entirety to
read as follows:
(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 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) THREE HUNDRED MILLION DOLLARS ($300,000,000)
(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; 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.
2
<PAGE>
SUBPART 2.3. Amendment to Section 2.2(a). Section 2.2(a) of the Credit
Agreement is hereby amended by deleting the phrase "less LOC Obligations
outstanding" from clause (ii)(B) of the first sentence thereof.
SUBPART 2.4. Amendment to Section 3.4(b). Section 3.4(b) of the Credit
Agreement is hereby deleted in its entirety.
SUBPART 2.5. Amendment to Section 5.2(f). Section 5.2(f) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
(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 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 and (ii) the LOC
Obligations shall not exceed the LOC Committed Amount.
SUBPART 2.6. Amendment to Section 11.3(b). Clause (iii) appearing in
Section 11.3(b) of the Credit Agreement is hereby deleted in its entirety and
the remaining clauses appearing in Section 11.3(b) are renumbered accordingly.
SUBPART 2.7. Amendment to Section 11.6. Clause (y) appearing in the final
sentence of Section 11.6 of the Credit Agreement is hereby amended and restated
in its entirety to read as follows:
(y) Lenders holding at least 75% of the aggregate Commitments may consent to
allow a Credit Party to use cash collateral in the context of a bankruptcy or
insolvency proceeding.
SUBPART 2.8. Amendment to Schedule 2.1(a). Schedule 2.1(a) of the
Existing Credit Agreement is hereby deleted in its entirety and a new schedule
in the form of Schedule 2.1(a) attached hereto is substituted therefor.
SUBPART 2.9. Amendment to Exhibit 3.4(b). Exhibit 3.4(b) to the Credit
Agreement is hereby deleted in its entirety.
SUBPART 2.10. Amendment to Exhibit 7.1(d). Exhibit 7.1(d) to the Credit
Agreement is hereby amended to conform with the amendments made to Section
2.1(a) of the Credit Agreement.
PART III
ASSIGNMENTS AND ASSUMPTIONS
The Existing Lenders hereby sell and assign, without recourse, to the New
Lenders, and the New Lenders hereby purchase and assume, without recourse, from
the Existing Lenders, effective as of the Amendment Effective Date, such
interests in the Existing Lenders' rights and obligations
3
<PAGE>
under the Existing Credit Agreement (including, without limitation, the
Commitments of the Existing Lenders on the Amendment Effective Date and the
Revolving Loans and the portions of the Term Loans owing to the Existing Lenders
which are outstanding on the Amendment Effective Date) as shall be necessary in
order to give effect to the reallocations of the Revolving Committed Amount, the
Revolving Commitment Percentages, the Term Loan Committed Amount and the Term
Loan Commitment Percentages effected by the amendment to Schedule 2.1(a) to the
Existing Credit Agreement pursuant to Subpart 2.1. Each Existing Lender hereby
represents and warrants that it is the lawful owner of its interests being
assigned hereby, free and clear of any adverse claim. The New Lenders shall make
payment in exchange for such interests in the Existing Lenders' rights and
obligations under the Existing Credit Agreement on August 7, 1998, in the
amounts and in accordance with the instructions of the Agent. Each New Lender
(a) represents and warrants that it is legally authorized to enter into this
Amendment; (b) confirms that it has received a copy of the Credit Agreement,
together with copies of the financial statements referred to in Section 5.1(c)
thereof, the financial statements delivered pursuant to Section 7.1 thereof, if
any, and such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into this Amendment; (c)
agrees that it will, independently and without reliance upon the Existing
Lenders, 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
credit decisions in taking or not taking action under the Credit Agreement, the
other Credit Documents or any other instrument or document furnished pursuant
hereto or thereto; (d) appoints and authorizes the Agent to take such action as
agent on its behalf and to exercise such powers and discretion under the Credit
Agreement, the other Credit Documents or any other instrument or document
furnished pursuant hereto or thereto as are delegated to the Agent by the terms
thereof, together with such powers as are incidental thereto; and (e) agrees
that it will be bound by the provisions of the Credit Agreement and will perform
in accordance with its terms all the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Lender including, if it
is organized under the laws of a jurisdiction outside the United States, its
obligations pursuant to subsection 3.11 of the Credit Agreement. Each Existing
Lender shall, to the extent of the interests assigned hereby, relinquish its
rights and be released from its obligations under the Existing Credit Agreement.
The Agent shall maintain in its internal records and record in the Register the
information relating to the assignments and assumptions effected pursuant to
this Part III and as required by Section 11.3(c). The Agent hereby agrees (i)
that no transfer fee shall be payable under Section 11.3(b) of the Existing
Credit Agreement or otherwise in connection with the assignments effected
pursuant to this Part III and (ii) to pay to each New Lender its portion of the
upfront fee as set forth in the fee letter dated July 16, 1998.
PART IV
CONDITIONS TO EFFECTIVENESS
SUBPART 4.1. Amendment Effective Date. This Amendment shall be
and become effective as of the date hereof (the "Amendment Effective Date")
when all of the conditions set forth in this Part IV shall have been
satisfied, and thereafter this Amendment shall be known, and may be
referred to, as "Syndication Amendment and Assignment."
4
<PAGE>
SUBPART 4.2. Execution of Counterparts of Amendment. The Agent shall
have received counterparts (or other evidence of execution, including
telephonic message, satisfactory to the Agent) of this Amendment, which
collectively shall have been duly executed on behalf of each of the
Borrower, the Subsidiary Guarantors, the Agent and the Lenders.
SUBPART 4.3. Execution and Delivery of New Notes. Each Lender shall
have received a new Note or Notes, as the case may be, each in the
principal amount of its respective Commitments and duly executed on behalf
of the Borrower.
SUBPART 4.4. Corporate Resolutions. The Agent shall have received
copies of resolutions of the board of directors of each Credit Party
approving and adopting this Amendment, the transactions contemplated herein
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 Amendment Effective Date.
PART V
MISCELLANEOUS
SUBPART 5.1. Cross-References. References in this Amendment to any
Part or Subpart are, unless otherwise specified, to such Part or Subpart of
this Amendment.
SUBPART 5.2. Instrument Pursuant to Existing Credit Agreement. This
Amendment is a Credit Document executed pursuant to the Existing Credit
Agreement and shall (unless otherwise expressly indicated therein) be
construed, administered and applied in accordance with the terms and
provisions of the Existing Credit Agreement.
SUBPART 5.3. References in Other Credit Documents. At such time as
this Amendment shall become effective pursuant to the terms of Subpart 4.1,
all references in the Existing Credit Agreement to the "Agreement" and all
references in the other Credit Documents to the "Credit Agreement" shall be
deemed to refer to the Amended Credit Agreement.
SUBPART 5.4. Representations and Warranties of the Borrower. The
Borrower hereby represents and warrants that (a) the conditions precedent
to the initial Loans were satisfied as of the Closing Date (assuming
satisfaction or waiver, if applicable, of all requirements in such
conditions that an item be in form and/or substance reasonably satisfactory
to the Agent or any Lenders or that any event or action have been completed
or performed to the reasonable satisfaction of the Agent or any Lenders),
(b) the representations and warranties contained in Section 6 of the
Existing Credit Agreement (as amended by this Amendment) are correct in all
5
<PAGE>
material respects on and as of the date hereof as though made on and as of
such date and after giving effect to the amendments contained herein and
(c) no Default or Event of Default exists under the Existing Credit
Agreement on and as of the date hereof and after giving effect to the
amendments contained herein.
SUBPART 5.5. Representations and Warranties of the New Lenders. Each
of the New Lenders hereby represents and warrants to the Borrower that at
least one of the following statements is an accurate representation as to
the source of funds to be used by such New Lender in connection with the
financing under the Credit Agreement:
(a) no part of such funds constitutes assets allocated to any
separate account maintained by such Lender in which any employee benefit
plan (or its related trust) has any interest;
(b) to the extent that any part of such funds constitutes assets
allocated to any separate account maintained by such Lender, such Lender
has disclosed to the Borrower the name of each employee benefit plan whose
assets in such account exceed 10% of the total assets of such account as of
the date of such purchase (and, for purposes of this subsection (b), all
employee benefit plans maintained by the same employer or employee
organization are deemed to be a single plan);
(c) to the extent that any part of such funds constitutes assets of
an insurance company's general account, there is no employee benefit plan
or group of plans maintained by the same employee organization with respect
to which the amount of such insurance company's general account reserves
(as determined under Code Section 807(d)) for all contracts held by or on
behalf of such plan or plans exceeds 10% of the total liabilities of such
insurance company's general account, and such insurance company is relying
on Prohibited Transaction Class Exemption 95-60 (issued July 12, 1995);
(d) to the extent that any part of such funds constitutes assets of
an insurance company's general account, such insurance company has complied
with all of the requirements of the regulations issued under Section
401(c)(1)(A) of ERISA; or
(e) such funds constitute assets of one or more specific benefit
plans which such Lender has identified in writing to the Borrower.
As used in this Subpart 5.5, the terms "employee benefit plan" and
"separate account" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.
6
<PAGE>
SUBPART 5.6. Counterparts. This Amendment may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be
an original and all of which shall constitute together but one and the same
agreement.
SUBPART 5.7. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
SUBPART 5.8. Successors and Assigns. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
SUBPART 5.9. Assignment Pursuant to the Credit Agreement.
Notwithstanding any provision in the Credit Agreement to the contrary, the
execution of this Amendment shall constitute an assignment for purposes of
Section 11 of the Credit Agreement.
[The remainder of this page has been left blank intentionally]
7
<PAGE>
Each of the parties hereto has caused a counterpart of this Amendment 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.
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.
By: /s/ Paul R. Ingersoll
-----------------------------------
Name: Paul R. Ingersoll
Title: Vice President
8
<PAGE>
EXISTING LENDERS: FIRST UNION NATIONAL BANK,
individually in its capacity as an Existing
Lender and in its capacity as Agent
By: /s/ John M. Burlingame
-----------------------------------------
Name: John M. Burlingame
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/ Lee LeBine
-----------------------------------------
Name: Lee LeBine
Title: AVP
MERCANTILE BUSINESS CREDIT, INC.,
as a Lender
By: /s/ Carolyn M. Rooney
-----------------------------------------
Name: Carolyn M. Rooney
Title: Vice President
<PAGE>
[SIGNATURES CONTINUED]
NEW LENDERS:
TRANSAMERICA BUSINESS CREDIT
CORPORATION,
as a Lender
By: /s/ Robert L. Heinz
---------------------------
Name: Robert L. Heinz
Title: Senior Vice President
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.,
as a Lender
By: /s/ Brian R. Connors
---------------------------
Name: Brian R. Connors
Title: Assistant Vice President
NATIONAL BANK OF CANADA,
A Canadian Chartered Bank, as a Lender
By: /s/ William W. Mucker
---------------------------
Name: William W. Mucker
Title: Vice President
By: /s/ Thomas W. Buda, Jr.
---------------------------
Name: Thomas W. Buda, Jr.
Title: Assistant Vice President
AMSOUTH BANK,
as a Lender
By: /s/ Jacqui Huston
---------------------------
Name: Jacqui Huston
Title: Attorney-in-Fact (8/6/98)
<PAGE>
[SIGNATURES CONTINUED]
COMPASS BANK,
as a Lender
By: /s/ Phillip May
---------------------------
Name: Phillip May
Title: Assistant Vice-President
FLEET NATIONAL BANK,
as a Lender
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
BANKERS TRUST COMPANY,
as a Lender
By: /s/ Mary Jo Jolly
---------------------------
Name: Mary Jo Jolly
Title: Assistant Vice President
LASALLE NATIONAL BANK,
as a Lender
By: /s/ Robert Kastenholtz
---------------------------
Name: Robert Kastenholtz
Title: Group S.V.P. - Group Head
CITICORP DEL-LEASE, INC.,
as a Lender
By: /s/ Daniel Krenicki, Jr.
---------------------------
Name: Daniel Krenicki, Jr.
Title: Vice President
KEY CORPORATE CAPITAL INC.,
as a Lender
By: /s/ Michael F. Lapham
---------------------------
Name: Michael F. Lapham
Title: V. P.
<PAGE>
[SIGNATURES CONTINUED]
THE PROVIDENT BANK,
as a Lender
By: /s/ Nick Jevic
------------------------
Name: Nick Jevic
Title: VP
WACHOVIA BANK, N.A.,
as a Lender
By: /s/ Reginald T. Dawson
------------------------
Name: Reginald T. Dawson
Title: Senior Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., as a Lender
By: /s/ Brady S. Sadek
-------------------------
Name: Brady S. Sadek
Title: Senior Vice President
SANWA BUSINESS CREDIT CORPORATION,
as a Lender
By:
----------------------
Name:
----------------------
Title:
----------------------
HARRIS TRUST AND SAVINGS BANK,
as a Lender
By: /s/ John M. Dillon
----------------------
Name: John M. Dillon
Title: Vice President
<PAGE>
[SIGNATURES CONTINUED]
CITIZENS BUSINESS CREDIT,
as a Lender
By: /s/ William L. Benning
------------------------
Name: William L. Benning
Title: S.V.P.
ERSTE BANK DER OESTERREICHISCHEN
SPARKASSEN AG,
as a Lender
By: /s/ John S. Runnion
------------------------
Name: John S. Runnion
Title: First Vice President
By: /s/ John Fay
------------------------
Name: John Fay
Title: Assistant Vice President
THE FUJI BANK, LIMITED,
as a Lender
By: /s/ Peter L. Chinnici
------------------------
Name: Peter L. Chinnici
Title: Joint General Manager
NATIONAL CITY BANK,
as a Lender
By: /s/ Diego Tobon
------------------------
Name: Diego Tobon
Title: Vice President
<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 $12,351
Fixed charges:
Interest expense on all indebtedness 0 4,336 28,468
Rental expense representative of an interest factor 0 220 971
----- ------ -------
Total fixed charges 0 4,556 29,439
----- ------ -------
Earnings before income taxes and fixed charges $(332) $6,479 $41,790
===== ====== =======
Ratio of earnings to fixed charges (A) 1.42 1.42
===== ====== =======
<CAPTION>
For the Pro Forma
Six Months For the Six Months
Ended Ended
June 30, 1998 June 30, 1998
------------- ------------------
<S> <C> <C>
Pre-tax income (loss) $4,198 $7,661
Fixed charges:
Interest expense on all indebtedness 8,036 14,234
Rental expense representative of an interest factor 286 486
------- -------
Total fixed charges 8,322 14,720
------- -------
Earnings before income taxes and fixed charges $12,520 $22,381
======= =======
Ratio of earnings to fixed charges 1.50 1.52
====== ======
</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 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. ............................. September 3, 1998
R & R Rentals, Inc. ..................................... September 3, 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/ PricewaterhouseCoopers LLP
Chicago, Illinois
September 8, 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. 4 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
September 8, 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. 4 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/ PricewaterhouseCoopers LLP
Louisville, Kentucky
September 8, 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
September 8, 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. 4 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.
September 8, 1998
<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 6-MOS 6-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 JAN-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1996 JUN-30-1998 JUN-30-1997
<CASH> 35,682 12 1,007 920
<SECURITIES> 0 0 0 0
<RECEIVABLES> 8,610 0 28,709 4,827
<ALLOWANCES> 254 0 737 73
<INVENTORY> 2,239 0 6,736 2,073
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 55,198 20 155,978 32,131
<DEPRECIATION> 5,385 3 13,773 1,301
<TOTAL-ASSETS> 131,137 216 272,763 48,035
<CURRENT-LIABILITIES> 0 0 0 0
<BONDS> 98,782 0 224,240 32,724
0 0 0 0
0 0 0 0
<COMMON> 2 1 2 2
<OTHER-SE> 26,471 105 29,184 12,061
<TOTAL-LIABILITY-AND-EQUITY> 131,137 216 272,763 48,035
<SALES> 14,890 0 19,870 5,622
<TOTAL-REVENUES> 41,288 0 66,281 12,372
<CGS> 7,807 0 10,834 2,851
<TOTAL-COSTS> 25,715 0 40,179 8,406
<OTHER-EXPENSES> 9,386 336 14,020 2,308
<LOSS-PROVISION> 479 0 483 73
<INTEREST-EXPENSE> 4,545 (4) 8,036 894
<INCOME-PRETAX> 1,923 (332) 4,198 780
<INCOME-TAX> 818 (137) 1,733 345
<INCOME-CONTINUING> 1,105 (195) 2,465 435
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,105 (195) 2,465 435
<EPS-PRIMARY> 0.09 (0.05) 0.17 0.04
<EPS-DILUTED> 0.08 (0.05) 0.15 0.03
</TABLE>
