<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1998
REGISTRATION NO. 333-49223
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NATIONAL EQUIPMENT SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 36-4087016
(STATE OR OTHER 7359
JURISDICTION OF (PRIMARY STANDARD (I.R.S. EMPLOYER
INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
ORGANIZATION) CODE NUMBER)
1800 SHERMAN AVENUE
EVANSTON, ILLINOIS 60201
TELEPHONE: (847) 733-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL OFFICES)
PAUL R. INGERSOLL
VICE PRESIDENT
NATIONAL EQUIPMENT SERVICES, INC.
1800 SHERMAN AVENUE
EVANSTON, ILLINOIS 60201
TELEPHONE: (847) 733-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
SANFORD E. PERL BETH R. NECKMAN
KIRKLAND & ELLIS LATHAM & WATKINS
200 EAST RANDOLPH DRIVE 885 THIRD AVENUE, SUITE 1000
CHICAGO, ILLINOIS 60601 NEW YORK, NEW YORK 10022
(312) 861-2000 (212) 906-1200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, 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, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an underwritten public offering in the United States and
Canada (the "U.S. Prospectus") and one to be used in a concurrent underwritten
public offering outside the United States and Canada (the "International
Prospectus"). The U.S. Prospectus and the International Prospectus are
identical except for the front and back cover pages. The form of U.S.
Prospectus is included herein and is followed by the alternate pages to be
used in the International Prospectus. The alternate pages for the
International Prospectus included herein are each labeled "International
Prospectus Alternate Page." Final forms of each prospectus will be filed with
the Securities and Exchange Commission under Rule 424(b) under the Securities
Act of 1933, as amended.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 15, 1998
PROSPECTUS
17,200,000 SHARES
LOGO
NATIONAL EQUIPMENT SERVICES, INC.
COMMON STOCK
Of the 17,200,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby, 14,285,714 shares are being sold by National
Equipment Services, Inc., a Delaware corporation ("NES" or the "Company") and
2,914,286 shares are being sold by Golder, Thoma, Cressey, Rauner Fund V, L.P.
and certain of its affiliates (the "Selling Stockholders"). See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from
the sale of any shares of Common Stock by the Selling Stockholders. Of the
17,200,000 shares of Common Stock offered hereby, a total of 13,760,000 shares
are being offered hereby for sale in the United States and Canada (the "U.S.
Offering") by the U.S. Underwriters (as defined) and a total of 3,440,000
shares are being offered by the Managers (as defined) in a concurrent
international offering outside the United States and Canada (the "International
Offering" and, together with the U.S. Offering, the "Offerings").
Prior to the Offerings, there has not been a public market for the Common
Stock of the Company. It is currently estimated that the initial public
offering price will be between $16.00 and $19.00 per share. See "Underwriting"
for information relating to the factors considered in determining the initial
public offering price. The Common Stock has been approved for trading on the
New York Stock Exchange under the symbol "NSV," subject to official notice of
issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
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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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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
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<S> <C> <C> <C> <C>
Per Share $ $ $ $
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Total (3) $ $ $ $
</TABLE>
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(1) For information regarding indemnification of the Underwriters (as defined),
see "Underwriting."
(2) Before deducting expenses of the Offerings estimated at $1,500,000 payable
by the Company.
(3) The Company and the Selling Stockholders have each granted the Underwriters
a 30-day option to purchase up to an additional 1,290,000 shares of Common
Stock (2,580,000 shares of Common Stock in the aggregate) solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to the Company, and Proceeds to the Selling Stockholders will be
$ , $ , $ , and $ , respectively.
-----------
The shares of Common Stock are being offered by the several U.S. Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1998 at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
SALOMON SMITH BARNEY
WILLIAM BLAIR & COMPANY
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES LLC
, 1998
<PAGE>
[Pictures to come]
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVERALLOTMENT, ENTERING STABILIZATION BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the Financial Statements and notes thereto, included elsewhere in this
Prospectus. Unless otherwise stated, the information contained in this
Prospectus has been adjusted to give effect to the Reclassification (as
defined) and a 139 for one stock split of the Common Stock. Unless otherwise
stated in this Prospectus or unless the context otherwise requires, "NES" or
the "Company" shall mean National Equipment Services, Inc., including (i) all
of its 13 acquired businesses and (ii) Falconite, Inc. ("Falconite"), which the
Company has a definitive agreement to acquire concurrent with the Offerings
(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 Offerings assuming no
exercise of the Underwriters' overallotment option and (iii) 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 14
businesses acquired or to be 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
79 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 $218.6 million, an increase of
29.4% compared to 1996 combined revenues of $168.9 million.
Management believes that the Company offers one of the most modern and well
maintained fleets of specialty 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 53% and 44%, 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 them 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. ("Golder
Thoma"), an established investment firm specializing in the consolidation of
fragmented industries. Golder, Thoma, Cressey, Rauner Fund V, L.P. ("Golder
Thoma Fund V"), an affiliate of Golder Thoma, is the Company's principal equity
investor.
3
<PAGE>
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 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 33% and 67% 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 13
acquisitions and expects to complete the acquisition of Falconite concurrent
with the Offerings. 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.
4
<PAGE>
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 53% 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.
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.
RECENT ACQUISITIONS
In the first quarter of 1998, the Company completed seven acquisitions to add
to the six businesses acquired in 1997. These first quarter 1998 acquisitions
generated 1997 pro forma revenues of $89.3 million and added 32 locations. For
additional information on these first quarter 1998 acquisitions, see Note 13 to
the Company's Consolidated Financial Statements included elsewhere herein. In
addition, the Company has entered into a definitive agreement to acquire all of
the outstanding stock of Falconite for an aggregate purchase price of $175.0
million concurrent with the Offerings. 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
$72.6 million. The agreement to acquire Falconite is subject to customary
conditions.
5
<PAGE>
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock Offered:
Company.......................... 14,285,714 shares
Selling Stockholders............. 2,914,286 shares
Total.......................... 17,200,000 shares
Common Stock to be Outstanding
after the Offerings............... 28,415,429 shares of Common Stock (1)
Use of Proceeds.................... The Company intends to use the net proceeds
to the Company from the Offerings to (i)
fund the acquisition of Falconite, (ii)
repay indebtedness outstanding under the
Credit Facility (as defined) and (iii) fund
the Mandatory Redemption (as defined).
New York Stock Exchange Symbol..... NSV
</TABLE>
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(1) Excludes 1,260,000 shares of Common Stock issuable upon the exercise of
outstanding options and 1,890,000 additional shares of Common Stock
reserved for issuance under the Incentive Plan (as defined). See
"Management--Long Term Incentive Plan."
RECLASSIFICATION, STOCK SPLIT AND MANDATORY REDEMPTION
Immediately prior to the consummation of the Offerings, each outstanding
share of Old Common Stock (as defined) will be converted into one share of
Common Stock and each outstanding share of Old Preference Stock (as defined)
will be converted into a number of shares of Common Stock based on a specified
formula (the "Reclassification"). Each share of Common Stock will then be split
into 139 shares of Common Stock (the "Stock Split"). If the Offerings were
consummated on March 31, 1998, and under no circumstances other than in
connection with the consummation of the Offerings, the Company would have used
$27.5 million of the proceeds of the Offerings to fund a mandatory redemption
of the shares of Common Stock issued in the Reclassification with respect to
the aggregate liquidation value and cumulative yield of the Old Preference
Stock (the "Mandatory Redemption"). See "Use of Proceeds," "Description of
Capital Stock--Old Preference Stock and Old Common Stock" and "Description of
Capital Stock--Reclassification, Stock Split and Mandatory Redemption."
6
<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 seven businesses in separate
transactions and has a definitive agreement to acquire Falconite concurrent
with the Offerings. While the Acquired Businesses were or will be 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 and the
Offerings had occurred on January 1, 1997. The following pro forma balance
sheet data give effect to the aforementioned acquisitions and the Offerings as
if they had occurred on March 31, 1998. See "Capitalization." The summary
historical and pro forma financial information should be read in conjunction
with the information contained in "Selected Pro Forma Financial Data,"
"Selected Historical Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Financial Statements
and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1997 MARCH 31, 1998
-------------------- --------------------- --------------------
ACTUAL PRO FORMA(A) ACTUAL PRO FORMA(A) ACTUAL PRO FORMA(A)
------- ------------ ------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues......... $41,288 $218,628 $ 2,319 $45,238 $22,151 $52,831
Gross profit........... 15,573 90,260 843 17,179 8,651 20,663
Operating income
(loss)................ 6,187 38,917 (28) 5,565 3,313 6,878
Interest expense, net.. 4,336 15,857 262 3,964 3,100 3,964
Income (loss) before
income taxes.......... 1,923 23,377 (290) 1,743 290 2,929
Income tax expense
(benefit)............. 818 9,809 (135) 731 151 1,186
Net income (loss)...... 1,105 13,568 (155) 1,012 139 1,743
PER SHARE DATA:
Basic earnings (loss)
per share............. $ 0.09 $ 0.50 $ (0.02) $ 0.04 $ 0.01 $ 0.06
Basic shares
outstanding........... 11,855 27,116 9,506 27,116 11,299 27,376
Diluted earnings (loss)
per share............. $ 0.08 $ 0.48 $ (0.01) $ 0.04 $ 0.01 $ 0.06
Diluted shares
outstanding........... 13,642 28,415 11,116 28,415 15,300 28,415
OTHER DATA:
Rental fleet purchases. $15,336 $ 86,030 $ 853 $26,919 $12,385 $17,073
EBITDA(b).............. 12,744 77,995 395 15,314 6,924 16,848
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1998
---------------------
ACTUAL PRO FORMA(A)
-------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Cash.......... $ 3,773 $ 2,158
Rental
equipment,
net.......... 104,937 210,573
Total assets.. 242,303 431,515
Total debt.... 193,954 159,028
Total
stockholders'
equity....... 26,860 236,434
</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.
7
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements concerning the
Company. Also, documents subsequently filed by the Company with the Securities
and Exchange Commission (the "SEC" or the "Commission") will contain forward-
looking statements. Such forward-looking statements are based on the beliefs
of the Company's management as well as on assumptions made by and information
currently available to the Company at the time such statements are made. When
used in this Prospectus, the words "anticipate," "believe," "estimate,"
"expect," "intends" and similar expressions, as they relate to the Company are
intended to identify forward-looking statements. Actual results could differ
materially from those projected in the forward-looking statements as a result
of the risk factors set forth below, the matters set forth or incorporated in
the Prospectus generally and certain economic and business factors, some of
which may be beyond the control of the Company. The Company cautions the
reader, however, that this list of factors may not be exhaustive, particularly
with respect to future filings with the Commission. In analyzing an investment
in the Common Stock offered hereby, prospective investors should carefully
consider, along with the other matters referred to herein, the risk factors
described below.
SIGNIFICANT INDEBTEDNESS COULD ADVERSELY AFFECT STOCKHOLDERS
The Company has incurred significant indebtedness. As of March 31, 1998, on
a pro forma basis and after giving effect to the Offerings and the application
of the proceeds therefrom, the Company would have had $159.0 million of
indebtedness outstanding and its stockholders' equity would have been
approximately $236.4 million. The level of the Company's indebtedness could
have important consequences to holders of Common Stock, 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. See
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Description of Certain Indebtedness."
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 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
Credit Facility, the Indenture (as defined) and the Company's other financing
arrangements. See "Description of Certain Indebtedness." To the extent that
cash generated internally and cash available under the 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. Future equity financings may dilute the
equity interests of existing stockholders. 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.
8
<PAGE>
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" and "Description of Certain Indebtedness."
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 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."
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 FUND V WILL CONTINUE TO EXERCISE SIGNIFICANT CONTROL OVER THE
COMPANY
Golder Thoma Fund V owns and controls a majority of the Common Stock of the
Company. Upon the completion of the Offerings, Golder Thoma Fund V will hold
approximately 31.0% of the outstanding shares of Common Stock (or
approximately 25.4% if the Underwriters' over-allotment option is exercised in
full). As a result, Golder Thoma Fund V will continue to have significant
control over the election of 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. See "Principal and Selling
Stockholders," "Certain Relationships and Related Transactions--Stockholders
Agreement" and "--Registration Agreement."
9
<PAGE>
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."
QUARTERLY FLUCTUATIONS OF OPERATING RESULTs
The Company expects that its revenues and operating results may fluctuate
from quarter to quarter due to a number of factors, including: seasonal rental
patterns of the Company's customers (with rental activity tending to be lower
in the winter); changes in general economic conditions in the Company's
markets; the timing of acquisitions and related costs; the effect of the
integration of acquired businesses; the timing of expenditures for new
equipment and the disposition of used equipment; and price changes in response
to competitive factors. These factors, among others, may result in the
Company's results of operations in some future periods not meeting
expectations, which could have a material adverse impact on the market price
of the Common Stock.
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be
determined by negotiations among the Company, the Selling Stockholders and the
Representatives (as defined herein) and may not be indicative of the market
price for shares of the Common Stock after the Offerings. For a description of
factors considered in determining the initial public offering price, see
"Underwriting." There can be no assurance that an active trading market for
the Common Stock will develop or if developed, that such market will be
sustained. The market price for shares of the Common Stock is likely to be
volatile and may be significantly affected by such factors as quarter-to-
quarter variations in the Company's results of operations, news announcements,
changes in general market conditions for equipment rental businesses,
regulatory actions, adverse publicity regarding the Company or the industry in
general, changes in financial estimates by securities analysts and other
factors. In addition, broad market fluctuation and general economic and
political conditions may adversely affect the market price of the Common
Stock, regardless of the Company's actual performance. There can be no
assurance that the market price of the Common Stock will not decline below the
initial public offering price.
10
<PAGE>
SUBSTANTIAL DILUTION
Because the initial public offering price is substantially higher than the
book value per share of Common Stock, purchasers of the Common Stock in the
Offerings will be subject to immediate and substantial dilution of $14.51 per
share. In addition, pursuant to certain provisions of the Company's restated
Certificate of Incorporation (the "Restated Certificate"), the Company has the
authority to issue additional shares of Common Stock and shares of one or more
series of voting Preferred Stock. The issuance of such shares could result in
the dilution of voting power of the shares of Common Stock purchased in the
Offerings. See "Dilution" and "Description of Capital Stock."
ABSENCE OF DIVIDENDS; RESTRICTIONS ON PAYMENT OF DIVIDENDS
Following the completion of the Offerings, the Company intends to retain any
future earnings for use in its business and therefore does not anticipate
paying any cash dividends on the Common Stock in the foreseeable future. In
addition, the Credit Facility and the Indenture contain covenants which
restrict the ability of the Company to declare dividends. See "Dividend
Policy."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon consummation of the Offerings, the Company expects to have 28,415,429
shares of Common Stock outstanding. Of these shares, the 17,200,000 shares of
Common Stock (19,780,000 shares if the Underwriters' over-allotment option is
exercised in full) sold in the Offerings will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), except any such shares which may be acquired
by an "affiliate" of the Company. The Company and the holders of the remaining
outstanding shares of Common Stock have agreed not to sell, offer to sell,
solicit an offer to buy, contract to sell, grant any option to purchase, or
otherwise transfer or dispose of, any shares of Common Stock, or any
securities convertible into or exercisable or exchangeable for Common Stock,
other than the shares subject to the Underwriters' over-allotment option,
without the prior written consent of Salomon Smith Barney, for a period of 180
days after the date of this Prospectus (the "Lockup Agreements"), subject to
certain limited exceptions. After such time, such shares may be resold
pursuant to an exemption from registration under the Securities Act, including
Rule 144 thereunder. The existing stockholders of the Company have certain
registration rights described under "Certain Relationships and Transactions--
Registration Agreement." No prediction can be made as to the effect, if any,
that market sales of shares or the availability of such shares for future sale
will have on the market price of shares of Common Stock prevailing from time
to time. The prevailing market price of the Common Stock after the Offerings
could be adversely affected by future sales of substantial amounts of Common
Stock by existing stockholders or the perception that such sales may occur.
See "Shares Eligible for Future Sale," "Certain Relationships and
Transactions," "Principal and Selling Stockholders" and "Underwriting."
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Restated Certificate and the Company's By-laws
(the "By-laws") may inhibit changes in control of the Company not approved by
the Company's Board of Directors. These provisions include: (i) a classified
Board of Directors; (ii) a prohibition on stockholder action through written
consents; (iii) a requirement that special meetings of stockholders be called
only by the Board of Directors; (iv) advance notice requirements for
stockholder proposals and nominations; (v) limitations on the ability of
stockholders to amend, alter or repeal the By-laws; and (vi) the authority of
the Board of Directors to issue without stockholder approval preferred stock
with such terms as the Board of Directors may determine. See "Description of
Capital Stock."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offerings will be approximately
$233.5 million, based upon an assumed initial public offering price of $17.50
per share and after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by the Company. The Company intends to
use such net proceeds to (i) fund the acquisition of Falconite, (ii) repay
indebtedness outstanding under the Credit Facility and (iii) fund the
Mandatory Redemption. Borrowings under the Credit Facility bear interest at a
fluctuating rate per annum which at March 31, 1998 was approximately 8.5%. See
"Certain Relationships and Transactions--Mandatory Redemption" and
"Description of Certain Indebtedness."
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders.
The following table sets forth the estimated sources and uses of proceeds as
if the acquisition of Falconite and the Offerings occurred on March 31, 1998:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
SOURCES:
Gross proceeds to the Company from the Offerings........... $250,000
========
USES:
Consummation of Falconite acquisition (a).................. $171,250
Repayment of Credit Facility............................... 34,754
Mandatory Redemption(b).................................... 27,496
Estimated fees and expenses................................ 16,500
--------
Total.................................................. $250,000
========
</TABLE>
(a) Consideration does not include $3,750 of purchase price to be paid in the
form of 8% subordinated promissory notes to be converted into Common Stock
upon consummation of the Offerings at the initial public offering price.
(b) If the Offerings were consummated on March 31, 1998, the Company would
have used $27,496 of the proceeds of the Offerings to fund the Mandatory
Redemption of the shares of Common Stock issued in the Reclassification
with respect to the aggregate liquidation value and cumulative yield of
the Old Preference Stock. Only the successful completion of an offering or
offerings subject to the approval of the Commission automatically requires
a mandatory redemption of any portion of the Old Preference Stock or
equity securities into which it may be converted.
DIVIDEND POLICY
The Company presently anticipates that all of its future earnings will be
retained to finance the expansion of its business and does not anticipate
paying any cash dividends on the Common Stock in the foreseeable future. In
addition, the Credit Facility and the Indenture contain covenants which
restrict the ability of the Company to declare dividends. Any future
determination to declare or pay dividends will be at the discretion of the
Company's Board of Directors and will depend upon, among other factors, the
Company's results of operations, financial condition, capital requirements,
contractual restrictions and such other factors as the Board of Directors
deems relevant.
12
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth: (i) the actual capitalization of the Company
as of March 31, 1998; and (ii) such capitalization on a pro forma basis to
reflect (a) the acquisition of Falconite, (b) the Reclassification and the
Stock Split and (c) the Offerings, assuming an initial public offering price
of $17.50 per share and the application of the net proceeds to the Company
therefrom as described under "Use of Proceeds." This table should be read in
conjunction with the Financial Statements and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------
PRO
ACTUAL FORMA
-------- --------
<S> <C> <C>
Debt:
Credit Facility.................................... $ 95,128 (c) $ 60,202 (d)
10% Senior Subordinated Notes due 2004 ("Notes")
(a)............................................... 98,826 98,826
-------- --------
Total Debt....................................... 193,954 159,028
Stockholders' equity:
Preferred Stock, $0.01 par value; 10,000,000 shares
authorized; no shares issued or outstanding....... -- --
Class A Common Stock, $0.01 par value (the "Old
Preference Stock"); 50,000 shares authorized;
25,221 shares issued on an actual basis; no shares
issued on a pro forma basis....................... 1 --
Class B Common Stock, $0.01 par value (the "Old
Common Stock"); 150,000 shares authorized; 90,100
shares issued on an actual basis; no shares issued
on a pro forma basis.............................. 1 --
Common Stock, $0.01 par value; 100,000,000 shares
authorized; no shares issued on an actual basis;
28,415,429 shares issued on a pro forma basis (b). -- 284
Additional paid-in capital......................... 25,911 235,203
Retained earnings.................................. 1,049 1,049
Stock subscription receivable...................... (102) (102)
-------- --------
Total stockholders' equity....................... 26,860 236,434
-------- --------
Total capitalization............................. $220,814 $395,462
======== ========
</TABLE>
- --------
(a) Reflects unamortized original issue discount of $1,174.
(b) Excludes 1,260,000 shares of Common Stock issuable upon the exercise of
outstanding options and 1,890,000 additional shares of Common Stock
reserved for issuance under the Incentive Plan. See "Management--Long Term
Incentive Plan." Includes 214,286 shares of Common Stock to be issued upon
the mandatory conversion at the initial public offering price of $3,750
principal amount of 8% subordinated promissory notes to be issued in
connection with the acquisition of Falconite.
(c) As of May 13, 1998, $103,589 was outstanding under the Credit Facility.
(d) Reflects the repayment of the Credit Facility with certain proceeds from
the Offerings and $3,257 of cash on hand at the Acquired Businesses
purchased or to be purchased on or after March 31, 1998. In addition,
reflects an assumed borrowing of $3,085 under the Credit Facility to fund
certain potential purchase price adjustments in connection with the
Acquired Businesses purchased in 1998.
13
<PAGE>
DILUTION
As of March 31, 1998, after giving effect to the Reclassification and the
Stock Split, the net tangible book value of the Company was approximately
$(66.2) million, or $(4.76) per share. After giving effect to the Offerings
and the application of the net proceeds therefrom as set forth under "Use of
Proceeds," including the acquisition of Falconite, the net tangible book value
of the Company as of March 31, 1998 would have been approximately $84.9
million, or $2.99 per share. This represents an immediate increase in net
tangible book value per share of $7.75 per share to the existing stockholders
and an immediate dilution of $14.51 per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $17.50
Net tangible book value per share before the Offerings
(a)...................................................... $(4.76)
Increase per share attributable to payments by new
investors................................................ 7.75
------
Pro forma net tangible book value per share after the
Offerings................................................ 2.99
------
Dilution per share to new investors (b)................... $14.51
======
</TABLE>
- --------
(a) Net tangible book value per share of Common Stock is determined by
dividing the Company's tangible net worth at March 31, 1998, of $(66.2)
million by the aggregate number of shares of Common Stock outstanding
after giving effect to the Reclassification and the Stock Split.
(b) Dilution is determined by subtracting pro forma net tangible book value
per share after the Offerings from the initial public offering price per
share.
The following table summarizes, as of March 31, 1998, the difference between
the existing stockholders and the new investors with respect to the number of
shares of Common Stock purchased (or to be purchased) from the Company, the
total consideration paid (or to be paid) and the average price per share paid
(or to be paid) assuming an initial public offering price of $17.50 per share
and before deducting the estimated offering expenses and underwriting
discounts and commissions, in each case after giving effect to: (i) the
acquisition of the Acquired Businesses purchased or to be purchased in 1998;
(ii) the Reclassification and the Stock Split; and (iii) the Offerings and the
application of the net proceeds to the Company therefrom as set forth under
"Use of Proceeds:"
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
------------------ --------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(a).................... 14,129,715 49.7 $ 860,000 0.3 $ 0.06
New investors (b)....... 14,285,714 50.3 250,000,000 99.7 17.50
---------- ----- ------------- ----- ------
Total............... 28,415,429 100.0 $ 250,860,000 100.0 $ 8.83
========== ===== ============= ===== ======
</TABLE>
- --------
(a) Includes 214,286 shares to be issued upon the mandatory conversion at the
initial public offering price of the $3.75 million principal amount of 8%
subordinated promissory notes to be issued in connection with the
acquisition of Falconite and does not include 1,260,000 shares of Common
Stock issuable upon the exercise of outstanding options and 1,890,000
additional shares of Common Stock reserved for issuance under the
Incentive Plan. To the extent the foregoing options excluded from the
computations above are exercised in the future, there will be further
dilution to new investors. See "Management--Long Term Incentive Plan."
Does not include Common Stock to be issued in the Reclassification with
respect to the aggregate liquidation value and cumulative yield of the Old
Preference Stock or the related consideration paid therefor by the
existing stockholders. Including such Common Stock and related
consideration, the average price per share paid by the existing
stockholders would have been $1.66.
(b) Does not include 2,914,286 shares to be sold by the Selling Stockholders
in the Offerings.
14
<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 seven businesses in separate
transactions and has a definitive agreement to acquire Falconite concurrent
with the Offerings. The Offerings are conditioned on the acquisition of
Falconite. While the Acquired Businesses were or will be acquired at various
dates during 1997 and 1998, the following pro forma statements of operations
are presented as if all such acquisitions and the Offerings had occurred on
January 1, 1997. The following pro forma balance sheet gives effect to the
Falconite acquisition and the Offerings as if they had occurred on March 31,
1998.
The following selected pro forma financial data have been derived from
Company (the Company herein defined to include the Acquired Businesses)
prepared financial information (and, when applicable, includes adjustments to
conform fiscal periods to calendar periods), the audited Financial Statements
and notes thereto of certain of the Acquired Businesses for certain periods
and the audited 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 and the
Offerings been consummated 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.
15
<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 $115,678 $ 4,227 $146,303
Rental equipment sales... 4,186 15,638 2,910 22,734
New equipment sales and
other................... 10,704 37,193 1,694 49,591
------- -------- ------- --------
Total revenues............. 41,288 168,509 8,831 218,628
COST OF REVENUES:
Rental equipment
depreciation............ 5,009 23,320 763 (d) 29,092
Cost of rental equipment
sales................... 2,935 10,579 2,561 16,075
Cost of new equipment
sales................... 4,872 17,444 1,579 23,895
Other operating expenses. 12,899 46,594 (187)(e) 59,306
------- -------- ------- --------
Total cost of revenues..... 25,715 97,937 4,716 128,368
------- -------- ------- --------
Gross profit............... 15,573 70,572 4,115 90,260
Selling, general and
administrative expenses... 7,910 38,088 (4,324)(f) 41,674
Non-rental depreciation and
amortization.............. 1,476 3,776 4,417 (g) 9,669
------- -------- ------- --------
Operating income........... 6,187 28,708 4,022 38,917
Other income (expense),
net....................... 72 (1,177) 1,422 (h) 317
Interest expense, net...... 4,336 10,622 899 (i) 15,857
------- -------- ------- --------
Income before income taxes. 1,923 16,909 4,545 23,377
Income tax expense......... 818 3,172 5,819 (j) 9,809
------- -------- ------- --------
Net income................. $ 1,105 $ 13,737 $(1,274) $ 13,568(k)
======= ======== ======= ========
Basic earnings per share... $ 0.50(k)
Diluted earnings per share. $ 0.48(k)
</TABLE>
(See Notes to Selected Pro Forma Financial Data)
16
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------
THE ACQUIRED
COMPANY(A) BUSINESSES(B) ADJUSTMENTS(C) PRO FORMA
---------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rental revenues.......... $1,276 $26,031 $ 989 $28,296
Rental equipment sales... 93 5,564 727 6,384
New equipment sales and
other................... 950 9,196 412 10,558
------ ------- ------- -------
Total revenues............. 2,319 40,791 2,128 45,238
COST OF REVENUES:
Rental equipment
depreciation............ 335 6,276 642 (d) 7,253
Cost of rental equipment
sales................... 75 3,495 640 4,210
Cost of new equipment
sales................... 306 4,248 395 4,949
Other operating expenses. 760 10,951 (64)(e) 11,647
------ ------- ------- -------
Total cost of revenues..... 1,476 24,970 1,613 28,059
------ ------- ------- -------
Gross profit............... 843 15,821 515 17,179
Selling, general and
administrative expenses... 783 9,391 (914)(f) 9,260
Non-rental depreciation and
amortization.............. 88 993 1,273 (g) 2,354
------ ------- ------- -------
Operating income (loss).... (28) 5,437 156 5,565
Other income, net.......... -- 39 103 (h) 142
Interest expense, net...... 262 2,357 1,345 (i) 3,964
------ ------- ------- -------
Income (loss) before income
taxes..................... (290) 3,119 (1,086) 1,743
Income tax expense
(benefit)................. (135) 935 (69)(j) 731
------ ------- ------- -------
Net income (loss).......... $ (155) $ 2,184 $(1,017) $ 1,012(k)
====== ======= ======= =======
Basic earnings per share... $ 0.04(k)
Diluted earnings per share. $ 0.04(k)
</TABLE>
(See Notes to Selected Pro Forma Financial Data)
17
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
------------------------------------------------
THE ACQUIRED
COMPANY(A) BUSINESSES(B) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rental revenues........... $15,815 $20,700 $ -- $36,515
Rental equipment sales.... 1,742 2,100 -- 3,842
New equipment sales and
other.................... 4,594 7,880 -- 12,474
------- ------- ------- -------
Total revenues.............. 22,151 30,680 -- 52,831
COST OF REVENUES:
Rental equipment
depreciation............. 2,727 4,855 (99)(d) 7,483
Cost of rental equipment
sales.................... 1,037 1,316 -- 2,353
Cost of new equipment
sales.................... 2,187 4,173 -- 6,360
Other operating expenses.. 7,549 8,585 (162)(e) 15,972
------- ------- ------- -------
Total cost of revenues...... 13,500 18,929 (261) 32,168
------- ------- ------- -------
Gross profit................ 8,651 11,751 261 20,663
Selling, general and
administrative expenses.... 4,531 8,008 (1,226)(f) 11,313
Non-rental depreciation and
amortization............... 807 925 740 (g) 2,472
------- ------- ------- -------
Operating income............ 3,313 2,818 747 6,878
Other income (expense), net. 77 (62) -- 15
Interest expense, net....... 3,100 2,681 (1,817)(i) 3,964
------- ------- ------- -------
Income before income taxes.. 290 75 2,564 2,929
Income tax expense.......... 151 -- 1,035 (j) 1,186
------- ------- ------- -------
Net income.................. $ 139 $ 75 $ 1,529 $ 1,743(k)
======= ======= ======= =======
Basic earnings per share.... $ 0.06(k)
Diluted earnings per share.. $ 0.06(k)
</TABLE>
(See Notes to Selected Pro Forma Financial Data)
18
<PAGE>
PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT MARCH 31, 1998
---------------------------------------------------
THE PRO
COMPANY(L) FALCONITE(L) ADJUSTMENTS(M) FORMA
---------- ------------ -------------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents... $ 3,773 $ 1,642 $ (3,257)(i) $ 2,158
Accounts receivable, net.... 24,095 8,862 -- 32,957
Inventory, net.............. 7,158 2,658 -- 9,816
Rental equipment, net....... 104,937 112,937 (7,301)(ii) 210,573
Property and equipment, net. 6,968 11,547 2,150 (iii) 20,665
Intangible assets, net...... 86,888 17,069 41,394 (iv) 145,351
Loan origination costs, net. 6,139 -- -- 6,139
Prepaid and other assets,
net........................ 2,345 1,511 3,856
-------- -------- --------- --------
Total assets............ $242,303 $156,226 $ 32,986 $431,515
======== ======== ========= ========
LIABILITIES
Accounts payable............ $ 9,647 $ 1,715 $ -- $ 11,362
Accrued interest............ 3,904 715 -- 4,619
Accrued expenses and other
liabilities................ 7,938 12,134 -- 20,072
Debt........................ 193,954 108,430 (143,356)(v) 159,028
-------- -------- --------- --------
Total liabilities....... 215,443 122,994 (143,356) 195,081
Stockholders' equity........ 26,860 33,232 176,342 (vi) 236,434
-------- -------- --------- --------
Total liabilities and
stockholders' equity... $242,303 $156,226 $ 32,986 $431,515
======== ======== ========= ========
</TABLE>
(See Notes to Selected Pro Forma Financial Data)
19
<PAGE>
NOTES TO SELECTED PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(a) Results for the year ended December 31, 1997 and for the three months
ended March 31, 1997 represent actual historical 1997 results for the
Company, including results for the Acquired Businesses purchased in the
related 1997 period from the date of acquisition. Results for the three
months ended March 31, 1998 represent actual historical results for the
Company, including results for the Acquired Businesses purchased in the
first quarter of 1998 from the date of acquisition.
(b) Results for the year ended December 31, 1997 and for the three months
ended March 31, 1997 represent combined historical 1997 results for (i)
the Acquired Businesses purchased in the related 1997 period prior to the
date of acquisition and (ii) the Acquired Businesses purchased or to be
purchased in 1998. Results for the three months ended March 31, 1998
represent combined historical results for (i) the Acquired Businesses
purchased in 1998 prior to the date of acquisition and (ii) Falconite.
(c) In each of the following items, reflects the elimination of a location
not purchased from Cormier Equipment as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ ------------
<S> <C> <C>
Rental revenues......... $ 130 $100
New equipment sales and
other.................. 21 17
----- ----
Total revenues.......... 151 117
Rental equipment
depreciation........... 81 60
Other operating
expenses............... 102 50
----- ----
Total cost of revenues.. 183 110
----- ----
Gross profit (loss)..... (32) 7
Selling, general and
administrative
expenses............... 72 41
Non-rental depreciation
and amortization....... 1 1
----- ----
Operating loss.......... $(105) $(35)
===== ====
</TABLE>
In addition, reflects the acquisition of GenEquip, Inc., a business acquired
by Falconite, Inc. in January 1998 as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ ------------
<S> <C> <C>
Rental revenues................................. $4,357 $1,089
Rental equipment sales.......................... 2,910 728
New equipment sales and other................... 1,715 429
------ ------
Total revenues.................................. 8,982 2,246
Rental equipment depreciation................... 1,583 396
Cost of rental equipment sales.................. 2,561 640
Cost of new equipment sales..................... 1,578 395
Other operating costs........................... 1,664 416
------ ------
Total cost of revenues.......................... 7,386 1,847
------ ------
Gross profit.................................... 1,596 399
Selling, general and administrative expenses.... 1,221 305
Non-rental depreciation and amortization........ 107 27
------ ------
Operating income................................ 268 67
Other income, net............................... 59 15
Interest income, net............................ 23 6
------ ------
Income before income taxes...................... $ 350 $ 88
====== ======
</TABLE>
20
<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 bonus arrangements to be
determined at a later date and, accordingly, such bonus arrangements are
not reflected.
(g) Pursuant to SEC reporting requirements, non-rental depreciation has been
derived utilizing the property, plant and equipment values of each of the
Acquired Businesses at the time of their acquisition, rather than utilizing
values of property, plant and equipment actually held by each of the
Acquired Businesses in the period presented. Reflects the decrease in non-
rental depreciation resulting from the application of the Company's
depreciation policy rather than those of the former owners of the Acquired
Businesses. In addition, reflects the increase in non-rental depreciation
resulting from the write-up of property, plant and equipment to fair value
arising from purchase accounting. Also reflects amortization of goodwill
calculated on a goodwill life of 40 years and amortization of non-compete
agreements calculated on their contract terms of two to five years, in each
case specifically related to the purchases of the Acquired Businesses. The
pro forma adjustments consist of the following:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------
1997 1997 1998
------------ ------ ----
<S> <C> <C> <C>
Non-rental depreciation......................... $1,159 $ 312 $220
Amortization of goodwill........................ 2,702 759 477
Amortization of non-compete agreements.......... 556 202 43
------ ------ ----
$4,417 $1,273 $740
====== ====== ====
</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) For the year ended December 31, 1997 and the three months ended March 31,
1998, reflects increased interest expense at the Company's borrowing rate
under the Credit Facility on the indebtedness resulting from the purchase
of Falconite after giving effect to the repayment of the Credit Facility
with certain proceeds from the Offerings and with $3,257 of cash on hand at
the Acquired Businesses purchased or to be purchased on or after March 31,
1998. For the three months ended March 31, 1997, reflects the decreased
interest expense resulting from the elimination of indebtedness of the
Acquired Businesses not assumed by the Company, partially offset by
indebtedness incurred by the Company under the Credit Facility resulting
from the purchase of the Acquired Businesses.
21
<PAGE>
(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.
(k) Unaudited pro forma earnings per share has been computed based on the
weighted average number of common shares outstanding during the period,
after giving effect to the Reclassification, the Stock Split, the
Offerings and the mandatory conversion of the 8% convertible subordinated
promissory notes to be issued in connection with the acquisition of
Falconite, but without giving effect to shares issuable upon exercise of
outstanding options because they are not dilutive. Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
("SFAS 123") allows entities to choose between a new fair value based
method of accounting for employee stock options or similar equity
instruments and the current intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25").
Entities electing to account for employee stock options or similar equity
instruments under APB No. 25 must make pro forma disclosures of net income
and earnings per share as if the fair value method of accounting has been
applied. The Company has elected APB No. 25, and will provide such pro
forma disclosure of net income and earnings per share, as applicable, in
the notes to future consolidated financial statements. Had pro forma
compensation cost for NES's stock based compensation plans been determined
based on the pro forma fair value at the assumed grant date for awards
under those plans consistent with the method of SFAS 123, the Company's
pro forma net income and net income per share would have been as follows
for the year ended December 31, 1997 and the three month periods ended
March 31, 1997 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------
1997 1997 1998
------------ ----- ------
<S> <C> <C> <C>
Net income..................................... $12,750 $ 807 $1,533
Basic earnings per share....................... $ 0.47 $0.03 $ 0.06
Diluted earnings per share..................... $ 0.45 $0.03 $ 0.05
</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 the actual historical balance sheets of the Company and
Falconite as of March 31, 1998.
(m) The following are adjustments to the aforementioned balance sheets:
(i) Reflects the use of the cash on hand at the Acquired Businesses
purchased or to be purchased on or after March 31, 1998 of $3,257.
(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 $40,994 of goodwill representing the excess of the purchase
price over the fair value of net assets acquired. In addition,
reflects $400 of noncompete agreements entered into by the Company and
certain selling shareholders.
(v) Reflects the reduction of indebtedness resulting from the use of cash
on hand at the Acquired Businesses purchased or to be purchased on or
after March 31, 1998 of $3,257 and application of certain net proceeds
from the Offerings.
(vi) Reflects the cash proceeds from the Offerings of $250,000 and the
mandatory conversion at the initial public offering price of $3,750 of
8% subordinated promissory notes to be issued in connection with the
Falconite acquisition, net of estimated Offerings cost of $16,500 and
the funding of the Mandatory Redemption of $27,496 less the
elimination of equity of Falconite of $33,232.
22
<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.
The Company has entered into a definitive agreement to acquire Falconite
concurrent with the Offerings. Due to the materiality of Falconite to the
Company on a pro forma basis, the following selected historical financial data
includes results of Falconite, which year end information has been derived from
audited Financial Statements and notes thereto included elsewhere herein.
The selected historical financial data of the Company as of and for the
period from inception (June 4, 1996) through December 31, 1996 and as of and
for the year ended December 31, 1997 have been derived from audited Financial
Statements and notes thereto appearing elsewhere in this Prospectus.
The selected historical financial data of Falconite and the Company as of and
for the three months ended March 31, 1997 and 1998 have been derived from
unaudited Financial Statements included elsewhere in this Prospectus, which
have been prepared on the same basis as the audited Financial Statements and,
in the opinion of management, reflect all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of such data.
The selected historical financial data should be read in conjunction with the
information contained in "Selected Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and notes thereto included elsewhere herein.
OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- ----------------
1993 1994 1995 1996 1997(A) 1997 1998
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
COMPANIES:(B)
Aerial Platforms
Total revenues......... $1,571 $ 2,039 $ 3,269 $ 4,746 $ 233
Operating income
(loss)................ 356 351 887 998 (8)
Income (loss) before
income taxes.......... 265 266 818 874 (14)
BAT Rentals
Total revenues......... $9,214 $10,932 $12,453 $13,140 $ 3,802
Operating income....... 1,893 2,099 1,973 2,877 757
Income before income
taxes................. 1,956 1,944 1,899 2,801 710
Equipco Rentals & Sales
Total revenues......... $3,080 $ 3,768 $ 5,390 $ 5,832 $ 4,369
Operating income....... 133 216 305 407 911
Income before income
taxes................. 65 124 145 227 837
Lone Star Rentals
Total revenues......... $7,333 $ 8,935 $ 9,703 $ 9,349 $ 1,643
Operating income
(loss)................ 993 1,263 1,103 640 (229)
Income (loss) before
income taxes.......... 598 707 726 381 (254)
Sprintank
Total revenues......... $3,810 $ 5,182 $ 7,879 $ 9,598 $ 6,042
Operating income....... 482 830 1,522 1,503 2,179
Income before income
taxes................. 98 407 655 480 1,616
FALCONITE:(B)
Total revenues......... $35,661 $48,086 $63,646 $14,374 $16,633
Operating income....... 11,306 12,075 11,959 2,672 1,969
Income before income
taxes and minority
interests............. 8,094 7,959 3,817 1,343 (219)
THE COMPANY:
Total revenues......... $ -- $41,288 $ 2,319 $22,151
Operating income
(loss)................ (336) 6,187 (28) 3,313
Income (loss) before
income taxes.......... (332) 1,923 (290) 290
</TABLE>
23
<PAGE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------- AT MARCH 31,
1993 1994 1995 1996 1997 1998
------ ------- ------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANIES:
Aerial Platforms
Rental equipment, net... $ 326 $ 306 $ 1,396 $ 1,758
Total assets............ 921 944 2,455 2,889
Total debt.............. 878 549 1,216 1,243
BAT Rentals
Rental equipment, net... $3,122 $ 3,499 $ 4,434 $ 5,779
Total assets............ 8,603 9,212 10,111 11,504
Total debt.............. 2,734 2,659 3,191 3,302
Equipco Rentals & Sales
Rental equipment, net... $1,112 $ 1,588 $ 2,047 $ 2,553
Total assets............ 2,102 2,750 3,337 4,102
Total debt.............. 1,224 1,470 1,846 2,393
Lone Star Rentals
Rental equipment, net... $4,765 $ 6,954 $ 7,622 $ 6,952
Total assets............ 7,144 9,910 10,094 9,405
Total debt.............. 4,301 6,390 6,121 4,983
Sprintank
Rental equipment, net... $4,664 $ 4,665 $ 8,118 $ 9,741
Total assets............ 6,831 6,807 10,727 12,546
Total debt.............. 4,739 4,702 7,370 8,987
THE COMPANY:
Rental equipment, net... $ -- $ 46,801 $104,937
Total assets............ 216 131,137 242,303
Total debt.............. -- 98,782 193,954
Total stockholders'
equity................. 106 26,473 26,860
FALCONITE:
Rental equipment, net... $ 81,583 $107,721 $112,937
Total assets............ 117,458 148,068 156,226
Total debt.............. 60,619 100,200 108,430
</TABLE>
- --------
(a) With respect to the Predecessor Companies, includes results prior to
acquisition by the Company. With respect to Falconite, represents actual
1997 results. With respect to the Company, represents actual 1997 results,
including results for the Predecessor Companies and Industrial Hoist
Services after acquisition by the Company.
(b) Operating income (loss) and income (loss) before income taxes reflect
private company expenses such as certain owners' compensation which would
not be included in the Company's results going forward.
24
<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 13
businesses in separate transactions and entered into a definitive agreement to
acquire Falconite. The following discussion of the Company's pro forma results
of operations is presented as if the 14 acquisitions and the Offerings had
been completed on the first day of the periods 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 has entered into a definitive agreement to purchase Falconite
concurrent with the Offerings. 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.
25
<PAGE>
The following table sets forth, for the periods indicated, information
derived from the combined, historical and pro forma consolidated statements of
operations of the Company expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 MARCH 31, 1997 MARCH 31, 1998
----------------- ---------------------- ------------------ -----------------
COMBINED ACTUAL PRO FORMA ACTUAL PRO FORMA ACTUAL PRO FORMA
----------------- --------- ---------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental revenues......... 67.7% 63.9% 66.9% 55.0% 62.6% 71.4% 69.1%
Rental equipment sales.. 9.7 10.2 10.4 4.0 14.1 7.9 7.3
New equipment sales and
other.................. 22.6 25.9 22.7 41.0 23.3 20.7 23.6
----- --------- --------- ----- ----- ----- -----
Total revenues.......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues........ 59.5 62.3 58.7 63.6 62.0 60.9 60.9
----- --------- --------- ----- ----- ----- -----
Gross profit............ 40.5% 37.7 41.3 36.4 38.0 39.1 39.1
=====
Selling, general and
administrative
expenses............... 19.2 19.1 33.8 20.5 20.5 21.4
Non-rental depreciation
and amortization....... 3.6 4.4 3.8 5.2 3.6 4.7
--------- --------- ----- ----- ----- -----
Operating income (loss). 14.9 17.8 (1.2) 12.3 15.0 13.0
Other income, net....... 0.2 0.1 0.0 0.3 0.3 0.0
Interest expense, net... 10.5 7.2 11.3 8.8 14.0 7.5
--------- --------- ----- ----- ----- -----
Income (loss) before
income taxes........... 4.6 10.7 (12.5) 3.8 1.3 5.5
Income tax expense
(benefit).............. 2.0 4.5 (5.8) 1.6 0.7 2.2
--------- --------- ----- ----- ----- -----
Net income (loss)....... 2.6% 6.2% (6.7)% 2.2% 0.6% 3.3%
========= ========= ===== ===== ===== =====
</TABLE>
PRO FORMA AND COMBINED RESULTS OF OPERATIONS--THE COMPANY
Pro Forma Three Months Ended March 31, 1998 as Compared to Pro Forma Three
Months Ended March 31, 1997
Revenues. Total revenues increased 16.8%, or $7,593, from $45,238 to $52,831
from first quarter 1997 to first quarter 1998. Rental revenue growth accounted
for $8,219 or 108% of the increase, partially offset by a decline in rental
equipment sales of $2,542. Portions of the rental revenue growth were
attributable to increased investment in rental equipment and strong demand for
storage tanks at Sprintank and general equipment at Albany Ladder and
Falconite. Revenues from new equipment sales and other increased $1,916 or
18.1%.
Gross Profit. Gross profit increased from $17,179 to $20,663 from first
quarter 1997 to first quarter 1998. Gross margin increased from 38.0% to
39.1%. This margin improvement was primarily the result of increased higher
margin rental revenues as a percentage of total revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $9,260 to $11,313 from first quarter
1997 to first quarter 1998, primarily reflecting costs incurred to support the
growth in the Company's businesses. As a percentage of total revenues, these
costs increased from 20.5% to 21.4%.
Non-Rental Depreciation and Amortization. Non-rental depreciation and
amortization increased from $2,354 to $2,472 from first quarter 1997 to first
quarter 1998. As a percentage of total revenues, non-rental depreciation and
amortization decreased from 5.2% to 4.7%.
Operating Income. As a result of the foregoing, operating income increased
23.6% from $5,565 or 12.3% of total revenues in first quarter 1997 to $6,878
or 13.0% of total revenues in first quarter 1998.
Interest Expense, Net. Interest expense, net was $3,964 for each of first
quarter 1997 and first quarter 1998.
26
<PAGE>
Income Tax Expense. Income tax expense was $731 for first quarter 1997 and
$1,186 for first quarter 1998.
Pro Forma Year Ended December 31, 1997 as Compared to Combined Year Ended
December 31, 1996
Revenues. Total revenues increased 29.4%, or $49,738, from $168,890 to
$218,628 from 1996 to 1997. Rental revenue growth accounted for $31,880 or
64.1% 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, which contributed approximately $15,000 in 1997. The
remaining approximately $16,900 of rental revenue growth resulted primarily
from increased capital investment in rental equipment by the Company. Rental
equipment sales increased 38.9%, or $6,371, reflecting strong demand for the
Company's equipment, the dispositions of certain equipment in order to
optimize the average age of the Company's expanding fleet and the acquisition
of GenEquip, Inc. by Falconite. New equipment sales and other increased
$11,487 or 30.1% 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 $68,382 to $90,260 from 1996 to
1997. Gross margin increased from 40.5% to 41.3%.
Pro Forma Year Ended December 31, 1997
Revenues. Total revenues were $218,628. Rental revenues accounted for 66.9%
of total revenues.
Gross Profit. Gross profit was $90,260, or 41.3% of total revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $41,674 or 19.1% of total revenues.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $9,669, or 4.4% of total revenues.
Operating Income. Operating income was $38,917, or 17.8% of total revenues.
Interest Expense, Net. Interest expense, net was $15,857, or 7.2% of total
revenues.
Income Tax Expense. Income tax expense was $9,809, or 4.5% of total
revenues.
HISTORICAL RESULTS OF OPERATIONS--THE COMPANY
The Company's historical Financial Statements included herein cover the
period from inception on June 4, 1996 through December 31, 1996, the year
ended December 31, 1997 and the three months ended March 31, 1998. The Company
believes that comparison of its historical results for such periods are not
meaningful given the fact that (i) the Company did not complete its first
acquisition until January 1997, (ii) the Company completed five additional
acquisitions at different times in 1997 and (iii) the Company completed seven
additional acquisitions at different times in the first quarter of 1998.
Three Months Ended March 31, 1998 as Compared to Three Months Ended March 31,
1997.
Revenues. Total revenues increased from $2,319 to $22,151 from first quarter
1997 to first quarter 1998. Rental revenues increased from $1,276 to $15,815.
The increases were primarily the result of the acquisition of 10 additional
businesses after the first quarter of 1997 as well as the inclusion in 1998 of
a full quarter's results for the businesses acquired during the first quarter
of 1997.
Gross Profit. Gross profit increased from $843 to $8,651 from first quarter
1997 to first quarter 1998. Gross margin increased from 36.4% to 39.1%. This
margin improvement was primarily the result of increased higher margin rental
revenues as a percentage of total revenues as a percentage of total revenues.
27
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $783 to $4,531 from first quarter 1997
to first quarter 1998. As a percentage of total revenues, selling, general and
administrative expenses decreased from 33.8% to 20.5%.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization increased from $88 to $807 from first quarter 1997 to first
quarter 1998.
Operating Income (Loss). As a result of the foregoing, operating income
increased from ($28) for first quarter 1997 to $3,313 or 15.0% of total
revenues for first quarter 1998.
Interest Expense, Net. Interest expense, net increased from $262 to $3,100
from first quarter 1997 to first quarter 1998. This increase was due to
additional debt resulting from the acquisition of 10 additional businesses.
Income Tax Expense (Benefit). Income tax increased from a benefit of ($135)
to an expense of $151 from first quarter 1997 to first quarter 1998.
Year Ended December 31, 1997
Revenues. Total revenues were $41,288 for 1997. Rental revenues accounted
for 63.9% of such revenues.
Gross Profit. Gross profit was $15,573 for 1997. Gross margin was 37.7% for
1997.
Selling, General and Administrative Expenses. For 1997, selling, general and
administrative expenses were $7,910 or 19.2% of total revenues.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $1,476 or 3.6% of total revenues for 1997.
Operating Income. Operating income was $6,187 or 14.9% of total revenues for
1997.
Interest Expense, Net. Interest expense, net was $4,336 for 1997.
Income Tax Expense. Income tax expense was $818 for 1997.
HISTORICAL RESULTS OF OPERATIONS--FALCONITE
Three Months Ended March 31, 1998 as Compared to Three Months Ended March 31,
1997.
Revenues. Total revenues increased 15.7% from $14,374 to $16,633 from first
quarter 1997 to first quarter 1998. Rental revenues increased 33.9% from
$8,989 to $12,033. These increases resulted primarily from additional
locations opened and acquisitions made during and after the first quarter of
1997 and capital invested in new rental equipment during 1997. This increase
in rental revenues was partially offset by a decrease in rental equipment
sales due to the purchase by Falconite of a large amount of new equipment and
the corresponding sale by Falconite in first quarter 1997 of a large amount of
its older rental equipment fleet as well as the sale of a large piece of used
rental equipment during first quarter 1997.
Gross Profit. Gross profit increased from $6,186 in the first quarter 1997
to $7,131 in the first quarter 1998. Gross margin was 43.0% in first quarter
1997 as compared to 42.9% in first quarter 1998.
Selling, General & Administrative Expenses. Selling, general and
administrative expenses increased from $2,938 to $4,482 from first quarter
1997 to first quarter 1998, primarily reflecting costs associated with the
opening of 5 new locations and the newly acquired GenEquip, Inc. locations, as
well as the opening of Falconite's re-manufacturing facility in Paducah,
Kentucky. In addition, first quarter 1998 selling, general and administrative
expenses reflects certain private company expenses including compensation not
recorded in first quarter 1997. As a percentage of total revenues, these
expenses increased from 20.4% to 26.9%, reflecting the lag between the
incurrence of expense and the related growth in revenues from locations
opened.
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Non-Rental Depreciation and Amortization. Non-rental depreciation and
amortization increased from $576 or 4.0% of total revenues for first quarter
1997 to $680 or 4.1% of total revenues for first quarter 1998.
Operating Income. As a result of the foregoing, operating income decreased
from $2,672 or 18.6% of total revenues for first quarter 1997 to $1,969 or
11.8% of total revenues for first quarter 1998.
Year Ended December 31, 1997 as Compared to Year Ended December 31, 1996.
Revenues. Total revenues increased 32.4% from $48,086 to $63,646 from 1996
to 1997. Rental revenue growth accounted for $12,028 or 77.3% of such
increase. The increase in rental revenues resulted primarily from the
contribution of the eight locations opened or acquired during November and
December 1996, which generated approximately $10,700 in rental revenues in
1997. The balance of the rental revenue growth was attributable to locations
open throughout both periods, primarily due to an increase in Falconite's
rental fleet. Sales of used rental equipment increased by $1,548 or 20.2% in
the recently completed period, reflecting the opening of new locations and
dispositions of certain equipment in order to optimize the average age of
Falconite's expanding fleet. Revenues from new equipment sales and other
increased from $7,529 to $9,513 or 26.4% from 1996 to 1997.
Gross Profit. Gross profit increased from $22,824 to $29,452 from 1996 to
1997. Gross margin decreased from 47.5% to 46.3%, with rental gross margin
decreasing from 57.0% to 52.4% and sales gross margin increasing from 26.9% to
31.7%. The decline in rental gross margin was attributable primarily to an
increase in rental equipment depreciation as a percentage of rental revenues
from 20.7% to 24.7% due to the substantial additions to Falconite's rental
fleet during 1996 and 1997. The increase in sales gross margin is primarily
the result of the sale of selected high margin pieces of equipment during
1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $9,985 to $15,065 from 1996 to 1997,
primarily reflecting costs incurred to support the growth in Falconite's
business as well as an increase in executive compensation of $1,200. As a
percentage of revenues, these costs increased from 20.8% to 23.7%, reflecting
the lag between incurrence of expenses and the related growth in revenues from
locations opened in late 1996. In addition, Falconite recorded certain charges
in 1997 aggregating $1,301 resulting from the resolution of certain tax
deficiencies and the termination of certain employment agreements.
Non-Rental Depreciation and Amortization. Non-rental depreciation and
amortization increased from $764 to $2,428 from 1996 to 1997. As a percentage
of total revenues, non-rental depreciation and amortization increased from
1.6% to 3.8%. This increase was attributable primarily to the locations added
in late 1996 and to additional goodwill amortization of approximately $500 in
1997.
Operating Income. As a result of the foregoing and excluding the
aforementioned charges of $1,301, operating income increased from $12,075, or
25.1% of total revenues in 1996, to $13,260, or 20.8% of total revenues in
1997. Including these charges, operating income was $11,959 or 18.8% of total
revenues in 1997.
Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995
Revenues. Total revenues increased 34.8% from $35,661 to $48,086 from 1995
to 1996. Rental revenue growth accounted for $9,488 or 76.4% of such increase.
Rental revenues increased primarily as a result of 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%.
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Gross Profit. Gross profit increased from $17,576 to $22,824 from 1995 to
1996. Gross margin decreased from 49.3% to 47.5% with rental gross margin
decreasing from 61.2% to 57.0%. The decline in rental gross margin was partly
attributable to an increase in rental equipment depreciation due to
substantial additions to Falconite's rental fleet during 1996 as well as to
the substantial underutilization of equipment at one of its divisions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $5,858 to $9,985 from 1995 to 1996,
primarily reflecting facilities, personnel and administrative infrastructure
costs incurred to support the growth in Falconite's business. As a percentage
of total revenues, these expenses increased from 16.4% to 20.8%, reflecting
the lag between incurrence of expenses and the related growth in revenues from
new location openings.
Non-Rental Depreciation and Amortization. Non-rental depreciation and
amortization increased from $412 to $764 from 1995 to 1996. As a percentage of
total revenues, non-rental depreciation and amortization increased from 1.2%
to 1.6%. This increase resulted primarily from the addition of locations
during 1995, in particular, related transportation equipment and furniture,
fixtures and equipment.
Operating Income. As a result of the foregoing, operating income increased
from $11,306, or 31.7% of total revenues in 1995, to $12,075, or 25.1% of
total revenues in 1996.
HISTORICAL RESULTS OF OPERATIONS--ACQUIRED BUSINESSES
As a result of the timing of their acquisitions by the Company, the Acquired
Businesses' financial results discussed below cover periods of varying
lengths. Accordingly, comparison of historical results for such periods may
not be meaningful.
AERIAL PLATFORMS
Aerial Platforms was purchased by NES in February of 1997. All operating
results of Aerial Platforms from the date of acquisition are reflected in the
Company's results.
Seventeen Days Ended February 17, 1997 as Compared to Year Ended January 31,
1997
Revenues. Total revenues were $4,746 for 1997 and $233 for the 17-day period
ended February 17, 1997.
Gross Profit. Gross profit was $2,374 and gross margin was 50.0% for 1997.
Gross profit was $64 and gross margin was 27.5% for the 17-day period ended
February 17, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $1,302 or 27.4% of total revenues for 1997.
Selling, general and administrative expenses were $64 or 27.5% of total
revenues for the 17-day period ended February 17, 1997.
LONE STAR RENTALS
Lone Star Rentals was purchased by NES in March of 1997. All operating
results of Lone Star Rentals from the date of acquisition are reflected in the
Company's results.
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.
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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.
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.
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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 CORPORATION
Cormier Equipment Corporation was purchased by NES in March 1998. All
operating results of Cormier Equipment Corporation 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 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.
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Gross Profit. Gross profit increased $25 from $5,398 or 34.5% of total
revenues in 1995 to $5,423 or 33.9% of total revenues in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $2,976 or 19.0% of total revenues in
1995 to $3,324 or 20.8% of total revenues in 1996.
DRAGON RENTALS
Dragon Rentals was purchased by NES in March 1998. All operating results of
Dragon Rentals from the date of acquisition are reflected in the Company's
results.
Year Ended December 31, 1997 as Compared to Year Ended December 31, 1996
Revenues. Total revenues increased 71.0% or $4,385 from $6,179 to $10,564
from 1996 to 1997. Rental revenue growth accounted for $3,929 or 89.6% of the
increase.
Gross Profit. Gross profit increased $3,056 from $1,442 or 23.3% of total
revenues in 1996 to $4,498 or 42.6% of total revenues in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1,296 from $870 or 14.1% of total revenues
in 1996 to $2,166 or 20.5% of total revenues in 1997.
LIQUIDITY AND CAPITAL RESOURCES--THE COMPANY
The Company's primary capital requirements are for the purchase of new
rental equipment fleet and for acquisitions. The Company's other capital
expenditures consist of the purchase of vehicles used for delivery and
maintenance and property, plant and equipment. The Company purchases rental
fleet throughout the year to replace equipment which has been sold as well as
to maintain adequate levels of equipment to meet existing and new customer
needs. Combined rental fleet purchases for the Company and the Acquired
Businesses were $55,525, $65,547, $86,030 and $17,073 in 1995, 1996, 1997 and
the first quarter of 1998, respectively. As the Company's business strategy
continues to be implemented, rental fleet purchases are expected to increase.
Expenditures for rental fleet are expected to be approximately $82,000 in
1998.
On an actual basis, for the years ended December 31, 1996 and 1997 and the
three months ended March 31, 1997 and 1998, the Company's net cash (used in)
provided by operations was $(269) and $7,378, respectively, and $(430) and
$7,661, respectively. On an actual basis, for the years ended December 31,
1996 and 1997 and the three months ended March 31, 1997 and 1998, the
Company's net cash used in investing activities was $20 and $81,497,
respectively, and $23,187 and $120,872, respectively. On an actual basis, for
the years ended December 31, 1996 and 1997 and the three months ended March
31, 1997 and 1998, the Company's net cash provided by financing activities was
$301 and $109,789, respectively and $25,869 and $81,302, respectively. Net
cash provided by financing activities consists of equity capital provided by
Golder Thoma Fund V and members of management, net borrowings under the Credit
Facility and indebtedness under the Indenture.
The Company has entered into a commitment letter with respect to a New
Credit Facility (as defined) which will provide for a revolving credit
facility to the Company for up to $300,000 of revolving loans. As of March 31,
1998, after giving effect to the Offerings, $239,798 would have been available
for borrowing under the New Credit Facility, subject to availability based on
certain financial tests including a borrowing base. The New Credit Facility is
expected to close during the third quarter of 1998, but the commitment is
subject to certain customary terms and conditions and, accordingly, there can
be no assurance that the New Credit Facility will be implemented.
The Company currently has in place a Credit Facility which provides for a
$140,000 line of credit, subject to calculation of the borrowing base, to meet
acquisition and expansion needs as well as seasonal working capital
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and general corporate requirements. As of March 31, 1998, $95,128 was
outstanding under the Credit Facility. As of March 31, 1998, after giving
effect to the Offerings, $79,798 would have been available for borrowing under
the Credit Facility, subject to calculation of the borrowing base. As of March
31, 1998, the Company was in default under the Credit Facility with respect to
its interest/rental expense to senior debt covenant. This covenant was
eliminated pursuant to an amendment to the Credit Facility that was entered
into in April 1998. The Company believes it is currently in compliance with
all covenants of the Credit Facility.
The Company believes that the Credit Facility, together with funds generated
by operations, will provide the Company with sufficient liquidity and capital
resources in the near-term 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, and believes that
the New Credit Facility will be sufficient to satisfy its needs.
YEAR 2000 SOFTWARE ISSUE
The Company uses a number of computer software programs and operating
systems in its operations, including applications used in sales and marketing,
billing, inventory management and other administrative functions. To the
extent that the software applications used in such functions and
communications are unable to recognize the year 2000, the Company may incur
expenses in connection with the need to remediate such software and also may
incur the risk and potential expense of disruptions that may be caused by the
software's impaired functioning as the year 2000 approaches. The Company
believes that the manufacturers of the software applications it uses most
frequently, including its systems software and its word processing and
spreadsheet software, are in the process of preparing or have already
completed Year 2000 remediations for their products. The Company believes that
with the remediations to existing software and conversions to new software,
the Year 2000 issue will not pose significant operational problems for its
computer systems.
EFFECT OF INFLATION
Management believes that inflation has not had a material effect on the
Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 "Earnings per Share." For the Company, SFAS No. 128 will be
effective for the year ended December 31, 1997. SFAS No. 128 simplifies the
standards required under current accounting rules for computing earnings per
share and replaces the presentation of primary earnings per share and fully
diluted earnings per share with a presentation of basic earnings per share
("basic EPS") and diluted earnings per share ("diluted EPS"). Basic EPS
excludes dilution and is determined by dividing income available to common
stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution that could
occur if securities and other contracts to issue common stock were exercised
or converted into common stock. Diluted EPS is computed similarly to fully
diluted earnings per share under current accounting rules.
Reporting Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. The Statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 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.
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BUSINESS
GENERAL
National Equipment Services, Inc. is a leading participant in the growing
and highly fragmented $18 billion equipment rental industry. Through its 14
businesses acquired or to be 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
79 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 $218.6 million, an increase of
29.4% compared to 1996 combined revenues of $168.9 million.
Management believes that the Company offers one of the most modern and well
maintained fleets of specialty 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 53% and 44%,
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, an established investment firm specializing in the
consolidation of fragmented industries. Golder Thoma Fund V, an affiliate of
Golder Thoma, 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
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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 33% and 67% 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 13
acquisitions and expects to complete the acquisition of Falconite concurrent
with the Offerings. 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 53% 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
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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.
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 13
businesses and has entered into a definitive agreement to acquire Falconite.
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 or pending 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 Pending
</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.
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<PAGE>
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 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 78.8% 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 (44.8%); (ii) forklifts (12.9%); (iii) mobile storage
tanks (11.2%); and (iv) cranes (9.9%). 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 $263.3 million and the weighted average age of the Company's
rental equipment fleet was approximately three years. Approximately 66.9% 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 10.4%
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
13.8% 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 complement to its core business. Revenues generated
from sales of parts and merchandise and service and repair accounted for
approximately 8.9% 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, no one
38
<PAGE>
customer 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 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 52.6%, 44.4% and 3.0% 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.
39
<PAGE>
SALES
The Company offers rental equipment and related services primarily through
its sales force, consisting of 40 sales managers who oversee 150 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 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 $86 million of rental equipment, of which
approximately 36.0% was obtained from its top five suppliers. No single
supplier accounted for more than 18.0% 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 79 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 (22), 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 64, as well as its approximately 1,400 square foot headquarters space in
Evanston, Illinois. The net book value of owned facilities was approximately
$4.4 million at December 31, 1997, on a pro forma basis, and the average
annual lease expense on each leased facility was approximately $47,000 in
1997. The Company's leases have terms expiring from 1998 to 2007, with the
majority of its leases having renewal options. Management believes that none
of the Company's leased facilities, individually, is material to the Company's
operations and that all of these leases can be readily replaced at similar
terms. The Company's interests in each of these properties secure borrowings
under the Credit Facility.
COMPETITION
The equipment rental industry is highly fragmented and competitive. Many of
the markets in which the Company operates are served by numerous competitors,
ranging from national and multi-regional companies such as Hertz Equipment
Rental Corporation (an affiliate of Ford Motor Company), U.S. Rentals, Inc.,
Rental Service Corporation and Prime Services, Inc., to small, independent
businesses with a limited number of locations. Management believes that
participants in the equipment rental industry compete on the basis of
availability and quality of equipment, service, delivery, time and price.
Geographic territories for competition are usually limited to 50 to 75 miles
due to servicing requirements and transportation costs of the equipment.
Certain specialized equipment renters, such as Industrial Hoist Services,
compete on a larger regional or national basis. In general, management
believes that national and multi-regional operators, such as the Company,
enjoy substantial competitive advantages over small, independent rental
businesses that cannot afford to maintain the comprehensive rental equipment
fleet and high level of maintenance and service that the Company offers. See
"Risk Factors--Competition."
40
<PAGE>
EMPLOYEES
At April 30, 1998, the Company had a total of 1,131 employees. Only 79 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. 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.
41
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of May 1, 1998 with
respect to the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Kevin Rodgers........... 47 President, Chief Executive Officer and Director
Dennis O'Connor......... 48 Chief Financial Officer
Paul Ingersoll.......... 32 Vice President of Corporate Development and Secretary
Carl Thoma.............. 49 Chairman of the Board
William Kessinger....... 31 Director
John Grove.............. 77 Director
Ronald St. Clair........ 60 Director
</TABLE>
Kevin Rodgers. Mr. Rodgers has been President, Chief Executive Officer and a
director of the Company since he founded the Company with Golder Thoma Fund V
in June 1996. Prior thereto, Mr. Rodgers served as Chief Executive Officer of
Brambles Equipment Services, Inc. and Brambles Records Management, Inc. from
1991 to June 1996. From 1991 to 1996, Mr. Rodgers also held the position of
Executive Director of Brambles USA, a subsidiary of Brambles Industries
Limited, an Australian public company with worldwide revenues of over US $2.5
billion. From 1979 to 1990, Mr. Rodgers held several positions at Morgan
Equipment Company, a privately held heavy equipment dealership with worldwide
sales of approximately $300 million, including Chief Executive Officer of
Morgan Equipment's Australian operations from 1986 to 1990.
Dennis O'Connor. Mr. O'Connor has been Chief Financial Officer of the
Company since August 1996. Prior thereto, Mr. O'Connor served as Chief
Financial Officer of Brambles Equipment Services, Inc. from November 1991 to
August 1996, where Mr. O'Connor directed the financial and administrative
functions for its seven operating divisions and assisted in operations
management. From May 1986 to May 1990, Mr. O'Connor held various positions at
Morgan Equipment Company, including Chief Financial Officer and General
Manager.
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 co-
founded and has been a Principal and General Partner with Golder Thoma, the
general partner of Golder Thoma Fund V and its predecessor funds, in Chicago,
Illinois, since 1980 and has been the Managing Partner of Golder Thoma since
1993. Mr. Thoma is also a director of Global Imaging, Inc., ITI Marketing
Services, PageNet Inc. and U.S. Security Associates, Inc.
William Kessinger. Mr. Kessinger has served as a director of the Company
since its founding in June 1996. Mr. Kessinger joined Golder Thoma in May 1995
and became a Principal in 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., Capitol Office
Products, Inc., Excaliber, Inc., Global Imaging, 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.
42
<PAGE>
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.
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.
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.
See "--Long Term Incentive Plan."
Concurrent with the consummation of the Offerings, the Company also intends
to grant each of Mr. Grove and Mr. St. Clair, under the Incentive Plan, an
option to acquire 10,000 shares of Common Stock that will vest in equal annual
installments at each of the first five anniversaries of the date of grant. The
Company intends to grant such options at an option price equal to the public
offering price. In addition, at each anniversary of the Offerings, the Company
intends to grant each of Mr. Grove and Mr. St. Clair, under the Incentive
Plan, an option to acquire 2,000 shares of Common Stock that will vest in
equal annual installments at each of the first five anniversaries of the date
of grant. The Company intends to grant such options at an option price equal
to the fair market value of the Common Stock on the date of grant.
43
<PAGE>
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 prior to June 4, 1996
to prepare for the organization and formation of the Company.
MANAGEMENT EMPLOYMENT AGREEMENTS
Kevin Rodgers. Mr. Rodgers is party to a senior management agreement with
the Company dated as of June 4, 1996, as amended. Under the agreement, Mr.
Rodgers will receive an annual base salary of $250,000, which amount shall be
reviewed (but not reduced) annually by the Board in its sole discretion. Mr.
Rodgers will be
44
<PAGE>
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 Old 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 Fund V in the Company) up to an additional 7,904 shares of Old 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 Old 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 Offerings,
each share of Old Common Stock owned by Mr. Rodgers will be converted into
Common Stock. Upon completion of the Offerings, the portions of the agreement
which restrict the transfer of the Company's securities will be 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 Old 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 Fund V in the Company) up to an additional 1,976 shares of Old
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
Old 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 Offerings, each share of Old Common Stock owned by Mr.
O'Connor will be converted into Common Stock. Upon completion of the
Offerings, the portions of the agreement which restrict the transfer of the
Company's securities will be terminated.
Mr. O'Connor's employment with the Company will continue until terminated by
the resignation, death or disability of Mr. O'Connor or by the Board in its
good faith judgment that termination of Mr. O'Connor's employment is in the
best interests of the Company. In the event Mr. O'Connor's employment is
terminated (i) by the Company without cause, (ii) by Mr. O'Connor with good
reason or (iii) as a result of Mr. O'Connor's
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<PAGE>
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 Old 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 Fund V in the Company) up to an additional 988 shares of Old
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 Old
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 Offerings, each share of Old Common Stock owned by Mr.
Ingersoll will be converted into Common Stock. Upon completion of the
Offerings, the portions of the agreement which restrict the transfer of the
Company's securities will be terminated.
Mr. Ingersoll's employment with the Company will continue until terminated
by the resignation, death or disability of Mr. Ingersoll or by the Board in
its good faith judgment that termination of Mr. Ingersoll's employment is in
the best interests of the Company. In the event Mr. Ingersoll's employment is
terminated (i) by the Company without cause, (ii) by Mr. Ingersoll with good
reason or (iii) as a result of Mr. Ingersoll's death or disability, until the
end of the six-month period commencing on the date of his termination, the
Company shall pay to Mr. Ingersoll (or his estate) his annual base salary and
allow Mr. Ingersoll to continue to participate in all of the Company's
medical, disability and life insurance plans to the extent permitted by the
Company's insurance carriers at a cost not materially in excess of the
Company's cost for such insurance immediately prior to the date of
termination. In addition, the Company shall have the option to extend the
severance period to the second anniversary of the date of termination, during
which period the Company shall pay to Mr. Ingersoll (or his estate) his annual
base salary and allow Mr. Ingersoll to continue to participate in all of the
Company's medical, disability and life insurance plans to the extent permitted
by the Company's insurance carriers at a cost not materially in excess of the
Company's cost for such insurance immediately prior to the date of
termination. Mr. Ingersoll has agreed not to compete with the Company during
the term of his employment and for six months thereafter and during the
extended period (if any) and has agreed not to solicit any employees or
customers of the Company during the two years following the date of
termination of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1996 and 1997, the Company had no compensation committee or other
committee of the Board performing similar functions. Accordingly, decisions
concerning compensation of executive officers were made by the entire Board.
Other than Kevin Rodgers, there were no officers or employees of the Company
who participated in deliberations concerning such compensation matters.
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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 Company's employee stock option 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
Prior to the completion of the Offerings, the Company will establish the
National Equipment Services, Inc. Long Term Incentive Plan (the "Incentive
Plan"). A maximum of 3,150,000 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.
It is expected that all officers, directors and other key employees and
consultants of the Company or its subsidiaries will be 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 will
be 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 and upon certain change
of control events. 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.
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Prior to consummation of the Offerings, the Company expects to grant
nonqualified stock options to purchase 1,260,000 shares of Common Stock to
certain members of management, including Messrs. O'Connor and Ingersoll who
will each receive options to purchase 50,000 shares of Common Stock at the
initial public offering price. Such options will vest in five equal
installments beginning on the first anniversary of the grant date. The Options
are expected to have a term of ten years.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth certain information as of April 30, 1998
regarding the beneficial ownership of the Common Stock (a) before the
Offerings but after giving effect to the Reclassification, the Stock Split and
the Mandatory Redemption and (b) immediately following the Offerings by: (i)
each person or entity who beneficially owns five percent or more of the Common
Stock (including the Selling Stockholders), (ii) each Director and each Named
Executive Officer and (iii) all Directors and executive officers of the
Company as a group. See "Certain Relationships and Transactions--
Reclassification and Stock Split" and "Certain Relationships and
Transactions--Mandatory Redemption." Unless otherwise stated, each of the
persons named in the table has sole voting and investment power with respect
to the Common Stock beneficially owned by it or him as set forth opposite its
or his name. Beneficial ownership of the Common Stock listed in the table has
been determined in accordance with the applicable rules and regulations
promulgated under the Exchange Act. Unless otherwise indicated in a footnote,
the business address of each person is the Company's corporate address.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED SHARES BENEFICIALLY
PRIOR TO THE OWNED AFTER THE
OFFERINGS OFFERINGS(1)
----------------- NUMBER OF ---------------------
NUMBER OF SHARES NUMBER OF
NAME OF BENEFICIAL OWNER SHARES PERCENT OFFERED SHARES PERCENT
- ------------------------ --------- ------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Golder Thoma Fund V(2)........ 84,427 84.3 2,914,286 8,821,067 31.0
Kevin Rodgers................. 8,000 8.0 -- 1,112,000 3.9
Dennis O'Connor............... 2,000 2.0 -- 278,000 1.0
Paul Ingersoll................ 1,000 1.0 -- 139,000 *
Carl Thoma(3)................. 84,427 84.3 2,914,286 8,821,067 31.0
William Kessinger(3).......... 84,427 84.3 2,914,286 8,821,067 31.0
John Grove.................... -- -- -- -- --
Ronald St. Clair.............. 339 * -- 47,052 *
All directors and executive
officers as a group
(7 persons)(2)(3)............ 95,766 95.7 2,914,286 10,397,119 36.6
</TABLE>
- --------
* Represents less than one percent.
(1) Assumes no exercise of the Underwriters' over-allotment option.
(2) Includes 147 shares of Common Stock prior to the Offerings and 15,359
shares of Common Stock after the Offerings held by GTCR Associates V, a
partnership affiliated with Golder Thoma Fund V. The address of GTCR
Associates V is 6100 Sears Tower, Chicago, Illinois 60606.
(3) Includes 84,427 shares of Common Stock prior to the Offerings and
8,821,067 shares of Common Stock after the Offerings held by Golder Thoma
Fund V, of which GTCR V, L.P. is the general partner. Each of Messrs.
Thoma and Kessinger is a principal of Golder Thoma, the general partner of
GTCR V, L.P., and therefore may be deemed to share investment and voting
control over the shares of Common Stock owned by Golder Thoma Fund V. The
address of each of these holders is 6100 Sears Tower, Chicago, Illinois
60606.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
RECLASSIFICATION AND STOCK SPLIT
Immediately prior to the consummation of the Offerings, each outstanding
share of Old Common Stock will be converted into one share of Common Stock and
each outstanding share of Old Preference Stock will be converted into a number
of shares of Common Stock equal to the sum of (i) the quotient of (x) the
number of shares of Old Common Stock then outstanding multiplied by 10%,
divided by (y) the number of shares of Old Preference Stock then outstanding
multiplied by 90%, plus (ii) a number of shares of Common Stock valued at the
initial public offering price of the Offerings (adjusted for the Stock Split)
equal to the liquidation value and cumulative yield with respect to such share
of Old Preference Stock as of such date. If the Offerings were consummated on
March 31, 1998, the aggregate liquidation value and cumulative yield with
respect to the Old Preference Stock would have been approximately $25.2
million and $2.3 million, respectively. Further assuming
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<PAGE>
an initial public offering price of $17.50 per share, each share of Old
Preference Stock would convert into approximately 1,391,529 shares of Common
Stock (the "Reclassification"). Each share of Common Stock will then be split
into 139 shares of Common Stock (the "Stock Split"). See "Description of
Capital Stock--Old Preference Stock and Old Common Stock."
MANDATORY REDEMPTION
Concurrent with the consummation of the Offerings, the Company will use a
portion of the proceeds of the Offerings to fund the Mandatory Redemption of
the shares of Common Stock issued in the Reclassification with respect to the
aggregate liquidation value and cumulative yield of the Old Preference Stock.
Such Common Stock will be redeemed at a price equal to the initial public
offering price of the Common Stock in the Offerings. Only the successful
completion of an offering or offerings subject to the approval of the
Commission automatically requires a mandatory redemption of any portion of the
Old Preference Stock or equity securities into which it may be converted. See
"Use of Proceeds" and "Description of Capital Stock--Reclassification, Stock
Split and Mandatory Redemption."
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
The Company has a Professional Services Agreement (the "Professional
Services Agreement") with Golder Thoma pursuant to which Golder Thoma provides
financial and management consulting services to the Company. Under the
Professional Services Agreement, Golder Thoma receives 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 Services Agreement. The agreement will be terminated upon the
consummation of the Offerings, and no fee is payable with respect to the
issuance of Common Stock in the Offerings. Messrs. Thoma and Kessinger will
continue to serve as directors of the Company.
STOCKHOLDERS 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) provides for the designation of the
Board of Directors of the Company, (ii) imposes certain restrictions on the
transfer of shares of the Company, (iii) requires 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)
requires 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) grants certain of the stockholders certain participation rights in
connection with a sale of shares by other stockholders. Upon the completion of
the Offerings, the Stockholders Agreement will be terminated.
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<PAGE>
REGISTRATION AGREEMENT
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 the Registration Agreement, the
Existing Stockholders are entitled to certain registration rights. Holders of
at least a majority of the shares of Common Stock held by the Existing
Stockholders may require the Company to effect the registration of their
shares of Common Stock from time to time (each, a "Demand Registration"). The
Company will pay all registration expenses in connection with all "short-form"
Demand Registrations and up to four "long-form" Demand Registrations. In
addition, if the Company proposes to register any of its Common Stock under
the Securities Act, whether for its own account or otherwise (each, a "Company
Registration"), the Existing Stockholders are entitled to notice of such
registration and, subject to certain priority provisions, are entitled to
include their shares of Common Stock in such registration with all
registration expenses being paid by the Company. Notwithstanding the
foregoing, the Company will not be obligated to effect a Demand Registration
within six months after the effective date of a prior Demand Registration or
of a Company Registration, and, under certain circumstances, a request may be
delayed by the Company for up to six months (but on no more than one
occasion). The Existing Stockholders have waived their registration rights
under the Registration Agreement in connection with the Offerings, except for
the Existing Stockholders who will participate in the Offerings as described
under "Principal and Selling Stockholders."
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
At the time of the Offerings, the total amount of authorized capital stock
of the Company will consist of 100,000,000 shares of Common Stock, par value
$0.01 per share, held by approximately 20 holders, and 10,000,000 shares of
preferred stock, par value $0.01 per share (the "Preferred Stock"). Upon
completion of the Offerings, 28,415,429 shares of Common Stock will be issued
and outstanding and no shares of Preferred Stock will be issued and
outstanding. The discussion herein describes the Company's capital stock, and
the Restated Certificate and By-laws as anticipated to be in effect upon
consummation of the Offerings. The following summary of certain provisions of
the Company's capital stock describes all material provisions of, but does not
purport to be complete and is subject to, and qualified in its entirety by,
the Restated Certificate and the By-laws of the Company that are included as
exhibits to the Registration Statement of which this Prospectus forms a part
and by the provisions of applicable law.
The Restated Certificate and By-laws will contain certain provisions that
are intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and which may have the effect of
delaying, deferring or preventing a future takeover or change in control of
the Company unless such takeover or change in control is approved by the Board
of Directors.
OLD PREFERENCE STOCK AND OLD COMMON STOCK
Immediately prior to the Reclassification, the Company's issued and
outstanding common stock consisted of 25,221 shares of Class A Common Stock,
par value $.01 per share (the "Old Preference Stock") and 90,100 shares of
Class B Common Stock, par value $.01 per share (the "Old Common Stock"). Prior
to the Reclassification, the holders of Old Preference Stock and Old Common
Stock were entitled to participate in any distribution (of which there have
been none) made by the Company in the following priority: (i) first, to the
holders of Old Preference Stock, ratably, until the holders of Old Preference
Stock as a class had received, taking into consideration all prior
distributions, a cumulative 10% yield (compounded quarterly) on the $1,000
liquidation value of each share of Old Preference Stock, (ii) second, to the
holders of Old Preference Stock, ratably, until the holders of Old Preference
Stock as a class had received, taking into consideration all prior
distributions other than distributions pursuant to clause (i) above, the
aggregate liquidation value of the Old Preference Stock, and (iii) last, to
the holders of Old Preference Stock and the holders of Old Common Stock, 10%
and 90%, respectively, of the balance of such distribution. As of March 31,
1998, the aggregate liquidation value and cumulative yield on the Old
Preference Stock was $25.2 million and $2.3 million respectively.
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<PAGE>
Prior to the Reclassification, all holders of Old Common Stock were entitled
to one vote per share, and the holders of Old Preference Stock, as a class,
were entitled to a number of votes equal to 10% of the number of votes
allocable to the Old Preference Stock and Old Common Stock on a combined
basis, with each share of Old Preference Stock being entitled to its pro rata
portion of such allocated number of votes. The holders of Old Preference Stock
and Old Common Stock voted together as a single class.
RECLASSIFICATION, STOCK SPLIT AND MANDATORY REDEMPTION
Immediately prior to the consummation of the Offerings, in the
Reclassification each outstanding share of Old Common Stock will be converted
into one share of Common Stock and each outstanding share of Old Preference
Stock will be converted into a number of shares of Common Stock equal to the
sum of (i) the quotient of (x) the number of shares of Old Common Stock then
outstanding multiplied by 10%, divided by (y) the number of shares of Old
Preference Stock then outstanding multiplied by 90%, plus (ii) a number of
shares of Common Stock valued at the initial public offering price of the
Offerings (adjusted for the Stock Split) equal to the liquidation value and
cumulative yield with respect to such share of Old Preference Stock as of such
date. If the Offerings were consummated on March 31, 1998, the aggregate
liquidation value and cumulative yield with respect to the Old Preference
Stock would have been approximately $25.2 million and $2.3 million,
respectively. Further assuming an initial public offering price of $17.50 per
share, each share of Old Preference Stock would convert into approximately
1,391,529 shares of Common Stock. In the Stock Split, each share of Common
Stock will then be split into 139 shares of Common Stock.
Concurrent with the consummation of the Offerings, the Company shall use a
portion of the proceeds of the Offerings to fund the Mandatory Redemption of
the shares of Common Stock issued in the Reclassification with respect to the
aggregate liquidation value and cumulative yield of the Old Preference Stock.
Only the successful completion of an offering or offerings subject to the
approval of the Commission permits the holders of Old Preference Stock to
unilaterally require a mandatory redemption of any portion of the Old
Preference Stock or equity securities into which it may be converted. The
Common Stock will be redeemed at a price equal to the initial public offering
price of the Common Stock in the Offerings. See "Use of Proceeds" and "Certain
Relationships and Transactions."
COMMON STOCK
After the Reclassification, the issued and outstanding shares of Common
Stock will be, and the shares of Common Stock being offered by the Company
will be upon payment therefor, validly issued, fully paid and nonassessable.
Subject to the prior rights of the holders of any Preferred Stock, the holders
of outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor at such time and in such amounts as the
Board of Directors may from time to time determine. See "Dividend Policy." The
shares of Common Stock are not convertible and the holders thereof have no
preemptive or subscription rights to purchase any securities of the Company.
Upon liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive pro rata the assets of the Company which
are legally available for distribution, after payment of all debts and other
liabilities and subject to the prior rights of any holders of Preferred Stock
then outstanding. Each outstanding share of Common Stock is entitled to one
vote on all matters submitted to a vote of stockholders. There is no
cumulative voting.
The Common Stock has been approved for trading on the New York Stock
Exchange under the symbol "NSV," subject to official notice of issuance.
PREFERRED STOCK
The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of shares of
Preferred Stock in series and may, at the time of issuance, determine the
rights, preferences and limitations of each series. Satisfaction of any
dividend preferences of outstanding shares of Preferred Stock would reduce the
amount of funds available for the payment of dividends on shares of Common
Stock. Holders of shares of Preferred Stock may be entitled to receive a
preference payment in the
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<PAGE>
event of any liquidation, dissolution or winding-up of the Company before any
payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. Upon the affirmative vote of a
majority of the total number of directors then in office, the Board of
Directors of the Company, without stockholder approval, may issue shares of
Preferred Stock with voting and conversion rights which could adversely affect
the holders of shares of Common Stock. Upon consummation of the Offerings,
there will be no shares of Preferred Stock outstanding, and the Company has no
present intention to issue any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
The Restated Certificate provides for the Board of Directors to be divided
into three classes, as nearly equal in number as possible, serving staggered
terms. Approximately one-third of the Board of Directors will be elected each
year. See "Management." Under the Delaware General Corporation Law, directors
serving on a classified board can only be removed for cause. The provision for
a classified board could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of the Board of Directors
until the second annual stockholders meeting following the date the acquiror
obtains the controlling stock interest. The classified board provision could
have the effect of discouraging a potential acquiror from making a tender
offer or otherwise attempting to obtain control of the Company and could
increase the likelihood that incumbent directors will retain their positions.
The Restated Certificate provides that stockholder action can be taken only
at an annual or special meeting of stockholders and cannot be taken by written
consent in lieu of a meeting. The Restated Certificate and the By-laws
provides that, except as otherwise required by law, special meetings of the
stockholders can only be called pursuant to a resolution adopted by a majority
of the Board of Directors or by the Chief Executive Officer of the Company.
Stockholders will not be permitted to call a special meeting or to require the
Board of Directors to call a special meeting.
The By-laws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders of the Company,
including proposed nominations of persons for election to the Board of
Directors.
Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the
direction of the Board of Directors or by a stockholder who was a stockholder
of record on the record date for the meeting, who is entitled to vote at the
meeting and who has given to the Company's Secretary timely written notice, in
proper form, of the stockholder's intention to bring that business before the
meeting. Although the By-laws do not give the Board of Directors the power to
approve or disapprove stockholder nominations of candidates or proposals
regarding other business to be conducted at a special or annual meeting, the
By-laws may have the effect of precluding the conduct of certain business at a
meeting if the proper procedures are not followed or may discourage or defer a
potential acquiror from conducting a solicitation of proxies to elect its own
slate of directors or otherwise attempting to obtain control of the Company.
The Restated Certificate and By-laws provide that the affirmative vote of
holders of at least 80% of the total votes eligible to be cast in the election
of directors is required to amend, alter, change or repeal certain of their
provisions. This requirement of a super-majority vote to approve amendments to
the Restated Certification of Incorporation and By-laws could enable a
minority of the Company's stockholders to exercise veto power over any such
amendments.
CERTAIN PROVISIONS OF DELAWARE LAW
Section 203 ("Section 203") of the General Corporation Law of the State of
Delaware (the "DGCL") provides, in general, that a stockholder acquiring more
than 15% of the outstanding voting stock of a corporation
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subject to Section 203 (an "Interested Stockholder") but less than 85% of such
stock may not engage in certain Business Combinations (as defined in Section
203) with the corporation for a period of three years subsequent to the date
on which the stockholder became an Interested Stockholder unless (i) prior to
such date the corporation's board of directors approved either the Business
Combination or the transaction in which the stockholder became an Interested
Stockholder or (ii) the Business Combination is approved by the corporation's
board of directors and authorized by a vote of at least 66 2/3% of the
outstanding voting stock of the corporation not owned by the Interested
Stockholder. The Amended Certificate contains a provision electing not to be
governed by Section 203.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated Certificate limits the liability of Directors to the fullest
extent permitted by the Delaware General Corporation Law. In addition, the
Restated Certificate of Incorporation will provide that the Company shall
indemnify Directors and officers of the Company to the fullest extent
permitted by such law. The Company anticipates entering into indemnification
agreements with its current Directors and executive officers prior to the
completion of the Offerings and any new Directors or executive officers
following such time.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Harris Trust and
Savings Bank.
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITY
On July 1, 1997 (the "Borrowing Date"), the Company and its subsidiaries
(collectively, the "Borrowers") entered into a credit agreement (as amended,
the "Credit Facility") with First Union Commercial Corporation, as agent, and
certain other financial institutions. The Credit Facility provides for a
revolving credit facility (with a letter of credit subfacility not to exceed
$1.0 million) to the Borrowers for up to $140.0 million of revolving loans
(based on calculation of a borrowing base which is based on a percentage of
eligible receivables, eligible parts and supplies inventory, eligible rental
equipment and eligible new equipment). Subject to certain restrictions, the
Credit Facility may be used to finance future acquisitions and capital
expenditures and for ongoing working capital and general corporate purposes of
the Company. Outstanding revolving loans under the Credit Facility must be
repaid on the fifth anniversary of the Borrowing Date. Revolving loans made
pursuant to the 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. At the Borrowers' option, the interest rate per
annum applicable to the loans under the Credit Facility will be a fluctuating
rate of interest measured by reference to one or a combination (at the
Company's election) of the following: (i) the Base Rate (as defined in the
Credit Facility), plus the applicable borrowing margin, or (ii) the relevant
Eurodollar Rate (as defined in the Credit Facility), plus the applicable
borrowing margin. The applicable borrowing margin under the Credit Facility
will range from 0.50% to 1.25% for Base Rate-based borrowings and 2.00% to
2.75% for Eurodollar Rate-based borrowings. Both Base Rate and Eurodollar Rate
interest on the Credit Facility are determined quarterly based on the ratio of
Consolidated Funded Indebtedness (as defined in the Credit Facility) to
Consolidated EBITDA (as defined in the Credit Facility). The Borrowers have
agreed to pay certain fees in connection with the Credit Facility, including
(i) letter of credit fees, (ii) agency and lender's fees and (iii) unused line
fees. Unused line fees are payable monthly at a rate per annum ranging from
0.375% to 0.50% on the undrawn amounts of the revolving loan commitment under
the Credit Facility based on the Leverage Ratio (as defined in the Credit
Facility) of the Company and its subsidiaries. As of March 31, 1998, the
Company was in default under the Credit Facility with respect to its
interest/rental expense to senior debt covenant. This covenant was eliminated
pursuant to an amendment to the Credit Facility that was entered into in April
1998.
NEW CREDIT FACILITY
On May 14, 1998, the Company entered into a commitment letter (the
"Commitment Letter") with First Union National Bank and First Union Capital
Markets (collectively "First Union") with respect to a new
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revolving credit facility (the "New Credit Facility"). The New Credit Facility
will provide for a revolving credit facility to the Company for 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. The New Credit Facility will be secured by a
pledge of the stock of the Company's subsidiaries, but a pledge of the
Company's operating assets will not be required. Subject to certain
restrictions, the New Credit Facility will be used to refinance indebtedness
under the Credit Facility, to finance future acquisitions and for capital
expenditures, working capital and other general corporate purposes. The New
Credit Facility will terminate and all amounts outstanding will become due and
payable in full five years from the date upon which definitive documentation
with respect to the New Credit Facility is executed. 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
Commitment Letter) or (ii) the relevant Eurodollar Rate (as defined in the
Commitment Letter), plus the applicable borrowing margin. The applicable
borrowing margin under the New Credit Facility will range from 0.875% to
1.375% for Eurodollar Rate-based borrowings. Eurodollar Rate interest on the
New Credit Facility will be determined quarterly based on the ratio of Total
Funded Debt (as defined in the Commitment Letter) to EBITDA (as defined in the
Commitment Letter). The Company will be obligated 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
will be payable quarterly at a rate per annum ranging from 0.250% to 0.375% on
the undrawn amounts of the revolving loan commitment under the New Credit
Facility based on the ratio of Total Funded Debt to EBITDA.
The New Credit Facility is expected to close during the third quarter of
1998. First Union's commitment under the Commitment Letter to enter into the
New Credit Facility is subject to certain customary terms and conditions,
including, without limitation, that First Union be satisfied with the
definitive documentation with respect to the New Credit Facility, that no
material adverse change in the Company's financial performance shall have
occurred and that no material adverse change shall have occurred in the
banking markets generally. Accordingly, there can be no assurance that the New
Credit Facility will be implemented.
SENIOR SUBORDINATED NOTES
On November 25, 1997, the Company issued $100 million in aggregate principal
amount of 10% Senior Subordinated Notes due 2004 (the "Old Notes") and related
guarantees pursuant to an Indenture (the "Indenture") dated November 25, 1997,
as supplemented, among the Company, the subsidiary guarantors identified
therein and Harris Trust and Savings Bank, as trustee (the "Note Offering").
The Company has filed a registration statement with the Commission to register
under the Securities Act notes (the "New Notes" and, together with the Old
Notes, the "Notes") and related guarantees to be issued in exchange for the
Old Notes. The Notes are general unsecured obligations of the Company,
subordinated in right of payment to all current and future Senior Debt (as
defined in the Indenture). The Notes mature on November 30, 2004. Cash
interest accrues on the Notes at a rate of 10% and is payable semi-annually on
May 30 and November 30 of each year, commencing on May 30, 1998. Pursuant to
the terms of a registration rights agreement the Company executed in
connection with the offering of the Old Notes, the Company has been paying,
and will continue to pay, additional interest on the Old Notes from April 24,
1998 until the date such registration statement is declared effective by the
Commission. Such additional interest will accrue in an amount equal to $5,000
per week for the 90-day period beginning April 24, 1998 and will continue to
accrue in an amount increasing by an additional $5,000 per week at the
beginning of each subsequent 90-day period (up to a maximum of $50,000 per
week) until such registration statement is declared effective by the
Commission.
After November 30, 2001, the Notes are redeemable at the Company's option,
in whole or in part, at the prices set forth in the Indenture plus accrued and
unpaid interest, if any, to the redemption date. The Company may also redeem
up to 33% of the Notes on or prior to November 25, 2000 with the net cash
proceeds of a public offering of common stock of the Company. In addition, at
any time on or prior to November 30, 2001, the Company may redeem the Notes
upon the occurrence of or in connection with a Change of Control (as defined
in the Indenture).
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offerings, the Company expects to have 28,415,429
shares of Common Stock outstanding. Of these shares, the 17,200,000 shares of
Common Stock (19,780,000 shares if the Underwriters' over-allotment option is
exercised in full) sold in the Offerings will be freely tradeable without
restriction or further registration under the Securities Act, except any such
shares which may be acquired by an "affiliate" of the Company. Under the
Lockup Agreements, the Company and the holders of the remaining outstanding
shares of Common Stock have agreed not to sell, offer to sell, solicit an
offer to buy, contract to sell, grant any option to purchase, or otherwise
transfer or dispose of, any shares of Common Stock, or any securities
convertible into or exercisable or exchangeable for Common Stock, other than
the shares subject to the Underwriters' over-allotment option, without the
prior written consent of Salomon Smith Barney, for a period of 180 days after
the date of this Prospectus, subject to certain limited exceptions. No
prediction can be made as to the effect, if any, that market sales of shares
or the availability of such shares for future sale will have on the market
price of shares of Common Stock prevailing from time to time. The prevailing
market price of the Common Stock after the Offerings could be adversely
affected by future sales of substantial amounts of Common Stock by existing
stockholders or the perception that such sales may occur. See "Certain
Relationships and Transactions," "Principal and Selling Stockholders" and
"Underwriting."
Shares of Common Stock held by affiliates and restricted securities (as
defined in Rule 144) may not be sold unless they are registered under the
Securities Act or are sold pursuant to an applicable exemption from
registration, including the exemption from registration set forth in Rule 144.
Generally, Rule 144 will permit an affiliate or a person who has held
restricted securities for more than one year to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock or the average weekly trading volume of
such stock during the four calendar weeks preceding such sale, provided that
the Company has either filed certain periodic reports with the Commission or
made publicly available certain information concerning it and provided that
such sales are made in normal "brokers' transactions" or in transactions
directly with a "market maker" without the solicitation of buy orders by the
brokers or such affiliates. A person who is deemed not to be an affiliate of
the Company at any time during the three months preceding a sale and who has
held restricted securities for more than two years may sell such shares under
Rule 144 without regard to the volume limitations described.
The existing stockholders of the Company have certain registration rights
described under "Certain Relationships and Transactions--Registration
Agreement."
The Common Stock has been approved for trading on the New York Stock
Exchange under the symbol "NSV," subject to official notice of issuance.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a person that, for United States federal income tax purposes, is (a)
neither a citizen nor a resident of the United States, (b) a corporation,
partnership or other entity created or organized in or under the laws of a
country other than the United States, or (c) a foreign estate or trust
(collectively referred to as a "non-U.S. holder"). This discussion is based on
currently existing provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), currently effective and proposed Treasury Regulations
promulgated thereunder, and administrative and judicial interpretations
thereof, all as in effect on the date hereof and all of which are subject to
change, possibly with retroactive effect. This discussion does not address the
tax consequences to subsequent purchasers of Common Stock, does not consider
tax consequences to persons who are considered residents of the United States,
does not consider the particular facts and circumstances of each non-U.S.
holder's situation (including the tax position of certain U.S. expatriates)
and does
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<PAGE>
not address U.S. state and local or foreign tax consequences. Each non-U.S.
holder as well as any person who may be considered a resident of the United
States is urged to consult his or her own tax advisor with respect to the
application of the United States federal income and estate tax laws to his or
her particular situation, as well as the tax consequences arising under the
applicable laws of any state, municipality, foreign country or other taxing
jurisdiction.
DIVIDENDS
Dividends received by a non-U.S. holder on Common Stock that are not
effectively connected with the conduct by the non-U.S. Holder of a trade or
business in the United States will be subject to United States federal income
tax withholding at a 30% rate upon the actual payment of the dividends except
as described below and except where an applicable tax treaty provides for the
reduction or elimination of such withholding. A non-U.S. holder generally will
be taxed in the same manner as a United States corporation or resident
individual with respect to such income if it (i) is effectively connected with
the conduct of a trade or business in the United States or (ii) is
attributable to a U.S. permanent establishment of such holder within the
meaning of an applicable treaty. Such effectively connected income received by
a non-U.S. holder that is a corporation may, in certain circumstances, be
subject to an additional "branch profits tax" at a 30% rate, or, if
applicable, a lower treaty rate.
To determine the applicability of a tax treaty providing for a lower rate of
withholding under the currently effective Treasury Regulations (the "Current
Regulations"), dividends paid to an address in a foreign country are presumed
to be paid to a resident of that country unless the payer has knowledge to the
contrary. Under Treasury Regulations issued on October 6, 1997 (the "Final
Regulations"), generally effective for payments made after December 31, 1998,
a non-U.S. holder (including, in certain cases of non-U.S. holders that are
entities, the owner or owners of such entities) will be required to satisfy
certain certification requirements in order to claim a reduced rate of
withholding pursuant to an applicable income tax treaty.
DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to United States federal
income or withholding tax in respect of gain recognized on the disposition of
Common Stock unless (i) the holder is an individual who holds the Common Stock
as a capital asset and was present in the United States for 183 days or more
during the taxable year and either (a) such holder has a "tax home" in the
United States or (b) the gain is attributable to an office or other fixed
place of business maintained in the United States by such holder; (ii) the
gain is effectively connected with a United States trade or business of the
holder or, if an income tax treaty applies, is attributable to a United States
permanent establishment of the holder; or (iii) the Company is or has been a
United States real property holding corporation ("USRPHC") for United States
federal income tax purposes and, so long as the Common Stock continues to be
regularly traded on an established securities market, the non-U.S. holder has
held actually or constructively more than 5% of the Common Stock at some time
during the shorter of (a) the five-year period ending on the date of
disposition of such Common Stock or (b) the period during which the non-U.S.
holder held such Common Stock. The Company does not believe that it is or has
been a USRPHC, and for purposes of this discussion it is assumed that the
Company is not a USRPHC.
FEDERAL ESTATE TAXES
If an individual non-U.S. holder holds Common Stock at the time of his or
her death, such Common Stock will be included in such holder's gross estate
for United States federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Dividends paid to non-U.S. holders outside the United States that are
subject to the withholding described above generally will be exempt from
United States backup withholding (which generally is imposed at a rate of
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31% on certain payments to persons that fail to furnish certain information
under United States information reporting requirements), but the Company must
report annually to the United States Internal Revenue Service and to each non-
U.S. holder the amount of dividends paid to such holder and the tax withheld
from such dividend payments, regardless of whether withholding was required.
Backup withholding and information reporting generally will apply, however, to
dividends paid on shares of Common Stock to a non-U.S. holder at an address in
the United States, if such holder fails to establish an exemption or to
provide certain other information to the payor.
Generally, the Company may rely on the non-U.S. Holder's address outside the
United States (absent knowledge to the contrary) in determining that the
withholding tax discussed above applies, and consequently, that the backup
withholding provisions do not apply.
Under the Current Regulations, the payment of the proceeds of the sale of
Common Stock to or through the United States office of a broker will be
subject to information reporting and possible backup withholding at a rate of
31% unless the owner certifies its non-United States status under penalties of
perjury or otherwise establishes an exemption. The payment of the proceeds of
the sale of Common Stock to or through the foreign office of a broker
generally will not be subject to backup withholding. In the case of the
payment of proceeds from the disposition of Common Stock through a foreign
office of a broker that is a United States person or a "United States related
person," the Current Regulations require information reporting on the payment
unless the broker has documentary evidence in its files that the owner is a
non-United States person and the broker has no actual knowledge to the
contrary or the holder otherwise establishes an exemption. For this purpose, a
"United States related person" is (i) a "controlled foreign corporation" for
United States federal income tax purposes or (ii) a foreign person 50% or more
of whose gross income for a specified period is derived from activities that
are effectively connected with the conduct of a United States trade or
business.
Under the Final Regulations, the payment of dividends or the payment of
proceeds from the disposition of Common Stock to a non-U.S. holder may be
subject to information reporting and backup withholding unless such recipient
satisfies applicable certification requirements or otherwise establishes an
exemption. Any amounts withheld under the backup withholding rules from a
payment to a non-U.S. holder will be allowed as a refund or a credit against
such non-U.S. holder's United States federal income tax, provided that the
required information is furnished to the IRS.
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UNDERWRITING
Under the terms and subject to the conditions in the U.S. Underwriting
Agreement dated , 1998, each of the underwriters of the
United States and Canadian offering of Common Stock named below (the "U.S.
Underwriters"), for whom Smith Barney Inc., William Blair & Company, L.L.C.,
Credit Suisse First Boston Corporation, Donaldson, Lufkin & Jenrette
Securities Corporation and NationsBanc Montgomery Securities LLC are acting as
the Representatives (the "Representatives"), has severally agreed to purchase,
and the Company and the Selling Stockholders have agreed to sell to each U.S.
Underwriter, shares of Common Stock which equal the number of shares set forth
opposite the name of such U.S. Underwriter below:
<TABLE>
<CAPTION>
U.S. UNDERWRITER NUMBER OF SHARES
---------------- ----------------
<S> <C>
Smith Barney Inc.........................................
William Blair & Company, L.L.C...........................
Credit Suisse First Boston Corporation...................
Donaldson, Lufkin & Jenrette Securities Corporation......
NationsBanc Montgomery Securities LLC....................
----------
Total................................................ 13,760,000
==========
</TABLE>
Under the terms and subject to the conditions contained in the International
Underwriting Agreement dated , 1998, each of the managers of
the concurrent international offering of Common Stock named below (the
"Managers"), for whom Smith Barney Inc., William Blair & Company, L.L.C.,
Credit Suisse First Boston (Europe) Limited, Donaldson, Lufkin & Jenrette
International and NationsBanc Montgomery Securities LLC are acting as lead
managers (the "Lead Managers"), has severally agreed to purchase, and the
Company and the Selling Stockholders have agreed to sell to each Manager,
shares of Common Stock which equal the number of shares set forth opposite the
name of such Manager below:
<TABLE>
<CAPTION>
MANAGER NUMBER OF SHARES
------- ----------------
<S> <C>
Smith Barney Inc.........................................
William Blair & Company, L.L.C...........................
Credit Suisse First Boston (Europe) Limited..............
Donaldson, Lufkin & Jenrette International...............
NationsBanc Montgomery Securities LLC....................
---------
Total................................................ 3,440,000
=========
</TABLE>
The U.S. Underwriters and the Managers (collectively, the "Underwriters")
initially propose to offer part of the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus and part to certain dealers at a price that represents a concession
not in excess of $ per
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share below the public offering price. The U.S. Underwriters and the Managers
may allow, and such dealers may re-allow, a concession not in excess of
$ per share to the other U.S. Underwriters or Managers, respectively, or
to certain other dealers. After the initial public offering, the public
offering price and such concessions may be changed by the U.S. Underwriters
and the Managers. The Representatives and the Lead Managers have advised the
Company that the U.S. Underwriters and the Managers do not intend to confirm
any sales to accounts over which they exercise discretionary authority.
The Company and the Selling Stockholders have each granted to the U.S.
Underwriters and the Managers an option, exercisable for 30 days from the date
of this Prospectus, to purchase up to 1,290,000 additional shares of Common
Stock (2,580,000 shares of Common Stock in the aggregate) at the public
offering price set forth on the cover page of this Prospectus less
underwriting discounts and commissions. The U.S. Underwriters and the Managers
may exercise such option to purchase additional shares solely for the purpose
of covering over-allotments, if any, incurred in connection with the sale of
the shares offered hereby. To the extent such option is exercised, each U.S.
Underwriter and each Manager will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares set forth opposite such U.S. Underwriter's or
Manager's name in the preceding tables bears to the total number of shares in
such tables.
The Company, the Selling Stockholders, the U.S. Underwriters and the
Managers have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act.
The Company and the holders of the remaining outstanding shares of Common
Stock have agreed not to sell, offer to sell, solicit an offer to buy,
contract to sell, grant any option to purchase, or otherwise transfer or
dispose of, any shares of Common Stock, or any securities convertible into or
exercisable or exchangeable for Common Stock, other than the shares subject to
the Underwriters' over-allotment option, without the prior written consent of
Salomon Smith Barney, for a period of 180 days after the date of this
Prospectus, subject to certain limited exceptions.
The U.S. Underwriters and the Managers have entered into an Agreement
Between U.S. Underwriters and Managers pursuant to which each U.S. Underwriter
has agreed that, as part of the distribution of the 13,760,000 shares offered
in the U.S. Offering (i) it is not purchasing any such shares for the account
of anyone other than a U.S. or Canadian Person and (ii) it has not offered or
sold, and will not, offer, sell, resell or deliver, directly or indirectly,
any of such shares or distribute any prospectus relating to the U.S. Offering
outside the United States or Canada or to anyone other than a U.S. or Canadian
Person. In addition, each Manager has agreed that as part of the distribution
of the 3,440,000 shares offered in the International Offering: (i) it is not
purchasing any such shares for the account of any U.S. or Canadian Person and
(ii) it has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of such shares or distribute any prospectus
relating to the International Offering in the United States or Canada or to
any U.S. or Canadian Person. Each Manager has also agreed that it will offer
to sell shares only in compliance with all relevant requirements of any
applicable laws.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the U.S. Underwriting Agreement, the
International Underwriting Agreement and the Agreement Between U.S.
Underwriters and Managers, including: (i) certain purchases and sales between
the U.S. Underwriters and the Managers, (ii) certain offers, sales, resales,
deliveries or distributions to or through investment advisors or other persons
exercising investment discretion, (iii) purchases, offers or sales by a U.S.
Underwriter who is also acting as Manager or by a Manager who is also acting
as a U.S. Underwriter and (iv) other transactions specifically approved by the
Representatives and the Lead Managers. As used herein, "U.S. or Canadian
Person" means any resident or national of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or any estate or trust the income of which
is subject to United States or Canadian income taxation regardless of the
source of its income (other than the foreign branch of any U.S. or Canadian
Person), and includes any United States or Canadian branch of a person other
than a U.S. or Canadian Person.
Any offer of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the relevant province of Canada
in which such offer is made.
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Each Manager agrees that (i) it will not offer or sell any shares to persons
in the United Kingdom except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances
which will not involve an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995 ("the
Regulations"); (ii) it will comply with all applicable provisions of the
Financial Services Act 1986 and the Regulations with respect to anything done
by it in relation to the shares in, from, or otherwise involving the United
Kingdom; and (iii) it will only issue or pass on to any person in the United
Kingdom any document received by it in connection with the offer of the shares
if that person is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a
person to whom such document may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction by the Company, the
Selling Stockholders or the Managers that would permit an offering to the
general public of the shares offered hereby in any jurisdiction other than the
United States.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
Pursuant to the Agreement Between U.S. Underwriters and Managers, sales may
be made between the U.S. Underwriters and the Managers of such number of
shares as may be mutually agreed. The price of any shares so sold shall be the
public offering price as then in effect for shares being sold by the U.S.
Underwriters and the Managers, less all or any part of the selling concession,
unless otherwise determined by mutual agreement. To the extent that there are
sales between the U.S. Underwriters and the Managers pursuant to the Agreement
Between U.S. Underwriters and Managers, the number of shares initially
available for sale by the U.S. Underwriters and by the Managers may be more or
less than the number of shares appearing on the front cover of this
Prospectus.
Prior to the Offerings, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Shares of Common Stock included in the Offerings has been determined by
negotiations between the Company, the Selling Stockholders, and the
Representatives. Among the factors considered in determining such price were
the history of and prospects for the Company's business and the industry in
which it competes, an assessment of the Company's management and the present
state of the Company's development, the past and present revenues and earnings
of the Company, the prospects for growth of the Company's revenues and
earnings, the current state of the economy in the United States, the current
level of economic activity in the industry in which the Company competes and
in related or comparable industries, and currently prevailing conditions in
the securities markets, including current market valuations of publicly traded
companies which are comparable to the Company.
In connection with the Offerings and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Common Stock than the total amount
shown on the lists of Underwriters and participations which appears above) and
may effect transactions that stabilize, maintain or otherwise affect the
market price of the Common Stock at levels above those which might otherwise
prevail in the open market. Such transactions may include placing bids for the
Common Stock or effecting purchases of the Common Stock for the purpose of
pegging, fixing or maintaining the price of the Common Stock or for the
purpose of reducing a syndicate short position created in connection with the
Offerings. A syndicate short position may be covered by exercise of the option
described above in lieu of or in addition to open market purchases. In
addition, the contractual arrangements among the Underwriters include a
provision whereby, if Smith Barney Inc. purchases Common Stock in the open
market for the account of the underwriting syndicate and the securities
purchased can be traced to a particular Underwriter or member of the selling
group, the underwriting syndicate may require the Underwriter or selling group
member in question to purchase the Common Stock in question at the cost price
to the syndicate or may recover from (or decline to pay) the Underwriter or
selling group member in question the
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selling concession applicable to the securities in question. The Underwriters
are not required to engage in any of these activities and any such activities,
if commenced, may be discontinued at any time.
Smith Barney Inc. and Salomon Brothers Inc have provided investment banking
services and financial advisory services to the Company in the past, including
acting as initial purchasers in the Company's offering of Notes in November
1997, for which Smith Barney Inc. and Salomon Brothers Inc received usual and
customary fees. The Underwriters may, in the future, provide investment
banking services to the Company, for which they will receive compensation.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") has provided
investment banking services and financial advisory services to Falconite in
the past and is acting as Falconite's financial advisor in connection with the
sale of Falconite. In connection therewith, DLJ will receive usual and
customary compensation.
Of the shares of Common Stock offered hereby, 860,000 shares have been
reserved (the "Reserved Shares") for sale to certain individuals, including
employees of the Company and members of their families. The Reserved Shares
will be sold at a price per share equal to the public offering price set forth
on the cover page of this Prospectus. The number of shares available to the
general public will be reduced to the extent those persons purchase Reserved
Shares. Any shares not so purchased will be offered in the Offerings at the
public offering price set forth on the cover page of this Prospectus.
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 included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
The financial statements of Aerial Platforms, Inc. as of January 31, 1997
and February 17, 1997 and for the year ended January 31, 1997 and the
seventeen days ended February 17, 1997 included in this Prospectus have been
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 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 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 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 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
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.
62
<PAGE>
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 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
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Albany Ladder Company, Inc. as of December 31,
1997 and for the year then ended included in this Prospectus have been
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Dragon Rentals (a wholly owned division of The
Modern Group, Inc.) as of December 31, 1996 and 1997 and for the years then
ended included in this Prospectus have been 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 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 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 included in reliance
on the report of KPMG Peat Marwick L.L.P., independent accountants, given on
the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Kirkland & Ellis, Chicago, Illinois (a partnership which includes
professional corporations). Certain legal matters will be passed upon for the
Underwriters by Latham & Watkins, New York, New York.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (of which
this Prospectus is a part and which term shall encompass any amendments
thereto) on Form S-1 pursuant to the Securities Act with respect to the Common
Stock being offered in the Offerings. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which are omitted as permitted by the
rules and regulations of the Commission. Statements made in this Prospectus as
to the contents of any contract, agreement or other document referred to are
not necessarily complete; with respect to any such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
63
<PAGE>
made to the exhibit for a more complete description of the matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. For further information about the Company and the securities
offered hereby, reference is made to the Registration Statement and to the
financial statements, schedules and exhibits filed as a part thereof.
Upon completion of the Offerings, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file reports and other information with the Commission. The Registration
Statement, the exhibits and schedules forming a part thereof and the reports
and other information filed by the Company with the Commission in accordance
with the Exchange Act may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the following regional
offices of the Commission: Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material or any part thereof may also be
obtained by mail from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates or accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
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.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
Financial Statements -- December 31, 1996, December 31, 1997 and March
31, 1998
Report of Independent Accountants...................................... F-3
Consolidated Balance Sheets............................................ F-4
Consolidated Statements of Operations.................................. F-5
Consolidated Statements of Cash Flows.................................. F-6
Consolidated Statements of Changes in Stockholders' Equity............. F-7
Notes to Consolidated Financial Statements............................. F-8
AERIAL PLATFORMS, INC.
Financial Statements -- January 31, 1997 and February 17, 1997
Report of Independent Accountants...................................... F-17
Balance Sheets......................................................... F-18
Statements of Operations............................................... F-19
Statements of Cash Flows............................................... F-20
Statements of Changes in Stockholder's Equity.......................... F-21
Notes to Financial Statements.......................................... F-22
LONE STAR RENTALS, INC.
Financial Statements -- December 31, 1995 and 1996 and March 16, 1997
Report of Independent Accountants...................................... F-27
Balance Sheets......................................................... F-28
Statements of Operations............................................... F-29
Statements of Cash Flows............................................... F-30
Statements of Changes in Stockholder's Equity.......................... F-31
Notes to Financial Statements.......................................... F-32
BAT RENTALS, INC.
Financial Statements -- December 31, 1995 and 1996 and March 31, 1997
Report of Independent Accountants...................................... F-38
Balance Sheets......................................................... F-39
Statements of Operations............................................... F-40
Statements of Cash Flows............................................... F-41
Statements of Changes in Stockholder's Equity.......................... F-42
Notes to Financial Statements.......................................... F-43
SPRINTANK AND SPRINTANK MOBILE STORAGE (DIVISIONS OF SPRINT INDUSTRIAL
SERVICES, INC.)
Financial Statements -- December 31, 1995 and 1996 and June 30, 1997
Report of Independent Accountants...................................... F-48
Balance Sheets......................................................... F-49
Statements of Operations............................................... F-50
Statements of Cash Flows............................................... F-51
Statements of Changes in Divisional Equity............................. F-52
Notes to Financial Statements.......................................... F-53
MST ENTERPRISES, INC. D/B/A EQUIPCO RENTALS AND SALES
Financial Statements -- October 31, 1995 and 1996 and July 17, 1997
Report of Independent Accountants...................................... F-58
Balance Sheets......................................................... F-59
Statements of Operations............................................... F-60
Statements of Cash Flows............................................... F-61
Statements of Changes in Stockholder's Equity.......................... F-62
Notes to Financial Statements.......................................... F-63
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
WORK SAFE SUPPLY CO., INC.
Consolidated Financial Statements -- December 31, 1995, 1996 and 1997
Report of Independent Accountants...................................... F-68
Consolidated Balance Sheets............................................ F-69
Consolidated Statements of Operations.................................. F-70
Consolidated Statements of Cash Flows.................................. F-71
Consolidated Statements of Changes in Stockholder's Equity............. F-72
Notes to Consolidated Financial Statements............................. F-73
GENPOWER PUMP & EQUIPMENT, INC.
Financial Statements -- December 31, 1997
Report of Independent Accountants...................................... F-77
Balance Sheet.......................................................... F-78
Statement of Operations................................................ F-79
Statement of Changes in Stockholder's Equity........................... F-80
Statement of Cash Flows................................................ F-81
Notes to Financial Statements.......................................... F-82
CORMIER EQUIPMENT CORPORATION
Financial Statements -- December 31, 1995, 1996 and 1997
Independent Auditors' Report........................................... F-87
Balance Sheets......................................................... F-88
Statements of Earnings and Retained Earnings........................... F-89
Statements of Cash Flows............................................... F-90
Notes to Financial Statements.......................................... F-91
DRAGON RENTALS (DIVISION OF THE MODERN GROUP, INC.)
Financial Statements -- December 31, 1996 and 1997
Report of Independent Accountants...................................... F-93
Balance Sheets......................................................... F-94
Statements of Income and Expenses...................................... F-95
Statements of Cash Flows............................................... F-96
Notes to Financial Statements.......................................... F-97
ALBANY LADDER COMPANY, INC.
Financial Statements -- December 31, 1997
Report of Independent Accountants...................................... F-102
Balance Sheet.......................................................... F-103
Statement of Operations................................................ F-104
Statement of Cash Flows................................................ F-105
Statement of Changes in Stockholder's Equity........................... F-106
Notes to Financial Statements.......................................... F-107
FALCONITE, INC. AND SUBSIDIARIES
Consolidated Financial Statements--December 31, 1995, 1996, 1997 and
March 31, 1998
Reports of Independent Accountants..................................... F-111
Consolidated Balance Sheets............................................ F-113
Consolidated Statements of Income...................................... F-114
Consolidated Statements of Shareholders' Equity........................ F-115
Consolidated Statements of Cash Flows.................................. F-116
Notes to Consolidated Financial Statements............................. F-117
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Financial Statements............... F-129
Unaudited Pro Forma Statements of Operations........................... F-130
Unaudited Pro Forma Balance Sheet...................................... F-133
Notes to Unaudited Pro Forma Financial Statements...................... F-134
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of National Equipment Services, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity, present fairly, in all material respects, the financial
position of National Equipment Services, Inc. and subsidiaries at December 31,
1996 and December 31, 1997, and the results of its operations and its cash
flows for the period from inception (June 4, 1996) through December 31, 1996
and the year ended December 31, 1997 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
April 1, 1998
F-3
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31,
DECEMBER 31, DECEMBER 31, MARCH 31, 1998
1996 1997 1998 (NOTE 14)
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents... $ 12 $ 35,682 $ 3,773 $ 3,773
Accounts receivable, net of
allowance for doubtful
accounts of $0, $254, $737
and $737, respectively..... -- 8,356 24,095 24,095
Inventory, net.............. -- 2,239 7,158 7,158
Rental equipment, net....... -- 46,801 104,937 104,937
Property and equipment, net. 17 3,012 6,968 6,968
Intangible assets, net...... -- 27,937 86,888 86,888
Loan origination costs, net. -- 6,270 6,139 6,139
Prepaid and other assets,
net........................ 187 840 2,345 2,345
----- -------- -------- --------
Total assets.............. $ 216 $131,137 $242,303 $242,303
===== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Accounts payable............ $ -- $ 2,489 $ 9,647 $ 9,647
Accrued interest............ -- 1,066 3,904 3,904
Accrued expenses and other
liabilities................ 110 2,327 7,938 7,938
Debt........................ -- 98,782 193,954 193,954
----- -------- -------- --------
Total liabilities......... 110 104,664 215,443 215,443
Commitments and contingencies
(Note 10)
STOCKHOLDERS' EQUITY:
Class A Common stock, $0.01
par, 50,000 shares
authorized, 0, 25,011,
25,221 and 0, respectively,
shares issued and
outstanding................. -- 1 1 --
Class B Common stock, $0.01
par, 150,000 shares
authorized, 30,108, 89,900,
90,100 and 0, respectively,
shares issued and
outstanding................. 1 1 1 --
Common stock, $0.01 par
value, 100,000,000 shares
authorized, 15,342,257
shares issued and
outstanding................. -- -- -- 153
Additional paid-in capital... 301 25,663 25,911 25,760
Retained earnings
(accumulated deficit)....... (195) 910 1,049 1,049
Stock subscriptions
receivable.................. (1) (102) (102) (102)
----- -------- -------- --------
Total stockholders'
equity................... 106 26,473 26,860 26,860
----- -------- -------- --------
Total liabilities and
stockholders' equity..... $ 216 $131,137 $242,303 $242,303
===== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
(JUNE 4,
1996) FOR THE FOR THE THREE
THROUGH YEAR ENDED MONTHS ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -----------------------
1996 1997 1997 1998
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Rental revenues............ $ -- $26,398 $1,276 $15,815
Rental equipment sales..... -- 4,186 93 1,742
New equipment sales and
other..................... -- 10,704 950 4,594
------ ------- ------ -------
Total revenues........... -- 41,288 2,319 22,151
------ ------- ------ -------
COST OF REVENUES:
Rental equipment
depreciation.............. -- 5,009 335 2,727
Cost of rental equipment
sales..................... -- 2,935 75 1,037
Cost of new equipment
sales..................... -- 4,872 306 2,187
Other operating expenses... -- 12,899 760 7,549
------ ------- ------ -------
Total cost of revenues... -- 25,715 1,476 13,500
------ ------- ------ -------
Gross profit................ -- 15,573 843 8,651
Selling, general and
administrative expenses.... 333 7,910 783 4,531
Non-rental depreciation and
amortization............... 3 1,476 88 807
------ ------- ------ -------
Operating income (loss)..... (336) 6,187 (28) 3,313
Other income (expense), net. -- 72 -- 77
Interest income (expense),
net........................ 4 (4,336) (262) (3,100)
------ ------- ------ -------
Income (loss) before income
taxes...................... (332) 1,923 (290) 290
Income tax expense
(benefit).................. (137) 818 (135) 151
------ ------- ------ -------
Net income (loss)........... $ (195) $ 1,105 $ (155) $ 139
====== ======= ====== =======
Historical net income per
share (unaudited):
Basic...................... $(0.05) $ 0.09 $(0.02) $ 0.01
Diluted.................... $(0.05) $ 0.08 $(0.01) $ 0.01
Historical weighted average
shares outstanding
(unaudited):
Basic...................... 4,185 11,855 9,506 11,299
Diluted.................... 4,185 13,642 11,116 15,300
Pro forma net income per
share (unaudited):
Basic...................... $ 0.04 $ 0.01
Diluted.................... $ 0.04 $ 0.01
Pro forma weighted average
shares outstanding
(unaudited):
Basic...................... 27,116 27,376
Diluted.................... 28,415 28,415
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
(JUNE 4, FOR THE FOR THE
1996) YEAR THREE MONTHS
THROUGH ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -----------------------
1996 1997 1997 1998
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........... $(195) $ 1,105 $ (155) $ 139
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization.............. 3 6,892 423 3,809
Gain on sale of equipment.. -- (1,446) (18) (719)
Changes in operating assets
and liabilities:
Accounts receivable....... -- (1,335) 111 (737)
Inventory................. -- 202 (173) (413)
Prepaid and other assets.. (187) 139 (344) (795)
Accounts payable.......... -- 1,620 (604) 3,229
Accrued expenses and other
liabilities.............. 110 201 330 3,148
----- --------- -------- ---------
Net cash provided by (used
in) operating activities... (269) 7,378 (430) 7,661
----- --------- -------- ---------
INVESTING ACTIVITIES:
Net cash paid for
acquisitions............... -- (68,910) (22,305) (110,086)
Purchases of rental
equipment.................. -- (15,336) (853) (12,385)
Proceeds from sale of rental
equipment.................. -- 4,186 93 1,742
Purchases of property and
equipment.................. (20) (1,473) (122) (159)
Proceeds from sale of
property and equipment..... -- 36 -- 16
----- --------- -------- ---------
Net cash used in investing
activities................. (20) (81,497) (23,187) (120,872)
----- --------- -------- ---------
FINANCING ACTIVITIES:
Proceeds from long-term
debt....................... -- 222,307 19,786 81,154
Payments on long-term debt.. -- (131,119) -- --
Net proceeds from sales of
common stock............... 301 25,263 6,479 248
Payments of loan origination
costs...................... -- (6,662) (396) (100)
----- --------- -------- ---------
Net cash provided by
financing activities....... 301 109,789 25,869 81,302
----- --------- -------- ---------
Net increase (decrease) in
cash and cash equivalents.. 12 35,670 2,252 (31,909)
Cash and cash equivalents at
beginning of period........ -- 12 12 35,682
----- --------- -------- ---------
Cash and cash equivalents at
end of period.............. $ 12 $ 35,682 $ 2,264 $ 3,773
===== ========= ======== =========
SUPPLEMENTAL NON-CASH FLOW
INFORMATION:
Cash paid for interest...... $ -- $ 2,707 $ -- $ --
===== ========= ======== =========
Cash paid for income taxes.. $ -- $ 1,113 $ -- $ --
===== ========= ======== =========
Non cash issuance of stock.. $ 1 $ 101 $ -- $ --
===== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
--------------- ADDITIONAL EARNINGS STOCK TOTAL
CLASS A CLASS B PAID-IN (ACCUMULATED SUBSCRIPTIONS STOCKHOLDERS'
SHARES SHARES CAPITAL DEFICIT) RECEIVABLE EQUITY
------- ------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued at
inception
(June 4, 1996)......... $ -- $ 1 $ 301 $ -- $ (1) $ 301
Net loss................ -- -- -- (195) -- (195)
---- --- ------- ------ ----- -------
Balance at December 31,
1996................... -- 1 301 (195) (1) 106
Sale of shares.......... 1 -- 25,362 -- (101) 25,262
Net income.............. -- -- -- 1,105 -- 1,105
---- --- ------- ------ ----- -------
Balance at December 31,
1997................... 1 1 25,663 910 (102) 26,473
---- --- ------- ------ ----- -------
Sale of shares
(unaudited)............ -- -- 248 -- -- 248
Net income (unaudited).. -- -- -- 139 -- 139
---- --- ------- ------ ----- -------
Balance at March 31,
1998 (unaudited)....... $ 1 $ 1 $25,911 $1,049 $(102) $26,860
==== === ======= ====== ===== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
National Equipment Services, Inc. ("NES") was organized on June 4, 1996
under the laws of Delaware for the purpose of owning and operating equipment
rental facilities by means of acquiring existing businesses. NES is primarily
involved in the rental of equipment to construction and industrial users. NES
operates from locations in Alabama, Georgia, Louisiana, Nevada, Texas and
Virginia.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include accounts of NES and its
subsidiaries. All intercompany transactions and balances have been eliminated.
FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL DATA
The interim financial data is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for fair statements of financial position and
results of operations for the interim periods.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
INVENTORY
NES's inventories primarily consist of parts and new equipment held for
sale. Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market.
RENTAL EQUIPMENT
Rental equipment is recorded at invoice cost. Depreciation for rental
equipment acquired is computed using the straight-line method over 5 to 15
year useful lives with no salvage value. Accumulated depreciation on rental
equipment was $4,763,000 at December 31, 1997.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When rental equipment is disposed of, the related cost and
accumulated depreciation are removed from the respective accounts. Proceeds
from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from rental
equipment sales and cost of equipment sales in the statement of operations.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
The estimated useful lives for property and equipment range from 5 to 7
years for machinery and equipment, 5 to 7 years for furniture and fixtures and
3 to 5 years for vehicles.
Ordinary repairs and maintenance costs are charged to operations as
incurred. When property and equipment is disposed of, the related cost and
accumulated depreciation are removed from the respective accounts, and any
gains or losses are included in results of operations.
F-8
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
Since inception, NES adopted Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and Long-
Lived Assets to be Disposed of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the assets' carrying amounts and related goodwill exceed the
undiscounted cash flows estimated to be generated by those assets. SFAS No.
121 also requires impairment losses to be recorded when the carrying amount of
long-lived assets that are expected to be disposed of exceeds their fair
values, net of disposal costs. SFAS No. 121 did not have a material impact on
NES's financial position or results of operations the period from inception
(June 4, 1996) through December 31, 1996 or year ended December 31, 1997.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 "Earnings per Share." For the company, SFAS No. 128 will be
effective for the year ended December 31, 1997. SFAS No. 128 simplifies the
standards required under current accounting rules for computing earnings per
share and replaces the presentation of primary earnings per share and fully
diluted earnings per share with a presentation of basic earnings per share
("basic EPS") and diluted earnings per share ("diluted EPS"). Basic EPS
excludes dilution and is determined by dividing income available to common
stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution that could
occur if securities and other contracts to issue common stock were exercised
or converted into common stock. Diluted EPS is computed similarly to fully
diluted earnings per share under current accounting rules. The implementation
of SFAS No. 128 is presented with the Company's results of operations 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.
PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share 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.
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.
F-9
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 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>
F-10
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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.
F-11
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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.
F-12
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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>
F-13
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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.
F-14
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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.
F-15
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 would have been
achieved had these acquisitions been completed as of these dates, nor are the
results indicative of NES's future results of operations.
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
(UNAUDITED) (UNAUDITED)
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Revenues........................................ $120,475 $146,000
Operating income................................ 19,234 26,821
Net income...................................... 751 5,439
</TABLE>
Additionally, subsequent to year end, NES entered into a definitive purchase
agreement to acquire Falconite, Inc., a rental equipment company with
operations in nine southern and midwestern states for $171.25 million and
$3.75 million of 8% convertible subordinated promissory notes. This pending
acquisition is planned to close in 1998 in connection with an initial public
offering of the Company's stock.
14. PRO FORMA BALANCE SHEET (UNAUDITED)
In connection with its initial public offering of common stock, the Company
announced its plan to exchange all of its Class A and Class B common stock for
newly established common stock. The Class A and Class B stock will be
converted into 110,376 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-16
<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-17
<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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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-55
<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-56
<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-57
<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-58
<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-59
<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-60
<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-61
<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-62
<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-63
<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-64
<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-65
<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-66
<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-67
<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-68
<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-69
<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-70
<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-71
<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-72
<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-73
<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-74
<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-75
<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-76
<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-77
<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-78
<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-79
<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-80
<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-81
<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-82
<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-83
<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-84
<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-85
<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-86
<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 each of the three years in
the period then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
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 then ended in conformity with
generally accepted accounting principles.
/s/ Albin, Randall & Bennett, Certified Public Accountants
Lewiston, Maine
February 3, 1998
F-87
<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-88
<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-89
<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-90
<PAGE>
CORMIER EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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-91
<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-92
<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-93
<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-94
<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-95
<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-96
<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-97
<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-98
<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-99
<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-100
<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-101
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Albany Ladder Company, Inc. and the Board of Directors
of National Equipment Services, Inc.
In our opinion, the accompanying balance sheet and the related statement of
operations, of cash flows and of changes in stockholder's equity, present
fairly, in all material respects, the financial position of Albany Ladder
Company, Inc. at December 31, 1997, and the results of its operations and its
cash flows in the period then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
March 31, 1998
F-102
<PAGE>
ALBANY LADDER COMPANY, INC.
BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS:
Cash and cash equivalents............................................. $ 87
Marketable securities................................................. 104
Accounts receivable, net.............................................. 5,951
Inventory............................................................. 2,878
Rental equipment, net................................................. 15,116
Property and equipment, net........................................... 2,139
Prepaid and other assets.............................................. 927
-------
Total assets....................................................... $27,202
=======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable...................................................... $ 980
Accrued expenses and other liabilities................................ 1,020
Notes payable--shareholder............................................ 370
Notes payable......................................................... 11,900
-------
Total liabilities.................................................. 14,270
Commitments and contingencies (Note 9)
Common stock:
Class A shares, $100 par, 1,200 shares authorized, 246 shares issued
and outstanding ..................................................... 25
Class B shares, $100 par, 2,000 shares authorized, 941 shares issued
and outstanding ..................................................... 94
Additional paid-in capital............................................. 333
Retained earnings...................................................... 12,391
Unrealized gain on marketable securities available for sale............ 89
-------
Total stockholders' equity......................................... 12,932
-------
Total liabilities and stockholders' equity......................... $27,202
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-103
<PAGE>
ALBANY LADDER COMPANY, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES:
Rental revenues....................................................... $18,410
Rental equipment sales................................................ 1,885
New equipment sales................................................... 8,931
Other................................................................. 4,978
-------
Total revenues..................................................... 34,204
-------
COST OF REVENUES:
Rental equipment expenses............................................. 4,800
Rental equipment depreciation......................................... 3,445
Cost of rental equipment sales........................................ 721
Cost of new equipment sales........................................... 7,725
Direct operating expense.............................................. 5,938
-------
Total cost of revenues............................................. 22,629
-------
Gross profit........................................................... 11,575
Selling, general and administrative expenses........................... 7,796
Non-rental depreciation................................................ 640
-------
Operating income....................................................... 3,139
Other income, net...................................................... 117
Interest expense, net.................................................. (846)
-------
Net income............................................................. $ 2,410
=======
PRO FORMA TAX PROVISION (UNAUDITED):
Income before income taxes............................................ $ 2,410
Pro forma provision for income taxes.................................. (964)
Pro forma net income.................................................. $ 1,446
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-104
<PAGE>
ALBANY LADDER COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net income.......................................................... $ 2,410
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation....................................................... 4,085
Gain on sale of equipment.......................................... (987)
Changes in operating assets and liabilities:
Accounts receivable............................................... (1,172)
Inventories....................................................... (92)
Prepaid and other assets.......................................... (483)
Accounts payable.................................................. 262
Accrued expenses and other liabilities............................ 239
--------
Net cash provided by operating activities............................ 4,262
--------
INVESTING ACTIVITIES:
Purchases of rental equipment....................................... (6,516)
Proceeds from sale of rental equipment.............................. 1,885
Purchases of property and equipment................................. (284)
Proceeds from sale of property and equipment........................ 13
--------
Net cash used in investing activities................................ (4,902)
--------
FINANCING ACTIVITIES:
Proceeds from long-term debt........................................ 12,104
Payments on long-term debt.......................................... (10,630)
Dividends paid...................................................... (859)
--------
Net cash provided by financing activities........................... 615
--------
Net increase (decrease) in cash..................................... (25)
Cash at beginning of period......................................... 112
--------
Cash at end of period............................................... $ 87
========
SUPPLEMENTAL NON-CASH FLOW INFORMATION:
Cash paid for interest.............................................. $ 811
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-105
<PAGE>
ALBANY LADDER COMPANY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- TOTAL
CLASS A CLASS B STATED PAID-IN UNREALIZED RETAINED STOCKHOLDERS'
SHARES SHARES VALUE CAPITAL GAIN EARNINGS EQUITY
------- ------- ------ ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 246 941 $119 $333 $59 $10,840 $11,351
Net income.............. -- -- -- -- -- 2,410 2,410
Increase in unrealized
gain................... -- -- -- -- 30 -- 30
Dividends............... -- -- -- -- -- (859) (859)
--- --- ---- ---- --- ------- -------
Balance at December 31,
1997................... 246 941 $119 $333 $89 $12,391 $12,932
=== === ==== ==== === ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<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-107
<PAGE>
ALBANY LADDER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for marketable
securities, trade accounts receivable, accounts payable and accrued expenses
and other liabilities approximate fair value due to the immediate to short-
term maturity of these financial instruments. The fair value of long-term debt
is determined using current interest rates for similar instruments and
approximates the carrying value of the debt as of December 31, 1997.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of trade accounts receivable
from construction and industrial customers. Concentrations of credit risk with
respect to trade accounts receivable are limited due to the large number of
customers and the Company's geographic dispersion. The Company performs credit
evaluations of its customers' financial condition and generally does not
require collateral on accounts receivable. The Company maintains an allowance
for doubtful accounts on its receivables based upon expected collectibility.
Allowance for doubtful accounts was $372 at December 31, 1997.
INCOME TAXES
The Company has elected S corporation status under the U.S. Internal Revenue
Code. Pursuant to this election, the Company's income, deductions and credits
are reported on the income tax returns of the Company's stockholders for
federal purposes and, accordingly, no provision for federal income taxes has
been made. Pro forma income taxes are calculated at a statutory tax rate of
40%.
2. INVENTORY
Inventory consists of the following at December 31, 1997 (in thousands):
<TABLE>
<S> <C>
New equipment..................................................... $ 693
Parts and supplies................................................ 1,541
Scaffolding and ladders........................................... 525
Other............................................................. 119
------
Total inventory................................................... $2,878
======
</TABLE>
3. RENTAL EQUIPMENT
Rental equipment consists of the following at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
Rental equipment................................................. $30,990
Less: accumulated depreciation................................... (15,874)
-------
Rental equipment, net............................................ $15,116
=======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
Leasehold improvements............................................ $ 617
Vehicles.......................................................... 3,370
Machinery and shop equipment...................................... 471
Computer equipment................................................ 847
------
Total property and equipment, at cost............................. 5,305
Less: accumulated depreciation.................................... (3,166)
------
Property and equipment, net....................................... $2,139
======
</TABLE>
F-108
<PAGE>
ALBANY LADDER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. PREPAID AND OTHER ASSETS
Prepaid and other assets consist of the following at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
Prepaid expenses.................................................... $225
Employee and other receivables...................................... 702
----
$927
====
</TABLE>
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following at December
31, 1997 (in thousands):
<TABLE>
<S> <C>
Accrued salaries and benefits.................................... $ 388
Sales tax payable................................................ 163
Accrued insurance................................................ 232
Accrued professional fees........................................ 107
Other............................................................ 130
------
$1,020
======
</TABLE>
7. NOTES PAYABLE
Notes payable consist of a secured revolving line of credit of $13,350,000
maturing no later than August 31, 1999. The Company has the right to elect
various interest rate options under the agreement. These options include
floating rates fluctuating with the bank's prime rate and fixed rates for
varying periods fluctuating with published LIBOR or treasury rates. Interest
payments are due monthly. Interest rates in effect at December 31, 1997 were
as follows (dollar amounts in thousands):
<TABLE>
<S> <C>
Interest at 7.31%................................................. $10,025
Interest at 8.25%................................................. 1,875
-------
Total notes payable............................................... $11,900
=======
</TABLE>
The bank agreement includes restrictions as to limitations upon certain
ratios of liabilities to net worth and upon the minimum net worth of the
Company. The Company is in compliance with these covenants. Substantially all
of the Company's assets are pledged as collateral for the long-term debt.
Maturities of debt are as follows at December 31, 1997 (in thousands):
<TABLE>
<S> <C>
1998.............................................................. $ --
1999.............................................................. 11,900
Thereafter........................................................ --
-------
$11,900
=======
</TABLE>
Interest expense on long-term debt for the year ended December 31, 1997 was
$795.
F-109
<PAGE>
ALBANY LADDER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. NOTES PAYABLE--SHAREHOLDER
Notes payable--shareholder consists of the following at December 31, 1997
(in thousands):
<TABLE>
<S> <C>
Note payable, shareholder, unsecured, due on demand with interest
payable monthly at prime plus 3%.................................. $170
Note payable, shareholder, unsecured, due on demand with interest
payable monthly at prime plus 1%.................................. 200
----
Total notes payable--shareholder............................... $370
====
</TABLE>
Interest expense on shareholder debt for the year ended December 31, 1997
was $39.
9. COMMITMENTS AND CONTINGENCIES
The Company leases office and warehouse space at eight locations. The leases
have varying expiration dates through April 2001, with certain leases
containing extension options. In addition to the monthly rental payments,
these leases also require payment of the related utilities, maintenance, and
real estate taxes for the respective properties.
The Company also leases various vehicles and equipment. The leases have
varying expiration dates through October 2002.
Rental expense totaled $570 for the year ended December 31, 1997.
Future minimum lease obligations are as follows at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
1998................................................................ $ 404
1999................................................................ 312
2000................................................................ 181
2001................................................................ 67
2002................................................................ 12
-----
$976
=====
</TABLE>
10. EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) profit sharing plan (the "Plan"). Employees
meeting certain age and length of service requirements are eligible to
participate in the Plan. The Company makes contributions varying with the
level of employee participation, up to certain limits. The Company contributed
$157,000 to the plan during the year ended December 31, 1997.
11. SUBSEQUENT EVENTS
On March 30, 1998, the Company's owners sold all of the outstanding Class A
and B shares of common stock to National Equipment Services, Inc. in exchange
for a $28,811,000 cash payment (less a $2,000,000 million reserve).
F-110
<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-111
<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-112
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------- -----------------
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........ $ 416,000 $ 820,000 $1,642,000
Trade accounts receivable, less
allowance for doubtful accounts
of $522,000, $431,000 and
$410,000, respectively.......... 7,294,000 9,281,000 8,862,000
Due from affiliated companies and
related parties................. 453,000 -- --
Income taxes receivable.......... 136,000 382,000 374,000
Inventories...................... 1,615,000 1,596,000 2,658,000
Rental equipment, principally
machinery, at cost less
accumulated depreciation of
$12,989,000, $21,489,000 and
24,104,000, respectively........ 81,583,000 107,721,000 112,937,000
Operating property and equipment,
net............................. 7,018,000 10,542,000 11,547,000
Excess of cost over net assets of
purchased businesses, less
accumulated amortization........ 17,059,000 16,279,000 17,069,000
Prepaid and other assets, at cost
less accumulated amortization... 1,884,000 1,447,000 1,137,000
------------ ------------ ------------
$117,458,000 $148,068,000 $156,226,000
============ ============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Trade accounts payable........... $ 13,587,000 $ 2,184,000 $ 1,715,000
Accrued expenses................. 657,000 2,196,000 1,883,000
Accrued interest payable......... 140,000 666,000 715,000
Revolving lines of credit........ 27,152,000 91,416,000 100,762,000
Obligations under capital lease.. 1,600,000 4,093,000 3,886,000
Term debt........................ 31,867,000 4,691,000 3,782,000
Deferred income taxes............ 7,801,000 9,645,000 9,645,000
Due to affiliated companies and
related parties................. 121,000 39,000 35,000
Other liabilities................ 377,000 742,000 571,000
------------ ------------ ------------
Total liabilities.............. 83,302,000 115,672,000 122,994,000
------------ ------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, Falconite, Inc.,
$0.01 par value; authorized,
1,000,000 shares; issued and
outstanding, zero shares........ -- -- --
Common stock, $0.01 par value;
authorized, 50,000,000 shares;
issued and outstanding,
8,330,000 shares................ 83,000 83,000 83,000
Additional paid-in capital....... 20,250,000 20,250,000 20,250,000
Due from affiliated companies and
related parties................. -- (2,144,000) (1,089,000)
Retained earnings................ 13,823,000 14,207,000 13,988,000
------------ ------------ ------------
Total shareholders' equity..... 34,156,000 32,396,000 33,232,000
------------ ------------ ------------
$117,458,000 $148,068,000 $156,226,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-113
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... $23,395,000 $32,883,000 $44,911,000 $ 8,989,000 $12,033,000
New equipment sales.... 4,393,000 4,058,000 4,659,000 868,000 1,474,000
Rental equipment sales. 5,448,000 7,674,000 9,222,000 3,276,000 1,364,000
Sales of parts,
supplies, and
equipment............. 979,000 1,391,000 1,680,000 537,000 736,000
Service revenues and
other income.......... 1,446,000 2,080,000 3,174,000 704,000 1,026,000
----------- ----------- ----------- ----------- -----------
Total revenues....... 35,661,000 48,086,000 63,646,000 14,374,000 16,633,000
----------- ----------- ----------- ----------- -----------
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 4,651,000 7,332,000 10,284,000 2,259,000 3,238,000
Equipment rental
depreciation.......... 4,437,000 6,823,000 11,114,000 2,373,000 3,367,000
Cost of new equipment
sales................. 3,651,000 3,104,000 4,103,000 755,000 1,251,000
Cost of rental
equipment sales....... 4,332,000 6,697,000 7,582,000 2,516,000 1,097,000
Cost of sales of parts,
supplies, equipment,
and other services.... 1,014,000 1,306,000 1,111,000 285,000 549,000
----------- ----------- ----------- ----------- -----------
Total cost of
revenues............ 18,085,000 25,262,000 34,194,000 8,188,000 9,502,000
----------- ----------- ----------- ----------- -----------
Gross profit........ 17,576,000 22,824,000 29,452,000 6,186,000 7,131,000
Selling, general, and
administrative
expenses............... 5,858,000 9,985,000 15,065,000 2,938,000 4,482,000
Depreciation and
amortization, excluding
equipment rental
depreciation........... 412,000 764,000 2,428,000 576,000 680,000
----------- ----------- ----------- ----------- -----------
Operating income..... 11,306,000 12,075,000 11,959,000 2,672,000 1,969,000
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income........ 41,000 32,000 55,000 14,000 21,000
Interest expense....... (3,213,000) (4,330,000) (7,382,000) (1,347,000) (2,201,000)
Non-capitalized
offering costs........ -- -- (1,000,000) -- --
Other, net............. (40,000) 182,000 185,000 4,000 (8,000)
----------- ----------- ----------- ----------- -----------
(3,212,000) (4,116,000) (8,142,000) (1,329,000) (2,188,000)
----------- ----------- ----------- ----------- -----------
Income before income
taxes and minority
interests........... 8,094,000 7,959,000 3,817,000 1,343,000 (219,000)
Income taxes............ 2,893,000 2,328,000 1,859,000 598,000 --
Minority interests...... 1,429,000 1,714,000 -- -- --
----------- ----------- ----------- ----------- -----------
Net income........... $ 3,772,000 $ 3,917,000 $ 1,958,000 745,000 (219,000)
=========== =========== =========== =========== ===========
Pro forma net income
data:
Net income as reported. $ 3,772,000 $ 3,917,000 -- -- --
Pro forma adjustment to
provision for income
taxes................. 124,000 666,000 -- -- --
----------- ----------- ----------- ----------- -----------
Pro forma net income... $ 3,648,000 $ 3,251,000 -- -- --
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-114
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND THE THREE MONTHS
ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
DUE FROM
FALCONITE, INC. COMBINED COMPANIES' AFFILIATED
COMMON STOCK COMMON STOCK ADDITIONAL COMPANIES TOTAL
----------------- -------------------- PAID-IN AND RELATED RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL PARTIES EARNINGS EQUITY
--------- ------- --------- ---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... -- -- 14,000 $ 131,000 $ 87,000 -- $ 6,509,000 $ 6,727,000
Common stock issued by
McCurry and Falconite,
Inc.................... -- -- 1,000 1,000 -- -- -- 1,000
Net income.............. -- -- -- -- -- -- 3,772,000 3,772,000
Capital distribution to
shareholder of McCurry
& Falconite Equipment
Company, Inc........... -- -- -- -- -- -- (160,000) (160,000)
--------- ------- -------- ---------- ----------- ----------- ----------- -----------
Balance at January 1,
1996................... -- -- 15,000 $ 132,000 $ 87,000 -- $10,121,000 $10,340,000
Net income.............. -- -- -- -- -- -- 3,917,000 3,917,000
Capital distribution to
shareholder of McCurry
& Falconite Equipment
Company, Inc........... -- -- -- -- -- -- (215,000) (215,000)
Formation of Falconite,
Inc. and
Recapitalization
Agreement transactions. 8,330,000 $83,000 (15,000) (132,000) 20,163,000 -- -- 20,114,000
--------- ------- -------- ---------- ----------- ----------- ----------- -----------
Balance at December 31,
1996................... 8,330,000 83,000 -- -- 20,250,000 -- 13,823,000 34,156,000
Net income.............. -- -- -- -- -- -- 1,958,000 1,958,000
Capital distribution to
shareholder of McCurry
& Falconite Equipment
Company, Inc........... -- -- -- -- -- -- (1,574,000) (1,574,000)
Due from affiliated
companies and related
parties................ -- -- -- -- -- $(2,144,000) -- (2,144,000)
--------- ------- -------- ---------- ----------- ----------- ----------- -----------
Balance at December 31,
1997................... 8,330,000 $83,000 -- -- $20,250,000 $(2,144,000) $14,207,000 $32,396,000
Net income (unaudited).. -- -- -- -- -- -- (219,000) (219,000)
Due from affiliated
companies and related
parties (unaudited).... -- -- -- -- -- 1,055,000 -- 1,055,000
--------- ------- -------- ---------- ----------- ----------- ----------- -----------
Balance at March 31,
1998 (unaudited)....... 8,330,000 $83,000 -- -- $20,250,000 $(1,089,000) $13,988,000 $33,232,000
========= ======= ======== ========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-115
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------- -------------------------
1995 1996 1997 1998 1997
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)..... $ 3,772,000 $ 3,917,000 $ 1,958,000 $ (219,000) $ 745,000
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 4,047,000 2,948,000
Minority interests.... 1,429,000 1,714,000 -- -- --
Provision for losses
on trade accounts
receivable........... 323,000 891,000 297,000 21,000 130,000
Provision for deferred
income taxes......... 2,308,000 2,208,000 1,844,000 -- 270,000
Net gain on sale of
rental equipment and
operating property
and equipment........ (987,000) (978,000) (1,788,000) (288,000) (737,000)
Change in operating
assets and
liabilities, net of
effect of business
acquisitions:
Trade accounts
receivable.......... (2,302,000) (2,139,000) (2,284,000) 398,000 844,000
Due from affiliated
companies and
related parties..... (173,000) (140,000) (1,691,000) 1,056,000 (230,000)
Income taxes
receivable.......... -- (136,000) (246,000) 8,000 --
Inventories.......... 226,000 (989,000) 19,000 (1,061,000) 237,000
Prepaid and other
assets.............. (89,000) (752,000) 420,000 (771,000) (170,000)
Trade accounts
payable, accrued
expenses, and
accrued interest
payable............. 245,000 12,052,000 (9,338,000) (733,000) (5,179,000)
Income taxes payable. (274,000) (33,000) -- -- 328,000
Due to affiliated
companies and
related parties..... (97,000) (240,000) (82,000) (4,000) (15,000)
Other liabilities.... 64,000 299,000 365,000 (171,000) (173,000)
------------ ------------ ------------ ----------- ------------
Net cash provided by
(used in) operating
activities......... 9,294,000 23,261,000 3,016,000 2,283,000 (1,002,000)
------------ ------------ ------------ ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisitions of rental
operations, net of
cash acquired........ (451,000) (3,094,000) -- (8,043,000) --
Proceeds from sales of
rental equipment and
operating assets..... 5,622,000 7,936,000 11,419,000 1,532,000 3,314,000
Capital expenditures
for rental equipment. (29,100,000) (41,092,000) (42,552,000) (1,884,000) (20,031,000)
Capital expenditures
for operating
property and
equipment............ (1,829,000) (3,229,000) (5,726,000) (846,000) (2,450,000)
------------ ------------ ------------ ----------- ------------
Net cash used in
investing
activities......... (25,758,000) (39,479,000) (36,859,000) (9,241,000) (19,167,000)
------------ ------------ ------------ ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net borrowings under
revolving lines of
credit............... 7,899,000 12,746,000 64,264,000 8,935,000 31,673,000
Proceeds form issuance
of term debt......... 33,261,000 22,100,000 15,559,000 5,000 4,881,000
Principal payments on
term debt and
obligations under
capital lease........ (25,190,000) (18,039,000) (44,002,000) (1,160,000) (16,401,000)
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 7,780,000 20,153,000
------------ ------------ ------------ ----------- ------------
Net increase (decrease)
in cash and cash
equivalents........... (813,000) 158,000 404,000 822,000 (16,000)
Cash and cash
equivalents at
beginning of year..... 1,071,000 258,000 416,000 820,000 416,000
------------ ------------ ------------ ----------- ------------
Cash and cash
equivalents at end
year.................. $ 258,000 $ 416,000 $ 820,000 $ 1,642,000 $ 400,000
============ ============ ============ =========== ============
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Cash paid for:
Interest.............. $ 3,227,000 $ 4,319,000 $ 6,857,000 $ 2,152,000 $ 1,369,000
Income taxes.......... 912,000 505,000 382,000 -- --
NONCASH FINANCING
ACTIVITIES:
Refinancings of term
debt................. -- 8,346,000 -- -- 8,346,000
Purchase of equipment
with capital leases.. 1,119,000 296,000 3,376,000 450,000 556,000
Reduction in term debt
due to sale of
property............. 1,123,000 -- -- -- --
Term debt entered into
for purchases of
businesses and
covenants not to
compete.............. 150,000 450,000 -- -- --
Loan costs funded by
debt................. -- -- 384,000 -- --
Noncash consideration
for acquisitions of
minority interest.... -- 20,287,000 -- -- --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-116
<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-117
<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-118
<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-119
<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 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 $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.
F-120
<PAGE>
FALCONITE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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-121
<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-122
<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-123
<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-124
<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-125
<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-126
<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-127
<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-128
<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 seven businesses in separate transactions and has a definitive
agreement to acquire Falconite concurrent with the closing of the Company's
initial public offerings (the "Offerings"). While the Acquired Businesses
(Acquired Businesses herein defined to mean (i) all of the 13 acquired
businesses and (ii) Falconite, Inc., which the Company has a definitive
agreement to acquire) were or will be acquired at various dates during 1997
and 1998, the following unaudited pro forma statements of operations are
presented as if all such acquisitions and the Offerings had occurred on
January 1, 1997. The following unaudited pro forma balance sheet gives effect
to the aforementioned acquisitions and the Offerings as if they had occurred
on March 31, 1998.
The unaudited pro forma financial statements have been derived from Company
(the Company herein defined to include the Acquired Businesses) prepared
financial information (and, when applicable, includes adjustments to conform
fiscal periods to calendar periods), the audited and unaudited Financial
Statements and notes thereto of certain of the Acquired Businesses for certain
periods and the audited and unaudited Financial Statements and notes thereto
of the Company since inception, which Financial Statements appear elsewhere in
this Prospectus.
The unaudited pro forma financial statements have been prepared for
comparative purposes only and do not purport to be indicative of the results
which would have been achieved had the Acquired Businesses been purchased and
the Offerings been consummated as of the assumed dates, nor are the results
indicative of the Company's future results.
F-129
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS(A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------------------------------------------
EQUIPCO WORK GRAND
THE AERIAL BAT RENTALS & LONE STAR SAFE EAGLE CORMIER DRAGON HI-
COMPANY PLATFORMS 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 PRO
LADDER FALCONITE ADJUSTMENTS(B) FORMA
------- --------- --------------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental revenues. $18,410 $44,911 $ 4,227 $146,303
Rental equipment
sales........... 1,885 9,222 2,910 22,734
New equipment
sales and other. 13,909 9,513 1,694 49,591
------- --------- --------------- -----------
Total revenues... 34,204 63,646 8,831 218,628
Cost of Revenues:
Rental equipment
depreciation.... 3,445 11,114 763 (c) 29,092
Cost of rental
equipment sales. 721 7,582 2,561 16,075
Cost of new
equipment sales. 7,725 4,103 1,579 23,895
Other operating
expenses........ 10,738 11,395 (187)(d) 59,306
------- --------- --------------- -----------
Total cost of
revenues......... 22,629 34,194 4,716 128,368
------- --------- --------------- -----------
Gross profit
(loss)........... 11,575 29,452 4,115 90,260
Selling, general
and
administrative
expenses......... 7,796 15,065 (4,324)(e) 41,674
Non-rental
depreciation and
amortization..... 640 2,428 4,417 (f) 9,669
------- --------- --------------- -----------
Operating income
(loss)........... 3,139 11,959 4,022 38,917
Other income
(expense), net... 117 (815) 1,422 (g) 317
Interest expense,
net.............. 846 7,327 899 (h) 15,857
------- --------- --------------- -----------
Income (loss)
before income
taxes............ 2,410 3,817 4,545 23,377
Income tax
expense
(benefit)........ -- 1,859 5,819 (i) 9,809
------- --------- --------------- -----------
Net income
(loss)........... $ 2,410 $ 1,958 $(1,274) $ 13,568(j)
======= ========= =============== ===========
</TABLE>
(See Notes to Unaudited Pro Forma Financial Statements)
F-130
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS(A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
---------------------------------------------------------------------------------------------------------------
EQUIPCO LONE WORK
THE AERIAL BAT RENTALS STAR SAFE EAGLE CORMIER DRAGON GRAND
COMPANY PLATFORMS RENTALS & SALES RENTALS SPRINTANK SUPPLY GENPOWER SCAFFOLDING EQUIPMENT RENTALS HI-REACH
------- --------- ------- ------- ------- --------- ------ -------- ----------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rentals
revenues........ $1,276 $ 406 $1,457 $ 854 $1,455 $2,572 $ 107 $1,465 $277 $2,299 $1,758 $1,059
Rental equipment
sales........... 93 51 995 185 188 -- 23 40 -- 173 -- 197
New equipment
sales and other. 950 237 1,350 358 -- 147 2 1,245 145 626 294 228
------ ----- ------ ----- ------ ------ ----- ------ ---- ------ ------ ------
Total revenues... 2,319 694 3,802 1,397 1,643 2,719 132 2,750 422 3,098 2,052 1,484
Cost of Revenues:
Rental equipment
depreciation.... 335 47 707 266 242 545 105 111 20 654 173 233
Cost of rental
equipment sales. 75 34 352 58 119 -- 15 28 -- 61 -- 123
Cost of new
equipment sales. 306 180 1,010 227 -- -- -- 700 6 110 -- 64
Other operating
expenses........ 760 277 462 263 1,010 289 41 605 199 1,487 1,069 525
------ ----- ------ ----- ------ ------ ----- ------ ---- ------ ------ ------
Total cost of
revenues......... 1,476 538 2,531 814 1,371 834 161 1,444 225 2,312 1,242 945
------ ----- ------ ----- ------ ------ ----- ------ ---- ------ ------ ------
Gross profit
(loss)........... 843 156 1,271 583 272 1,885 (29) 1,306 197 786 810 539
Selling, general
and
administration
expenses......... 783 249 489 352 475 913 203 575 83 621 443 302
Non-rental
depreciation and
amortization..... 88 8 25 27 26 41 15 7 -- 60 12 30
------ ----- ------ ----- ------ ------ ----- ------ ---- ------ ------ ------
Operating income
(loss)........... (28) (101) 757 204 (229) 931 (247) 724 114 105 355 207
Other income
(expense), net... -- -- (1) 1 139 (5) (4) 4 -- -- (117) --
Interest expense,
net.............. 262 16 46 34 164 249 5 15 8 39 118 122
------ ----- ------ ----- ------ ------ ----- ------ ---- ------ ------ ------
Income (loss)
before income
taxes............ (290) (117) 710 171 (254) 677 (256) 713 106 66 120 85
Income tax
expense
(benefit)........ (135) (6) -- 74 -- -- -- 238 -- 4 27 --
------ ----- ------ ----- ------ ------ ----- ------ ---- ------ ------ ------
Net income
(loss)........... $ (155) $(111) $ 710 $ 97 $ (254) $ 677 $(256) $ 475 $106 $ 62 $ 93 $ 85
====== ===== ====== ===== ====== ====== ===== ====== ==== ====== ====== ======
<CAPTION>
ALBANY PRO
LADDER FALCONITE ADJUSTMENTS(B) FORMA
------- --------- --------------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rentals
revenues........ $3,333 $8,989 $ 989 $28,296
Rental equipment
sales........... 436 3,276 727 6,384
New equipment
sales and other. 2,455 2,109 412 10,558
------- --------- --------------- ----------
Total revenues... 6,224 14,374 2,128 45,238
Cost of Revenues:
Rental equipment
depreciation.... 800 2,373 642 (c) 7,253
Cost of rental
equipment sales. 189 2,516 640 4,210
Cost of new
equipment sales. 1,196 755 395 4,949
Other operating
expenses........ 2,180 2,544 (64)(d) 11,647
------- --------- --------------- ----------
Total cost of
revenues......... 4,365 8,188 1,613 28,059
------- --------- --------------- ----------
Gross profit
(loss)........... 1,859 6,186 515 17,179
Selling, general
and
administration
expenses......... 1,748 2,938 (914)(e) 9,260
Non-rental
depreciation and
amortization..... 166 576 1,273 (f) 2,354
------- --------- --------------- ----------
Operating income
(loss)........... (55) 2,672 156 5,565
Other income
(expense), net... 18 4 103 (g) 142
Interest expense,
net.............. 208 1,333 1,345 (h) 3,964
------- --------- --------------- ----------
Income (loss)
before income
taxes............ (245) 1,343 (1,086) 1,743
Income tax
expense
(benefit)........ -- 598 (69)(i) 731
------- --------- --------------- ----------
Net income
(loss)........... $ (245) $ 745 $(1,017) $ 1,012(j)
======= ========= =============== ==========
</TABLE>
(See Notes to Unaudited Pro Forma Financial Statements)
F-131
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS (A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
------------------------------------------------------------------------------------------------------
-----------------------------------------------
WORK
THE SAFE EAGLE CORMIER DRAGON GRAND ALBANY PRO
COMPANY SUPPLY SCAFFOLDING EQUIPMENT RENTALS HI-REACH LADDER FALCONITE ADJUSTMENTS FORMA
------- ------ ----------- --------- ------- -------- ------ --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental revenues... $15,815 $ 24 $54 $1,770 $1,871 $ 336 $4,612 $12,033 $ -- $36,515
Rental equipment
sales............. 1,742 -- -- 257 -- 30 449 1,364 -- 3,842
New equipment
sales and other... 4,594 23 31 900 125 28 3,537 3,236 -- 12,474
------- ----- --- ------ ------ ----- ------ ------- ------ -------
Total revenues..... 22,151 47 85 2,927 1,996 394 8,598 16,633 -- 52,831
Cost of revenue:
Rental equipment
depreciation...... 2,727 23 5 376 160 47 877 3,367 (99) (c) 7,483
Cost of rental
equipment sales... 1,037 -- -- 52 -- 21 146 1,097 -- 2,353
Cost of new
equipment sales... 2,187 13 1 441 -- -- 1,918 1,800 -- 6,360
Other operating
expenses.......... 7,549 61 29 1,170 989 282 2,816 3,238 (162)(d) 15,972
------- ----- --- ------ ------ ----- ------ ------- ------ -------
Total cost of
revenues........... 13,500 97 35 2,039 1,149 350 5,757 9,502 (261) 32,168
------- ----- --- ------ ------ ----- ------ ------- ------ -------
Gross profit....... 8,651 (50) 50 888 847 44 2,841 7,131 261 20,663
Selling, general
and administrative
expenses........... 4,531 60 12 429 410 129 2,486 4,482 (1,226)(e) 11,313
Non-rental
depreciation and
amortization....... 807 28 -- 39 11 7 160 680 740 (f) 2,472
------- ----- --- ------ ------ ----- ------ ------- ------ -------
Operating income
(loss)............. 3,313 (138) 38 420 426 (92) 195 1,969 747 6,878
Other income
(expense), net..... 77 -- 12 -- (126) 2 58 (8) -- 15
Interest expense,
net................ 3,100 46 3 90 127 19 216 2,180 (1,817)(h) 3,964
------- ----- --- ------ ------ ----- ------ ------- ------ -------
Income (loss)
before income
taxes.............. 290 (184) 47 330 173 (109) 37 (219) 2,564 2,929
Income tax expense. 151 -- -- -- -- -- -- -- 1,035 (i) 1,186
------- ----- --- ------ ------ ----- ------ ------- ------ -------
Net income (loss).. $ 139 $(184) $47 $ 330 $ 173 $(109) $ 37 $ (219) $1,529 $ 1,743(j)
======= ===== === ====== ====== ===== ====== ======= ====== =======
</TABLE>
(See Notes to Unaudited Pro Forma Financial Statements)
F-132
<PAGE>
PRO FORMA BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT MARCH 31, 1998
--------------------------------------------------
THE PRO
COMPANY(K) FALCONITE(K) ADJUSTMENTS(L) FORMA
---------- ------------ -------------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents... $ 3,773 $ 1,642 $ (3,257)(i) $ 2,158
Accounts receivable, net.... 24,095 8,862 -- 32,957
Inventory, net.............. 7,158 2,658 -- 9,816
Rental equipment, net....... 104,937 112,937 (7,301)(ii) 210,573
Property and equipment, net. 6,968 11,547 2,150 (iii) 20,665
Intangible assets, net...... 86,888 17,069 41,394 (iv) 145,351
Loan origination costs, net. 6,139 -- -- 6,139
Prepaid and other assets,
net........................ 2,345 1,511 3,856
-------- -------- -------- --------
Total assets.............. $242,303 $156,226 $ 32,986 $431,515
======== ======== ======== ========
LIABILITIES
Accounts payable............ $ 9,647 $ 1,715 $ -- $ 11,362
Accrued interest............ 3,904 715 -- 4,619
Accrued expenses and other
liabilities................ 7,938 12,134 -- 20,072
Debt........................ 193,954 108,430 (143,356)(v) 159,028
-------- -------- -------- --------
Total liabilities......... 215,443 122,994 (143,356) 195,081
Stockholders' equity........ 26,860 33,232 176,342 (vi) 236,434
-------- -------- -------- --------
Total liabilities and
stockholders' equity..... $242,303 $156,226 $ 32,986 $431,515
======== ======== ======== ========
</TABLE>
(See Notes to Unaudited Pro Forma Financial Statements)
F-133
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(a) For the Company, results for the year ended December 31, 1997 and for the
three months ended March 31, 1997 represent actual historical 1997
results, including results for the Acquired Businesses purchased in the
related 1997 period from the date of acquisition. Results for the Company
for the three months ended March 31, 1998 represent actual historical
results for the Company, including results for the Acquired Businesses
purchased in the first quarter of 1998 from the date of acquisition. For
the Acquired Businesses, results for the year ended December 31, 1997 and
for the three months ended March 31, 1997, represent combined historical
results for (i) the Acquired Businesses purchased in the related 1997
period prior to the date of acquisition and (ii) the Acquired Businesses
purchased or to be purchased in 1998. For the Acquired Businesses, results
for the three months ended March 31, 1998 represent combined historical
results for (i) the Acquired Businesses purchased in the first quarter of
1998 prior to the date of acquisition and (ii) Falconite.
(b) In each of the following items, reflects the elimination of a location
not purchased from Cormier Equipment as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ ---------
<S> <C> <C>
Rental revenues.................................. $ 130 $100
New equipment sales and other.................... 21 17
----- ----
Total revenues................................... 151 117
Rental equipment depreciation.................... 81 60
Other operating expenses......................... 102 50
----- ----
Total cost of revenues........................... 183 110
----- ----
Gross profit (loss).............................. (32) 7
Selling, general and administrative expenses..... 72 41
Non-rental depreciation and amortization......... 1 1
----- ----
Operating loss................................... $(105) $(35)
===== ====
</TABLE>
In addition, reflects the acquisition of GenEquip, Inc., a business acquired
by Falconite, Inc. in January 1998 as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ ---------
<S> <C> <C>
Rental revenues.................................... $4,357 $1,089
Rental equipment sales............................. 2,910 728
New equipment sales and other...................... 1,715 429
------ ------
Total revenues..................................... 8,982 2,246
Rental equipment depreciation...................... 1,583 396
Cost of rental equipment sales..................... 2,561 640
Cost of new equipment sales........................ 1,578 395
Other operating costs.............................. 1,664 416
------ ------
Total cost of revenues............................. 7,386 1,847
------ ------
Gross profit....................................... 1,596 399
Selling, general and administrative expenses....... 1,221 305
Non-rental depreciation and amortization........... 107 27
------ ------
Operating income................................... 268 67
Other income, net.................................. 59 15
Interest income, net............................... 23 6
------ ------
Income before income taxes......................... $ 350 $ 88
====== ======
</TABLE>
F-134
<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 (e) 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 bonus
arrangements to be determined at a later date and accordingly, such bonus
arrangements are not reflected.
(f) Pursuant to SEC reporting requirements, non-rental depreciation has been
derived utilizing the property, plant and equipment values of each of the
Acquired Businesses at the time of their acquisition, rather than
utilizing values of property, plant and equipment actually held by each of
the Acquired Businesses in the period presented. Reflects the decrease in
non-rental depreciation resulting from the application of the Company's
depreciation policy rather than those of the former owners of the Acquired
Businesses. In addition, reflects the increase in non-rental depreciation
resulting from the write-up of property, plant and equipment to fair value
arising from purchase accounting. Also reflects amortization of goodwill
calculated on a goodwill life of 40 years and amortization of non-compete
agreements calculated on their contract terms of two to five years, in
each case specifically related to the purchases of the Acquired
Businesses. The pro forma adjustments consist of the following:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------
1997 1997 1998
------------ ------ ----
<S> <C> <C> <C>
Non-rental depreciation......................... $1,159 $ 312 $220
Amortization of goodwill........................ 2,702 759 477
Amortization of non-compete agreements.......... 556 202 43
------ ------ ----
$4,417 $1,273 $740
====== ====== ====
</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) For the year ended December 31, 1997 and the three months ended March 31,
1998, reflects increased interest expense at the Company's borrowing rate
under the Credit Facility on the indebtedness resulting from the purchase
of Falconite after giving effect to the repayment of the Credit Facility
with certain proceeds from the Offerings and with $3,257 of cash on hand
at the Acquired Businesses purchased or to be purchased on or after March
31, 1998. For the three months ended March 31, 1997, reflects the
decreased interest expense resulting from the elimination of indebtedness
of the Acquired Businesses not assumed by the Company, partially offset by
indebtedness incurred by the Company under the Credit Facility resulting
from the purchase of the Acquired Businesses.
(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-135
<PAGE>
(j) Unaudited pro forma earnings per share has been computed based on the
weighted average number of common shares outstanding during the period,
after giving effect to the Reclassification, the Stock Split, the
Offerings and the conversion of the 8% convertible subordinated promissory
notes to be issued in connection with the acquisition of Falconite, but
without giving effect to shares issuable upon exercise of outstanding
options because they are not dilutive. Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123")
allows entities to choose between a new fair value based method of
accounting for employee stock options or similar equity instruments and
the current intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25"). Entities
electing to account for employee stock options or similar equity
instruments under APB No. 25 must make pro forma disclosures of net income
and earnings per share as if the fair value method of accounting has been
applied. The Company has elected APB No. 25, and will provide pro forma
disclosure of net income and earnings per share, as applicable, in the
notes to future consolidated financial statements. Had pro forma
compensation cost for the Company's stock-based compensation plans been
determined based on the pro forma fair value at the assumed grant date for
awards under those plans consistent with the method of SFAS 123, the
Company's pro forma net income and net income per share would have been as
follows for the year ended December 31, 1997 and the three month periods
ended March 31, 1997 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED
ENDED MARCH 31,
DECEMBER 31, ------------
1997 1997 1998
------------ ----- ------
<S> <C> <C> <C>
Net income..................................... $12,750 $ 807 $1,533
Basic earnings per share....................... $ 0.47 $0.03 $ 0.06
Diluted earnings per share..................... $ 0.45 $0.03 $ 0.05
</TABLE>
The pro forma fair value of the options was estimated on the assumed date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions: dividend yield of 0%, expected volatility of
30%, risk free interest rates of 5.67% and expected lives of 5 years.
(k) Represents the actual historical balance sheets as of March 31, 1998 of
the Company and Falconite.
(l) The following are adjustments to the aforementioned balance sheets:
(i) Reflects the use of the cash on hand at the Acquired Businesses
purchased or to be purchased on or after March 31, 1998 of $3,257.
(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 $40,994 of goodwill representing the excess of the purchase
price over the fair value of net assets acquired. In addition,
reflects $400 of noncompete agreements entered into by the Company and
certain selling shareholders.
(v) Reflects the reduction of indebtedness resulting from the use of the
cash on hand at the Acquired Businesses purchased or to be purchased on
or after March 31, 1998 of $3,257 and application of certain net
proceeds from the Offerings.
(vi) Reflects the cash proceeds from the Offerings of $250,000 and the
mandatory conversion at the initial public offering price of $3,750 of
8% subordinated promissory notes to be issued in connection with the
Falconite acquisition, net of estimated Offerings cost of $16,500 and
the funding of the Mandatory Redemption of $27,496 less the
elimination of equity of Falconite of $33,232.
F-136
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR BY ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Capitalization............................................................ 13
Dilution.................................................................. 14
Selected Pro Forma Financial Data......................................... 15
Selected Historical Financial Data........................................ 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 25
Business.................................................................. 35
Management................................................................ 42
Principal and Selling Stockholders........................................ 49
Certain Relationships and Transactions.................................... 49
Description of Capital Stock.............................................. 51
Description of Certain Indebtedness....................................... 54
Shares Eligible for Future Sale........................................... 56
Certain United States Federal Tax Considerations for Non-United States
Holders.................................................................. 56
Underwriting.............................................................. 59
Experts................................................................... 62
Legal Matters............................................................. 63
Additional Information.................................................... 63
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERINGS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
17,200,000 SHARES
LOGO
NATIONAL EQUIPMENT SERVICES, INC.
COMMON STOCK
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
WILLIAM BLAIR & COMPANY
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES LLC
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[INTERNATIONAL PROSPECTUS ALTERNATE PAGE]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 15, 1998
PROSPECTUS
17,200,000 SHARES
LOGO
NATIONAL EQUIPMENT SERVICES, INC.
COMMON STOCK
Of the 17,200,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby, 14,285,714 shares are being sold by National
Equipment Services, Inc., a Delaware corporation ("NES" or the "Company") and
2,914,286 shares are being sold by Golder, Thoma, Cressey, Rauner Fund V, L.P.
and certain of its affiliates (the "Selling Stockholders"). See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from
the sale of any shares of Common Stock by the Selling Stockholders. Of the
17,200,000 shares of Common Stock offered hereby, a total of 3,440,000 shares
are being offered hereby in an international offering outside the United States
and Canada (the "International Offering") by the Managers (as defined) and a
total of 13,760,000 shares are being offered by the U.S. Underwriters (as
defined) in a concurrent offering in the United States and Canada (the "U.S.
Offering" and, together with the International Offering, the "Offerings").
Prior to the Offering, there has not been a public market for the Common
Stock of the Company. It is currently estimated that the initial public
offering price will be between $16.00 and $19.00 per share. See "Underwriting"
for information relating to the factors considered in determining the initial
public offering price. The Common Stock has been approved for trading on the
New York Stock Exchange under the symbol "NSV," subject to official notice of
issuance.
SEE "RISK FACTORS," BEGINNING ON PAGE 8, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
-----------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO COMMISSIONS PROCEEDS TO SELLING
PUBLIC (1) COMPANY (2) STOCKHOLDERS
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- -----------------------------------------------------------
Total (3) $ $ $ $
- -----------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the Underwriters (as defined),
see "Underwriting."
(2) Before deducting expenses of the Offerings estimated at $1,500,000 payable
by the Company.
(3) The Company and the Selling Stockholders have each granted the Underwriters
a 30-day option to purchase up to an additional 1,290,000 shares of Common
Stock (2,580,000 shares of Common Stock in the aggregate) solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to the Company and Proceeds to the Selling Stockholders will be
$ , $ , $ and $ , respectively.
-----------
The shares of Common Stock are being offered by the several Managers named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. It is expected that certificates for the shares of Common
Stock offered hereby will be available for delivery on or about ,
1998, at the office of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.
SALOMON SMITH BARNEY INTERNATIONAL
WILLIAM BLAIR & COMPANY
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN &
JENRETTE
INTERNATIONAL
NATIONSBANC MONTGOMERY SECURITIES LLC
, 1998
<PAGE>
[INTERNATIONAL PROSPECTUS ALTERNATE PAGE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR BY ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Capitalization............................................................ 13
Dilution.................................................................. 14
Selected Pro Forma Financial Data......................................... 15
Selected Historical Financial Data........................................ 23
Management's Discussion and Analysis Of Financial Condition and Results of
Operations............................................................... 25
Business.................................................................. 35
Management................................................................ 42
Principal and Selling Stockholders........................................ 49
Certain Relationships and Transactions.................................... 49
Description of Capital Stock.............................................. 51
Description of Certain Indebtedness....................................... 54
Shares Eligible for Future Sale........................................... 56
Certain United States Federal Tax Considerations for Non-United States
Holders.................................................................. 56
Underwriting.............................................................. 59
Experts................................................................... 62
Legal Matters............................................................. 63
Additional Information.................................................... 63
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERINGS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
17,200,000 SHARES
LOGO
NATIONAL EQUIPMENT
SERVICES, INC.
COMMON STOCK
-----------
PROSPECTUS
, 1998
-----------
SALOMON SMITH BARNEY
INTERNATIONAL
WILLIAM BLAIR & COMPANY
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
NATIONSBANC MONTGOMERY SECURITIES LLC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses, to be paid solely by the
Company, of the issuance and distribution of the securities being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $101,775
NASD filing fee................................................. 30,500
New York Stock Exchange original listing fee.................... 168,600
Blue Sky fees and expenses (including attorneys' fees and
expenses)...................................................... 10,000
Printing expenses............................................... *
Accounting fees and expenses.................................... *
Transfer agent's fees and expenses.............................. *
Legal fees and expenses......................................... *
Miscellaneous expenses.......................................... *
--------
Total....................................................... $ *
========
</TABLE>
- --------
*To be provided by Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is 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 or she 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 or her
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 or she 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 or her 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, NES Acquisition and BAT 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 of its stockholders.
II-1
<PAGE>
Article V of the by-laws of the Company 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 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.
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 or her and incurred
by him or her in any such capacity, arising out of his or her status as such,
whether or not the corporation would otherwise have the power to indemnify him
or her under Section 145.
Article V of the by-laws of the Company further 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. All of the directors and officers of
the Company 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.
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 allegation that his membership on the Board conflicts with
or breaches the terms of a noncompetition covenant to which Mr. Grove is a
party.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since the Company's inception, the Company has sold and issued the following
unregistered securities:
(1) In June 1996, the Company sold 30,000 shares of Class B Common Stock
("Class B Common Shares") for a cash purchase price of $300,000 to Golder
Thoma Fund V in connection with the formation of the Company.
(2) In June 1996, the Company sold an aggregate of 108 Class B Common
Shares to Kevin Rodgers and Paul Ingersoll for an aggregate purchase price
of $1,080 in connection with the formation of the Company. Such executives
purchased such shares with promissory notes due in June 2006.
(3) In January 1997, the Company sold 1,550 shares of Class A Common
Stock ("Class A Common Shares") and 45,000 Class B Common Shares to Golder
Thoma Fund V for a cash purchase price of $1,550,000 and $450,000,
respectively, in connection with the Company's acquisition of Industrial
Hoist.
(4) In January 1997, the Company sold an aggregate of 10,892 Class B
Common Shares to Kevin Rodgers, Dennis O'Connor and Paul Ingersoll for an
aggregate purchase price of $108,920 in connection with the Company's
acquisition of Industrial Hoist. Such executives purchased such shares with
promissory notes due in June 2007.
II-2
<PAGE>
(5) In January 1997, the Company sold 97 Class A Common Shares and 300
Class B Common Shares to James Kowalik and Michael Wolverton for a cash
purchase price of $97,000 and $3,000, respectively, in connection with the
Company's acquisition of Industrial Hoist Services. Messrs. Kowalik and
Wolverton are the former owners of Industrial Hoist Services.
(6) In February 1997, the Company sold 1,200 Class A Common Shares to
Golder Thoma Fund V for a cash purchase price of $1,200,000 in connection
with the Company's acquisition of Aerial Platforms.
(7) In February 1997, the Company issued 97 Class A Common Shares and 300
Class B Common Shares to Carter Wilson (having aggregate value at the time
of $100,000) as partial consideration for the stock of Aerial Platforms.
Mr. Wilson is the former owner of Aerial Platforms.
(8) In March 1997, the Company sold 3,000 Class A Common Shares to Golder
Thoma Fund V for a cash purchase price of $3,000,000 in connection with the
Company's acquisition of Lone Star Rentals.
(9) In March 1997, the Company sold 97 Class A Common Shares and 300
Class B Common Shares to James Horsley for a cash purchase price of $97,000
and $3,000, respectively, in connection with the Company's acquisition of
Lone Star Rentals. Mr. Horsley is the former owner of Lone Star Rentals.
(10) In April 1997, the Company sold 5,000 Class A Common Shares to
Golder Thoma Fund V for a cash purchase price of $5,000,000 in connection
with the Company's acquisition of BAT Rentals.
(11) In July 1997, the Company sold 10,000 Class A Common Shares to
Golder Thoma Fund V for a cash purchase price of $10,000,000 in connection
with the Company's acquisition of Sprintank.
(12) In July 1997, the Company sold an aggregate of 485 Class A Common
Shares and 1,500 Class B Common Shares to Joseph Swinbank, Donald Poarch,
James O'Neil, Sammy Sorsby and J.D. Cox for an aggregate cash purchase
price of $485,000 and $15,000, respectively, in connection with the
Company's acquisition of Sprintank. Messrs. Swinbank and Poarch are the
former owners of Sprintank. Messrs. O'Neil, Sorsby and Cox are senior
managers of Sprintank.
(13) In July 1997, the Company sold 3,000 Class A Common Shares to Golder
Thoma Fund V for a cash purchase price of $3,000,000 in connection with the
Company's acquisition of Equipco Rentals and Sales.
(14) In July 1997, the Company issued an aggregate of 145.5 Class A
Common Shares and 450 Class B Common Shares to Marc Trubitz, Suellen
Trubitz, Randall Brevard, Linda Sue Hughes and Donald Stewart (having an
aggregate value at the time of $200,000) as partial consideration for
noncompetition covenants entered into by such persons in connection with
the Company's acquisition of Equipco Rental and Sales. Mr. and Mrs. Trubitz
are the former owners of Equipco Rental and Sales. Messrs. Brevard and
Stewart and Ms. Hughes are senior managers of Equipco Rentals and Sales.
(15) In July 1997, the Company sold 194 Class A Common Shares and 600
Class B Common Shares to James Horsley for a cash purchase price of
$194,000 and $6,000, pursuant to an agreement previously entered into with
Mr. Horsley in connection with the Company's acquisition of Lone Star
Rentals.
(16) In October 1997, the Company sold 97 Class A Common Shares and 300
Class B Common Shares to Ronald St. Clair for a cash purchase price of
$97,000 and $3,000, respectively, in connection with Mr. St. Clair's
appointment to the Company's board of directors.
(17) In October 1997, the Company issued 48.5 Class A Common Shares and
150 Class B Common Shares to William Lear (having an aggregate value at the
time of $50,000) as partial compensation for services rendered to the
Company by Mr. Lear.
(18) In November 1997, the Company issued $100,000,000 aggregate
principal amount of 10% Senior Subordinated Notes due 2004 (the "Notes") to
Smith Barney Inc., First Union Capital Markets Corp. and Salomon Brothers
Inc, who immediately resold the Notes to qualified institutional buyers in
a transaction exempt under Rule 144A.
(19) In March 1998, the Company sold 210 Class A Common Shares and 200
Class B Common Shares to Joseph Cormier for a cash purchase price of
$210,000 and $40,000, respectively, in connection with the Company's
acquisition of Cormier Equipment. Mr. Cormier is the former owner of
Cormier Equipment.
The above-described transactions were exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act as transactions
not involving any public offering.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<C> <S> <C>
1.1 Form of U.S. Underwriting Agreement among the Company, the
Selling Stockholders, Smith Barney Inc., William Blair &
Company, L.L.C., Credit Suisse First Boston Corporation,
Donaldson Lufkin & Jenrette Securities Corporation and
NationsBanc Montgomery Securities LLC.
1.2 Form of International Underwriting Agreement among the
Company, the Selling Stockholders, Smith Barney Inc.,
William Blair & Company, L.L.C., Credit Suisse First
Boston (Europe) Limited, Donaldson, Lufkin & Jenrette
International and NationsBanc Montgomery Securities LLC.
2.1 Stock Purchase Agreement dated as of April 1, 1998 by and
among the Company, Falconite, Inc. and the stockholders of
Falconite, Inc. (1)
3.1(i) Certificate of Incorporation of the Company. (1)
3.1(ii) Form of Restated Certificate of Incorporation of the
Company.
3.2(i) By-laws of the Company. (1)
3.2(ii) Form of Restated By-laws of the Company
4.1(i) Indenture dated November 25, 1997 by and among the
Company, the Subsidiary Guarantors and Harris Savings and
Trust Company, as trustee. (1)
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. (1)
4.2 Forms of Series A and Series B 10% Senior Subordinated
Notes (contained in Exhibit 4.1(i) as Exhibit A thereto). (1)
4.3 Form of Subsidiary Guarantee (contained in Exhibit 4.1(i)
as Exhibit D thereto). (1)
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. (1)
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. (1)
4.6(i) Credit Agreement dated July 1, 1997 by and among the
Company, Aerial Platforms, Inc., NES Acquisition Corp.,
BAT Acquisition Corp., certain financial institutions and
First Union Commercial Corporation, as Agent. (1)
4.6(ii) First Amendment to Credit Agreement dated as of July 18,
1997 by and among the Company, Aerial Platforms, Inc., NES
Acquisition Corp., BAT Acquisition Corp., MST Enterprises,
Inc., certain financial institutions and First Union
Commercial Corporation, as Agent. (1)
4.6(iii) Second Amendment to Credit Agreement and Consent dated as
of October 29, 1997 by and among the Company, Aerial
Platforms, Inc., NES Acquisition Corp., BAT Acquisition
Corp., MST Enterprises, Inc., certain financial
institutions and First Union Commercial Corporation, as
Agent. (1)
4.6(iv) Borrower Joinder Agreement dated as of July 18, 1997 by
and among the Company, MST Enterprises, Inc. and First
Union Commercial Corporation, as Agent. (1)
4.6(v) Third Amendment to Credit Agreement and Consent by and
among the Company, NES Acquisition Corp., BAT Acquisition
Corp., NES Michigan Acquisition Corp., NES East
Acquisition Corp, Albany Ladder Company, Inc., certain
financial institutions and First Union Commercial
Corporation, as Agent. (1)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
4.7 Pledge Agreement dated as of July 18, 1997 by and among
the Company, Aerial Platforms, Inc., NES Acquisition
Corp., BAT Acquisition Corp., MST Enterprises, Inc. and
First Union Commercial Corporation, as Agent for certain
Lenders referred to therein. (1)
4.8 Security Agreement dated as of July 18, 1997 by and among
the Company, Aerial Platforms, Inc., NES Acquisition
Corp., BAT Acquisition Corp., MST Enterprises, Inc. and
First Union Commercial Corporation, as Agent for certain
Lenders referred to therein. (1)
4.9 Form of certificate representing shares of Common Stock of
the Company.
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. (1)
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. (1)
10.2 Purchase Agreement dated as of June 4, 1996 between the
Company and Golder, Thoma, Cressey, Rauner Fund IV, L.P. (1)
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. (1)
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. (1)
10.4(i) Registration Agreement dated as of June 4, 1996 between
dated as of June 4, 1996 between the Company and Golder,
Thoma, Cressey, Rauner Fund IV, L.P. and certain
Executives named therein. (1)
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. (1)
10.5(i) Senior Management Agreement dated as of June 4, 1996
between the Company and Kevin Rodgers.** (1)
10.5(ii) Amendment No. 1 to Senior Management Agreement dated
December 31, 1996 between the Company and Kevin Rodgers.** (1)
10.6(i) Senior Management Agreement dated as of June 4, 1996
between the Company and Paul Ingersoll.** (1)
10.6(ii) Amendment No. 1 to Senior Management Agreement dated
December 31, 1996 between the Company and Paul
Ingersoll.** (1)
10.7 Senior Management Agreement dated as of December 31, 1996
between the Company and Dennis O'Connor.** (1)
10.8 Executive Stock Pledge Agreement dated as of June 4, 1996
between the Company and Kevin Rodgers. (1)
10.9 Executive Stock Pledge Agreement dated as of June 4, 1996
between the Company and Paul Ingersoll. (1)
10.10 Executive Stock Pledge Agreement dated as of December 31,
1996 between the Company and Dennis O'Connor. (1)
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. (1)
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. (1)
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S> <C>
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. (1)
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. (1)
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. (1)
10.16 Stock Purchase Agreement dated as of February 18, 1997 by
and among Aerial Platforms, Inc., Carter B. Wilson and the
Company. (1)
10.17 Asset Purchase Agreement dated as March 17, 1997 by among
NES Acquisition Corp., Lone Star Rentals, Inc. and James
Horsley. (1)
10.18 Asset Purchase Agreement dated as of April 1, 1997 by and
among, BAT Acquisition Corp., BAT Rentals, Inc. and Paul
B. Bronken. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
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. (1)
10.26 Asset Purchase Agreement dated as of February 9, 1998 by
and between Cormier Equipment Corporation and NES
Acquisition Corp. (1)
10.27 Assignment and Assumption Agreement dated as of March 4,
1998 by and among NES Acquisition Corp. and NES East
Acquisition Corp. (1)
10.28 Lease dated January 6, 1997 by and between ES&L Service
and NES Acquisition Corp. (1)
10.29 Lease Agreement dated as of May 30, 1990 by and between
Weeks Super Partnership, LTD and Aerial Platforms, Inc. (1)
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. (1)
10.31 Lease dated as of April 1, 1997 by and between BAT
Rentals, Inc. and BAT Acquisition Corp. (1)
10.32 Lease Agreement dated as of July 18, 1997 by and between
March S. Trubitz, Suellen Trubitz and MST Enterprises,
Inc. (1)
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. (1)
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S> <C>
10.34 Commitment Letter Agreement dated May 14, 1998 among the
Company, First Union National Bank and First Union Capital
Markets.
10.35 National Equipment Services, Inc. 1998 Long-Term Equity
Incentive Plan.**
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 re computation of ratios.
21.1 Subsidiaries of the Company. (1)
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Albin, Randall & Bennett.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of KPMG Peat Marwick L.L.P.
23.5 Consent of Lawrence, Blackburn Meek Maxey & Co. P.C.
23.6 Consent of Kirkland & Ellis (included in Exhibit 5.1).*
24.1(i) Powers of Attorney of Kevin Rodgers, Dennis O'Connor, Carl
Thoma, William Kessinger and Ronald St. Clair.***
24.1(ii) Power of Attorney of John Grove (included on signature
page).
27.1 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
**Management contract or compensatory plan or arrangement.
***Filed previously.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-4 (File No. 333-43553).
(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 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) It will provide to the underwriters at the closing specified in the
underwriting agreements certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to
each purchaser.
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 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement on Form S-1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Evanston, State of Illinois, on May 15, 1998.
NATIONAL EQUIPMENT SERVICES, INC.
/s/ Paul Ingersoll
By: _________________________________
Paul Ingersoll
Vice President and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that John Grove constitutes and appoints
Kevin Rodgers, Dennis O'Connor and Paul Ingersoll, and each of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement (and any registration statement
filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended,
for the Offerings to which this Registration Statement relates), and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them, or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement and power of attorney have been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and May 15, 1998
____________________________________ Director (principal
Kevin Rodgers executive officer)
* Chief Financial Officer May 15, 1998
____________________________________ (principal financial and
Dennis O'Connor accounting officer)
* Director May 15, 1998
____________________________________
Carl Thoma
* Director May 15, 1998
____________________________________
William Kessinger
/s/ John Grove Director May 15, 1998
____________________________________
John Grove
* Director May 15, 1998
____________________________________
Ronald St. Clair
</TABLE>
- --------
*The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to Registration Statement on Form S-1 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.
/s/ Paul Ingersoll
- -------------------------------
Paul Ingersoll
Attorney-in-fact
II-8
<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 0.375% to 0.5% 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
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>
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 mid-western 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 1.1
20,000,000 Shares
NATIONAL EQUIPMENT SERVICES, INC.
Common Stock
U.S. UNDERWRITING AGREEMENT
---------------------------
June , 1998
SALOMON SMITH BARNEY
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES LLC
As Representatives of the Several U.S. Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
National Equipment Services, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell an aggregate of 13,333,334 shares of its
common stock, par value $0.01 per share, and the persons named in Schedule I
hereto (the "Selling Stockholders") propose to sell an aggregate of 2,666,666
shares of common stock of the Company (together with the 13,333,334 shares of
common stock to be issued and sold by the Company, the "Firm Shares") to the
several Underwriters named in Schedule II hereto (the "U.S. Underwriters") for
whom Smith Barney Inc., William Blair & Company, L.L.C., Credit Suisse First
Boston Corporation, Donaldson, Lufkin & Jenrette Securities Corporation and
NationsBanc Montgomery Securities LLC are acting as representatives (the
"Representatives"). In addition, solely for the purpose of covering over-
allotments, the Selling Stockholders propose to sell to the U.S. Underwriters,
upon the terms and conditions set forth in Section 2 hereof, up to an additional
2,400,000 shares (the "Additional Shares") of the Company's common stock. The
Company and the Selling Stockholders are hereinafter sometimes referred to as
the "Sellers." The Firm Shares and the Additional Shares are hereinafter
collectively referred to as the "Shares." The Company's
1
<PAGE>
common stock, par value $0.01 per share, including the Shares and the
International Shares (as defined herein), is hereinafter referred to as the
"Common Stock."
It is understood that the Company and the Selling Stockholders are
concurrently entering into an International Underwriting Agreement, dated the
date hereof (the "International Underwriting Agreement"), providing for the sale
of 4,000,000 shares of the Common Stock (the "Firm International Shares"), of
which 3,333,333 shares will be sold by the Company and 666,667 will be sold by
the Selling Stockholders (plus an option granted by the Selling Stockholders to
purchase up to an additional 600,000 shares of Common Stock (the "Additional
International Shares") solely for the purpose of covering over-allotments)
through arrangements with certain underwriters outside the United States and
Canada (the "Managers"), for whom Smith Barney Inc., William, Blair & Company,
L.L.C., Credit Suisse First Boston (Europe) Limited, Donaldson, Lufkin &
Jenrette International and NationsBanc Montgomery Securities LLC are acting as
lead Managers (the "Lead Managers"). All shares of Common Stock proposed to be
offered to the Managers pursuant to the International Underwriting Agreement,
including the Firm International Shares and the Additional International Shares,
are herein called the "International Shares"; the International Shares and the
Shares, collectively, are herein called the "Underwritten Shares."
The Company and the Selling Stockholders also understand that the
Representatives and the Lead Managers have entered into an agreement (the
"Agreement Between U.S. Underwriters and Managers") contemplating the
coordination of certain transactions between the U.S. Underwriters and the
Managers and that, pursuant thereto and subject to the conditions set forth
therein, the U.S. Underwriters may purchase from the Managers a portion of the
International Shares or sell to the Managers a portion of the Shares. The
Company and the Selling Stockholders understand that any such purchases and
sales between the U.S. Underwriters and the Managers shall be governed by the
Agreement Between U.S. Underwriters and Managers and shall not be governed by
the terms of this Agreement or the International Underwriting Agreement.
The Company has entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement") dated as of April 1, 1998, as amended, by and among the
Company, Falconite, Inc. and the stockholders of Falconite, Inc. Unless the
context otherwise requires, all references to "Falconite" in this Agreement
refer to Falconite, Inc. and its subsidiaries. The Stock Purchase Agreement
provides that, subject to certain conditions as described therein, the Company
will acquire all of the common stock of Falconite (the "Acquisition") for a
purchase price of $65,750,000. A portion of the proceeds to the Company from
the sale to the U.S. Underwriters and Managers of the Common Stock will be used
to fund the Acquisition concurrent with such sale.
The Company and the Selling Stockholders wish to confirm as follows
their respective agreements with you and the other several U.S. Underwriters on
whose behalf you are acting, in connection with the several purchases of the
Shares by the U.S. Underwriters.
2
<PAGE>
1. Registration Statement and Prospectus. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1, including prospectuses subject to
completion, relating to the Underwritten Shares. The term "Registration
Statement" as used in this Agreement means the registration statement (including
all financial schedules and exhibits), as amended at the time it becomes
effective, and as thereafter amended by post-effective amendment. The term
"Prospectuses" as used in this Agreement means the prospectuses in the forms
included in the Registration Statement, or, if the prospectuses included in the
Registration Statement omit information in reliance on Rule 430A under the Act
and such information is included in prospectuses filed with the Commission
pursuant to Rule 424(b) under the Act, the term "Prospectuses" as used in this
Agreement means the prospectuses in the forms included in the Registration
Statement as supplemented by the addition of the Rule 430A information contained
in the prospectuses filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectuses" as used in this Agreement means the prospectuses
subject to completion in the forms included in the Registration Statement at the
time of the initial filing of the Registration Statement with the Commission,
and as such prospectuses shall have been amended from time to time prior to the
date of the Prospectuses.
It is understood that two forms of Prepricing Prospectus and two forms
of Prospectus are to be used in connection with the offering and sale of the
Underwritten Shares: a Prepricing Prospectus and a Prospectus relating to the
Shares that are to be offered and sold in the United States (as defined herein)
or Canada (as defined herein) to U.S. or Canadian Persons (the "U.S. Prepricing
Prospectus" and the "U.S. Prospectus," respectively), and a Prepricing
Prospectus and a Prospectus relating to the International Shares which are to be
offered and sold outside the United States or Canada to persons other than U.S.
or Canadian Persons (the "International Prepricing Prospectus" and the
"International Prospectus," respectively). The U.S. Prospectus and the
International Prospectus are herein collectively called the "Prospectuses," and
the U.S. Prepricing Prospectus and the International Prepricing Prospectus are
herein called the "Prepricing Prospectuses." For purposes of this Agreement:
"Rules and Regulations" means the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable; "U.S. or Canadian Person" means any
resident or national of the United States or Canada, any corporation,
partnership or other entity created or organized in or under the laws of the
United States or Canada or any estate or trust the income of which is subject to
United States or Canadian income taxation regardless of the source of its income
(other than the foreign branch of any U.S. or Canadian Person), and includes any
United States or Canadian branch of a person other than a U.S. or Canadian
Person; "United States" means the United States of America (including the states
thereof and the District of Columbia) and its territories, its possessions and
other areas subject to its jurisdiction; and "Canada" means Canada and its
territories, its possessions and other areas subject to its jurisdiction.
2. Agreements to Sell and Purchase. Upon the basis of the representations,
warranties and agreements contained herein and subject to all the terms and
conditions set forth herein and to such adjustments as you may determine to
avoid fractional shares, the Company
3
<PAGE>
hereby agrees to issue and sell to each U.S. Underwriter and each U.S.
Underwriter agrees, severally and not jointly, to purchase from the Company, at
a purchase price of $_____ per share (the "purchase price per share"), the
number of Firm Shares that bears the same proportion to the aggregate number of
Firm Shares to be issued and sold by the Company as the number of Firm Shares
set forth opposite the name of such U.S. Underwriter in Schedule II hereto (or
such number of Firm Shares increased as set forth in Section 12 hereof) bears to
the aggregate number of Firm Shares to be sold by the Company and the Selling
Stockholders.
Upon the basis of the representations, warranties and agreements
contained herein and subject to all the terms and conditions set forth herein
and to such adjustments as you may determine to avoid fractional shares, each
Selling Stockholder agrees, severally and not jointly, to sell to each U.S.
Underwriter and each U.S. Underwriter agrees, severally and not jointly, to
purchase from each Selling Stockholder, at the purchase price per share, the
number of Firm Shares that bears the same proportion to the number of Firm
Shares set forth opposite the name of such Selling Stockholder in Schedule I
hereto as the number of Firm Shares set forth opposite the name of such U.S.
Underwriter in Schedule II hereto (or such number of Firm Shares increased as
set forth in Section 12 hereof) bears to the aggregate number of Firm Shares to
be sold by the Company and the Selling Stockholders.
Upon the basis of the representations, warranties and agreements
contained herein and subject to all the terms and conditions set forth herein,
the Selling Stockholders also agree to sell to the U.S. Underwriters, and the
U.S. Underwriters shall have the right to purchase from the Selling
Stockholders, at the purchase price per share, pursuant to an option (the "over-
allotment option") which may be exercised prior to 5:00 p.m., New York City
time, on the 30th day after the date of the U.S. Prospectus (or, if such 30th
day shall be a Saturday or Sunday or a holiday, on the next business day
thereafter when the New York Stock Exchange is open for trading), up to an
aggregate of 2,400,000 Additional Shares. The maximum number of Additional
Shares that each Selling Stockholder agrees to sell upon the exercise by the
U.S. Underwriters of the over-allotment option is set forth opposite their
respective names in Schedule I hereto. The number of Additional Shares that the
U.S. Underwriters elect to purchase upon any exercise of the over-allotment
option shall be provided by each Selling Stockholder in proportion to the
respective maximum number of Additional Shares that each Selling Stockholder has
agreed to sell. Additional Shares may be purchased only for the purpose of
covering over-allotments made in connection with the offering of the Firm
Shares. Upon any exercise of the over-allotment option, each U.S. Underwriter,
severally and not jointly, agrees to purchase from each Selling Stockholder the
number of Additional Shares (subject to such adjustments as you may determine in
order to avoid fractional shares) that bears the same proportion to the number
of Additional Shares to be sold by such Selling Stockholder as the number of
Firm Shares set forth opposite the name of such U.S. Underwriter in Schedule II
hereto (or such number of Firm Shares increased as set forth in Section 12
hereof) bears to the aggregate number of Firm Shares to be sold by the Company
and the Selling Stockholders.
Each U.S. Underwriter represents, warrants, covenants and agrees that,
except as contemplated under Section 2 of the Agreement Between U.S.
Underwriters and Managers dated the date hereof, (i) it is not purchasing any
Shares for the account of anyone other than a U.S. or
4
<PAGE>
Canadian Person, (ii) it has not offered or sold, and will not offer, sell,
resell or deliver, directly or indirectly, any Shares or distribute any U.S.
Prospectus outside the United States or Canada or to anyone other than a U.S. or
Canadian Person, and (iii) any offer of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
relevant province of Canada in which such offer is made.
3. Terms of Public Offering. The Sellers have been advised by you that
the U.S. Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Shares upon the terms set forth in the U.S. Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the U.S.
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New
York City time, on , 1998 (the "Closing Date"). The place of
closing for the Firm Shares and the Closing Date may be varied by agreement
among you, the Company and Golder, Thoma, Cressey, Rauner Fund V, L.P. ("Golder
Thoma Fund V").
Delivery to the U.S. Underwriters of and payment for any Additional
Shares to be purchased by the U.S. Underwriters shall be made at the
aforementioned office of Smith Barney Inc. at such time on such date (the
"Option Closing Date"), which may be the same as the Closing Date but shall in
no event be earlier than the Closing Date nor earlier than two nor later than
ten business days after the giving of the notice hereinafter referred to, as
shall be specified in a written notice from you on behalf of the U.S.
Underwriters to the Selling Stockholders of the U.S. Underwriters' determination
to purchase a number, specified in such notice, of Additional Shares. The place
of closing for any Additional Shares and the Option Closing Date for such Shares
may be varied by agreement among you and Golder Thoma Fund V.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request by written notice prior to 9:30 A.M., New York City time,
on the second business day preceding the Closing Date or any Option Closing
Date, as the case may be. Such certificates shall be made available to you in
New York City for inspection and packaging not later than 9:30 A.M., New York
City time, on the business day next preceding the Closing Date or the Option
Closing Date, as the case may be. The certificates evidencing the Firm Shares
and any Additional Shares to be purchased hereunder shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, against payment
of the purchase price therefor by wire transfer in immediately available funds.
5. Agreements of the Company. The Company agrees with the several U.S.
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
Company will endeavor to cause the Registration Statement or such post-effective
amendment to become effective as soon as possible and will
5
<PAGE>
advise you promptly and, if requested by you, will confirm such advice in
writing, when the Registration Statement or such post-effective amendment has
become effective.
(b) The Company will advise you promptly after it becomes aware
thereof and, if requested by you, will confirm such advice in writing: (i) of
any request by the Commission for amendment of or a supplement to the
Registration Statement, any Prepricing Prospectuses or the Prospectuses or for
additional information; (ii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of the
suspension of qualification of the Shares for offering or sale in any
jurisdiction or the initiation of any proceeding for such purpose; and (iii)
within the period of time referred to in paragraph (f) below, of any material
adverse change, or any development involving a prospective material adverse
change, in or affecting general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole, or of the happening of any event, including the
filing of any information, documents or reports pursuant to the Exchange Act
that, in the case of this clause (iii), makes any statement of a material fact
made in the Registration Statement or the Prospectuses (as then amended or
supplemented) untrue or which requires the making of any additions to or changes
in the Registration Statement or the Prospectuses (as then amended or
supplemented) in order to state a material fact required by the Act or the
regulations thereunder to be stated therein or necessary in order to make the
statements therein not misleading, or of the necessity to amend or supplement
the Prospectuses (as then amended or supplemented) to comply with the Act or any
other law. If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible time.
(c) The Company will furnish to you, without charge, six signed copies
of the Registration Statement as originally filed with the Commission and
of each amendment thereto, including financial statements and all exhibits to
the Registration Statement and will also furnish to you, without charge, such
number of conformed copies of the Registration Statement as originally filed and
of each amendment thereto, but without exhibits, as you may reasonably request.
(d) The Company will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectuses of which you
shall not previously have been advised or to which you shall reasonably object
in writing after being so advised or (ii) so long as, in the written opinion of
counsel for the U.S. Underwriters (a copy of which shall be delivered to the
Company), a prospectus is required to be delivered in connection with sales by
any U.S. Underwriter or dealer, file any information, documents or reports
pursuant to the Exchange Act, without delivering a copy of such information,
documents or reports to you, as Representatives of the U.S. Underwriters, prior
to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the Company
has delivered or will deliver to you, without charge, in such quantities as you
have reasonably requested or may hereafter reasonably request, copies of each
form of the U.S. Prepricing Prospectus. The Company consents to the use, in
accordance with the provisions of the Act and
6
<PAGE>
with the securities or Blue Sky laws of the jurisdictions in which the Shares
are offered by the several U.S. Underwriters and by dealers, prior to the date
of the U.S. Prospectus, of each U.S. Prepricing Prospectus so furnished by the
Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the written
opinion of counsel for the U.S. Underwriters a U.S. Prospectus is required by
the Act to be delivered in connection with sales by any U.S. Underwriter or
dealer, the Company will expeditiously deliver to each U.S. Underwriter and each
dealer, without charge, as many copies of the U.S. Prospectus (and of any
amendment or supplement thereto) as you may reasonably request. The Company
consents to the use of the U.S. Prospectus (and of any amendment or supplement
thereto) in accordance with the provisions of the Act and with the securities or
Blue Sky laws of the jurisdictions in which the Shares are offered by the
several U.S. Underwriters and by all dealers to whom Shares may be sold, both in
connection with the offering and sale of the Shares and for such period of time
thereafter as the U.S. Prospectus is required by the Act to be delivered in
connection with sales by any U.S. Underwriter or dealer. If during such period
of time any event shall occur that in the judgment of the Company or in the
written opinion of counsel for the U.S. Underwriters is required to be set forth
in the U.S. Prospectus (as then amended or supplemented) or should be set forth
therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
to supplement or amend the U.S. Prospectus to comply with the Act or any other
law, the Company will forthwith prepare and, subject to the provisions of
paragraph (d) above, file with the Commission an appropriate supplement or
amendment thereto and will expeditiously furnish to the U.S. Underwriters and
dealers a reasonable number of copies thereof.
(g) The Company will cooperate with you and with counsel for the U.S.
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several U.S. Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may reasonably
designate and will file such consents to service of process or other documents
necessary or appropriate in order to effect such registration or qualification;
provided that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take any
action that would subject it to service of process in suits, other than those
arising out of the offering or sale of the Shares, in any jurisdiction where it
is not now so subject.
(h) The Company will make generally available to its security holders
a consolidated earnings statement, which need not be audited, covering a twelve-
month period commencing after the effective date of the Registration Statement
and ending not later than 15 months thereafter, as soon as reasonably
practicable after the end of such period, which consolidated earnings statement
shall satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the Company
mailed to stockholders or filed with the Commission or the New York Stock
Exchange, and (ii) from time to time such other information concerning the
Company as you may reasonably request.
7
<PAGE>
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 12 hereof or by notice given by you terminating this
Agreement pursuant to Section 12 or Section 13 hereof) or if this Agreement
shall be terminated by the U.S. Underwriters because of any failure or refusal
on the part of the Company or any of the Selling Stockholders to comply, in any
material respect, with the terms or fulfill, in any material respect, any of the
conditions of this Agreement, the Company agrees to reimburse the
Representatives for all reasonable out-of-pocket expenses (including reasonable
fees and expenses of counsel for the U.S. Underwriters) incurred by you in
connection herewith.
(k) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the
description set forth in the Prospectuses.
(l) If Rule 430A of the Act is employed, the Company will timely file
the Prospectuses pursuant to Rule 424(b) under the Act and will advise you of
the time and manner of such filing.
(m) For a period of 180 days after the date of the Prospectuses (the
"Lock-up Period"), the Company will not, without the prior written consent of
Smith Barney Inc., offer, sell, contract to sell or otherwise dispose of any
Common Stock (or any securities convertible into or exercisable or exchangeable
for Common Stock) or grant any options or warrants to purchase Common Stock,
except for (i) sales to the U.S. Underwriters pursuant to this Agreement and the
Managers pursuant to the International Underwriting Agreement, (ii) the grant of
employee stock options pursuant to the Company's long term incentive plans as
described in the Prospectuses, (iii) the issuance of Common Stock upon exercise
of any such employee stock options and (iv) the issuance of Common Stock in
connection with the Company's acquisitions of other companies or businesses;
provided, however, that the Company will furnish to you "lock-up" letters, in
form and substance reasonably satisfactory to you, signed by each recipient of
Common Stock or stock options issued or granted pursuant to clause (ii), (iii)
or (iv) of this sentence.
(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance reasonably satisfactory to you, signed by each
of its current officers and directors and each of its stockholders designated
by you.
(o) Except as stated in this Agreement and in the International
Underwriting Agreement and in the Prepricing Prospectuses and Prospectuses, the
Company has not taken, nor will it take, directly or indirectly, any action
designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Shares.
(p) The Company will use its best efforts to have the Common Stock
listed, subject to notice of issuance, on the New York Stock Exchange
concurrently with the effectiveness of the registration statement.
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6. Agreements of the Selling Stockholders. Each of the Selling
Stockholders agrees, severally and not jointly, with the several U.S.
Underwriters as follows:
(a) Such Selling Stockholder will cooperate to the extent necessary
to cause the registration statement or any post-effective amendment thereto to
become effective at the earliest possible time.
(b) Such Selling Stockholder will pay all Federal and other taxes,
if any on the transfer or sale of such Shares that are sold by the Selling
Stockholder to the U.S. Underwriters.
(c) Such Selling Stockholder will use such Selling Stockholder's
reasonable best efforts to do or perform all things reasonably required to be
done or performed by it prior to the Closing Date to satisfy all conditions
precedent to the delivery of the Shares pursuant to this Agreement.
(d) Such Selling Stockholder has executed or will execute a "lock-up"
letter as provided in Section 5(n) above and will not sell, contract to sell or
otherwise dispose of any Common Stock, except for the sale of Shares to the U.S.
Underwriters pursuant to this Agreement and the sale of International Shares to
the Managers pursuant to the International Underwriting Agreement, prior to the
expiration of 180 days after the date of the Prospectuses, without the prior
written consent of Smith Barney Inc.
(e) Except as stated in this Agreement and the International
Underwriting Agreement and in the Prepricing Prospectuses and the Prospectuses,
such Selling Stockholder has not taken, nor will it take, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(f) Such Selling Stockholder agrees to notify you as promptly as
practicable of any information that comes to such Selling Stockholder's
attention that would cause such Selling Stockholder to have reason to believe
that its representations, warranties and statements in this Agreement are not
accurate in all material respects.
7. Representations and Warranties of the Company. The Company represents
and warrants to each U.S. Underwriter that:
(a) Each U.S. Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act; except that
this representation and warranty does not apply to statements in or omissions
from such U.S. Prepricing Prospectus (or any amendment or supplement thereto)
made in reliance upon and in conformity with information relating to any Selling
Stockholder or to any U.S. Underwriter or Manager furnished to the Company in
writing by a U.S. Underwriter through the Representatives or by a Manager
through the Lead Managers expressly for use therein. The Commission has not
issued any order preventing or suspending the use of any Prepricing Prospectus.
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(b) The Registration Statement in the form in which it became or
becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the Prospectuses and any supplement
or amendment thereto when filed with the Commission under Rule 424(b) under the
Act, complied or will comply in all material respects with the provisions of the
Act and will not at any such times contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; except that this representation
and warranty does not apply to statements in or omissions from the Registration
Statement or the Prospectuses made in reliance upon and in conformity with
information relating to any Selling Stockholder or to any U.S. Underwriter or
Manager furnished to the Company in writing by a U.S. Underwriter through the
Representatives or by a Manager through the Lead Managers expressly for use
therein.
(c) All the outstanding shares of Class A Common Stock (as defined in
the Prospectuses), Class B Common Stock and Common Stock, as the case may be, of
the Company have been duly authorized and validly issued, are fully paid and
nonassessable and are free of any preemptive or similar rights; the Shares to be
issued and sold by the Company have been duly authorized and, when issued and
delivered to the U.S. Underwriters against payment therefor in accordance with
the terms hereof, will be validly issued, fully paid and nonassessable and free
of any preemptive or similar rights; and the capital stock of the Company,
before and after giving effect to the Reclassification, conforms in all material
respects to the description thereof in the Registration Statement and the
Prospectuses.
(d) The Company is a corporation duly organized and validly existing
in good standing under the laws of the State of Delaware with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectuses, and is
duly registered and qualified to conduct its business and is in good standing in
each jurisdiction where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify does not have a material adverse effect, or involve a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company, the Subsidiaries (as hereinafter defined) and, after giving effect
to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite, taken as a whole (a "Material Adverse Effect").
(e) All the Company's subsidiaries (collectively, the "Subsidiaries")
are listed in an exhibit to the Registration Statement. Each Subsidiary is, and
after giving effect to the Acquisition pursuant to the terms of the Stock
Purchase Agreement, Falconite will be, a corporation duly organized, validly
existing and in good standing in the jurisdiction of its incorporation, with
full corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus, and is, and after giving effect to the Acquisition pursuant to the
terms of the Stock Purchase Agreement, Falconite will be, duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify does not have
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a Material Adverse Effect; all the outstanding shares of capital stock of each
of the Subsidiaries have been, and after giving effect to the Acquisition
pursuant to the terms of the Stock Purchase Agreement, all the outstanding
shares of capital stock of Falconite will have been duly authorized and validly
issued, are or will be fully paid and nonassessable, and are or will be owned by
the Company directly, or indirectly through one of the other Subsidiaries, free
and clear of any lien, adverse claim, security interest, equity or other
encumbrance, except pursuant to and otherwise permitted by the Credit Facility
(as defined in the Prospectuses) as described in the Prospectuses.
(f) Schedule III hereto lists the only jurisdictions or places where
the nature of the properties or the conduct of the businesses of the Company,
the Subsidiaries and, after giving effect to the Acquisition pursuant to the
terms of the Stock Purchase Agreement, Falconite requires the Company, the
Subsidiaries and, after giving effect to the Acquisition pursuant to the terms
of the Stock Purchase Agreement, Falconite to be duly registered, qualified and
in good standing, except where the failure to so register, qualify or be in good
standing would not have a Material Adverse Effect.
(g) There are no, and after giving effect to the Acquisition pursuant
to the terms of the Stock Purchase Agreement, there will not be any legal or
governmental proceedings pending or, to the knowledge of the Company, overtly
threatened, against the Company or any of the Subsidiaries or Falconite which
are or will be materially adverse to the Company, its Subsidiaries and, after
giving effect to the Acquisition pursuant to the terms of the Stock Purchase
Agreement, Falconite, taken as a whole, or to which the Company or any of the
Subsidiaries and Falconite, or to which any of their respective properties, is
subject which are material to the Company, its Subsidiaries and, after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite, taken as a whole, that are required to be described in the
Registration Statement or the Prospectuses but are not described as required,
and there are no agreements, contracts, indentures, leases or other instruments
relating to the Company that are required to be described in the Registration
Statement or the Prospectuses or to be filed as an exhibit to the Registration
Statement that are not described or filed as required by the Act or the Exchange
Act. The descriptions of the terms of any such contracts or documents contained
in the Registration Statement or the Prospectuses are correct in all material
respects. Neither the Company nor any Subsidiary is, and after giving effect to
the Acquisition pursuant to the terms of the Stock Purchase Agreement, Falconite
will not be involved in any strike, job action or labor dispute with any group
of employees, and, to the Company's knowledge, no such action or dispute is
overtly threatened.
(h) Neither the Company nor any of the Subsidiaries is, and after
giving effect to the Acquisition pursuant to the terms of the Stock Purchase
Agreement, Falconite will not be, (i) in violation of its certificate or
articles of incorporation or by-laws, or other organizational documents, or of
any law, ordinance, administrative or governmental rule or regulation applicable
to the Company or any of the Subsidiaries or Falconite or of any decree of any
court or governmental agency or body having jurisdiction over the Company or any
of the Subsidiaries or Falconite (except where any such violation or violations
in the aggregate would not have a Material Adverse Effect), or (ii) in default
in any respect in the performance of any obligation,
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agreement or condition contained in any bond, debenture, note or any other
evidence of indebtedness or in any agreement, indenture, lease or other
instrument to which the Company or any of the Subsidiaries or Falconite is a
party or by which any of them or any of their respective properties may be
bound, except as may be discussed in the Prospectuses or where any such default
or defaults in the aggregate would not have a Material Adverse Effect.
(i) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement or the International Underwriting
Agreement by the Company nor the consummation by the Company of the transactions
contemplated hereby and thereby or the performance by the Company of the Stock
Purchase Agreement and consummation of the Acquisition of Falconite pursuant
thereto (i) requires any consent, approval, authorization or other order of or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency or official (except such as may be required
for the registration of the Shares under the Act, which has been or will be
effected in accordance with this Agreement, and compliance with the securities
or Blue Sky laws of various jurisdictions), or conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under, the
certificate or articles of incorporation or bylaws, or other organizational
documents, of the Company or any of the Subsidiaries or, after giving effect to
the Acquisition pursuant to the terms of the Stock Purchase Agreement, Falconite
or (ii) conflicts or will conflict with or constitutes or will constitute a
breach of, or a default under, in any material respect, any material agreement,
indenture, lease or other instrument to which the Company or any of the
Subsidiaries or, after giving effect to the Acquisition pursuant to the terms of
the Stock Purchase Agreement, Falconite is a party or by which any of them or
any of their respective properties may be bound, or violates or will violate in
any material respect any statute, law, regulation or filing or judgment,
injunction, order or decree applicable to the Company or any of the Subsidiaries
or, after giving effect to the Acquisition pursuant to the terms of the Stock
Purchase Agreement, Falconite or any of their respective properties, or will
result in the creation or imposition of any material lien, charge or encumbrance
upon any property or assets of the Company or any of the Subsidiaries or, after
giving effect to the Acquisition pursuant to the terms of the Stock Purchase
Agreement, Falconite pursuant to the terms of any agreement or instrument to
which any of them is a party or by which any of them may be bound or to which
any of the property or assets of any of them is subject.
(j) The accountants, Price Waterhouse LLP, Lawrence, Blackburn Meek
Maxey & Co. P.C., Albin, Randall & Bennett, Certified Public Accountants,
Coopers & Lybrand L.L.P. and KPMG Peat Marwick L.L.P., who have certified or
shall certify the financial statements filed or to be filed as part of the
Registration Statement or the Prospectuses (or any amendment or supplement
thereto) are, to the Company's knowledge, independent public accountants under
Rule 101 of the AICPA's Code of Professional Conduct, and its interpretations
and rulings.
(k) The financial statements (historical and pro forma), together with
related schedules and notes forming part of the Registration Statement and the
Prospectuses (and any amendment or supplement thereto), present fairly in all
material respects the consolidated financial position, results of operations,
cash flows and changes in stockholders' equity of the
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Company, the Subsidiaries and Falconite on the basis stated in the Registration
Statement at the respective dates or for the respective periods to which they
apply; such statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; the assumptions
used in preparing the pro forma financial information and related notes and
schedules included in the Registration Statement and the Prospectuses (and any
amendment or supplement thereto) are reasonable; and the other financial and
statistical information and data set forth in the Registration Statement and the
Prospectuses (and any amendment or supplement thereto) are accurately presented
and, to the extent such information and data are derived from the financial
books and records of the Company or Falconite, prepared on a basis consistent
with the books and records of the Company and its Subsidiaries or Falconite.
(l) The execution and delivery of, and the performance by the Company
of its obligations under, each of this Agreement and the International
Underwriting Agreement have been duly and validly authorized by the Company, and
each of this Agreement and the International Underwriting Agreement has been
duly executed and delivered by the Company and constitutes the valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as the enforcement hereof and thereof may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and subject to the applicability of general
principles of equity, and except as rights to indemnity and contribution
hereunder and thereunder may be limited by Federal or state securities laws or
principles of public policy.
(m) Except as disclosed in the Registration Statement and the
Prospectuses (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectuses (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred, and after giving effect to
the Acquisition pursuant to the terms of the Stock Purchase Agreement, Falconite
will not have incurred, any liability or obligation, direct or contingent, or
entered into any transaction, not in the ordinary course of business, that is
material to the Company and the Subsidiaries taken as a whole or Falconite, and
there has not been, and after giving effect to the Acquisition pursuant to the
terms of the Stock Purchase Agreement, there will not have been any material
change in the capital stock of the Company, or material increase in the short-
term debt or long-term debt, of the Company or any of the Subsidiaries, or any
development having or which may reasonably be expected to have, a Material
Adverse Effect.
(n) Each of the Company and the Subsidiaries has, and after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase
Agreement, Falconite will have good and marketable title to all property (real
and personal) described in the Prospectuses as being owned by it, free and clear
of all liens, claims, security interests or other encumbrances except pursuant
to and otherwise permitted by the Credit Facility as are described in the
Registration Statement and the Prospectuses or in a document filed as an exhibit
to the Registration Statement and all the property described in the Prospectuses
as being held under lease by each of the Company and the Subsidiaries is, and,
after giving effect to the Acquisition pursuant to the terms of the Stock
Purchase Agreement, all the property described in the Prospectuses as being held
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under lease by Falconite will be, held by it under valid, subsisting and
enforceable leases with only such exceptions as in the aggregate are not
materially burdensome and do not interfere in any material respect with the
conduct of the business of the Company and the Subsidiaries and, after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite, taken as a whole.
(o) The Company has not distributed and, prior to the later to occur
of (i) the Closing Date or the Option Closing Date, if any, and (ii) completion
of the distribution of the Shares, will not distribute any offering material in
connection with the offering and sale of the Shares other than the Registration
Statement, the Prepricing Prospectuses, the Prospectuses or other materials, if
any, permitted by the Act.
(p) The Company and each of the Subsidiaries has, and after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite will have such permits, licenses, franchises and authorizations of
governmental or regulatory authorities ("Permits") as are necessary to own its
respective properties and to conduct its business in the manner described in the
Prospectuses, except where the failure to have any such Permit would not have a
Material Adverse Effect; the Company and each of the Subsidiaries has, and after
giving effect to the Acquisition pursuant to the terms of the Stock Purchase
Agreement, Falconite will have, fulfilled and performed in all material respects
all its material obligations with respect to such Permits and no event has
occurred that allows, or after notice or lapse of time would allow, revocation
or termination thereof or results in any other material impairment of the rights
of the holder of any such Permit, subject in each case to such qualification as
may be set forth in the Prospectuses and except to the extent that any such
revocation or termination would not have a Material Adverse Effect; and, except
as described in the Prospectuses, none of such Permits contains any restriction
that is materially burdensome to the Company or any of the Subsidiaries or,
after giving effect to the Acquisition pursuant to the terms of the Stock
Purchase Agreement, Falconite.
(q) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(r) To the Company's knowledge, neither the Company nor any of its
Subsidiaries nor any employee or agent of the Company or any Subsidiary has made
and, after giving effect to the Acquisition pursuant to the terms of the Stock
Purchase Agreement, neither Falconite nor any employee or agent of Falconite
will have made any payment of funds of the Company or any Subsidiary or
Falconite or received or retained any funds in violation of any law, rule or
regulation, which payment, receipt or retention of funds is of a character
required to be disclosed in the Prospectuses.
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(s) Except as discussed in the Prospectuses, the Company and each of
the Subsidiaries have and, after giving effect to the Acquisition pursuant to
the terms of the Stock Purchase Agreement, Falconite will have, filed all tax
returns required to be filed, which returns are true and correct in all material
respects, and neither the Company nor any Subsidiary is and, after giving effect
to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite will not be, in default in the payment of any taxes which were payable
pursuant to said returns or any assessments with respect thereto, except where
the failure to file such returns and make such payments would not have a
Material Adverse Effect and except for the payment of any amounts that are being
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with generally accepted accounting principles have been
established.
(t) Except as described in the Prospectuses, no holder of any security
of the Company has any right to require registration of shares of Common Stock
or any other security of the Company because of the filing of the registration
statement or consummation of the transactions contemplated by this Agreement or
the International Underwriting Agreement, or otherwise. No such rights with
respect to shares of Common Stock not listed in Schedule I hereto were exercised
nor will be exercised in connection with the sale of the Shares and for a period
of 180 days after the date hereof. Except as described in or contemplated by the
Prospectuses, there are no outstanding options, warrants or other rights calling
for the issuance of, and there are no commitments, plans or arrangements to
issue, any shares of Common Stock of the Company or any security convertible
into or exchangeable or exercisable for Common Stock of the Company.
(u) The Company and the Subsidiaries own or possess, and after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite will own or possess, all patents, trademarks, trademark registration,
service marks, service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights described in the Prospectuses as being
owned by them or any of them or necessary for the conduct of their respective
businesses, and the Company is not aware of any claim to the contrary or any
challenge by any other person to the rights of the Company and the Subsidiaries
and Falconite with respect to the foregoing, except for such claims or
challenges that would not individually or in the aggregate be reasonably
expected to result in a Material Adverse Effect.
(v) The Company is not and, upon sale of the Shares to be issued and
sold in accordance herewith and upon application of the net proceeds to the
Company from such sale as described in the Prospectuses under the caption "Use
of Proceeds," will not be an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(w) The Company has complied with all provisions of Florida Statutes,
(S)517.075, relating to issuers doing business with Cuba.
(x) The Company and each of its Subsidiaries have and, after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase
Agreement, Falconite will have fulfilled their obligations, if any, under the
minimum funding standards of Section 302 of the
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United States Employee Retirement Income Security Act of 1974 ("ERISA") and the
regulations and published interpretations thereunder with respect to each "plan"
(as defined in ERISA and such regulations and published interpretations) in
which employees of the Company and its Subsidiaries and Falconite are, or will
be, eligible to participate and each such plan is in compliance in all material
respects with the presently applicable provisions of ERISA and such regulations
and published interpretations, and has not incurred any unpaid liability to the
Pension Benefit Guaranty Corporation (other than for the payment of premiums in
the ordinary course) or to any such plan under Title IV of ERISA.
(y) The execution and delivery of this Agreement and the International
Underwriting Agreement and the consummation of the transactions contemplated
hereby and thereby will not involve any prohibited transaction within the
meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code of
1986, as amended (the "Code").
(z) (i) The Company and each of its Subsidiaries are, and after
giving effect to the Acquisition pursuant to the terms of the Stock Purchase
Agreement, Falconite will be, insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
customary in the businesses in which they are engaged; (ii) all policies of
insurance insuring the Company or any of its Subsidiaries or, after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite or their respective businesses, assets, employees, officers and
directors are, or will be, in full force and effect; (iii) the Company and its
Subsidiaries are, and after giving effect to the Acquisition pursuant to the
terms of the Stock Purchase Agreement, Falconite will be, in compliance with the
terms of such policies and instruments in all material respects; and (iv) there
are no material claims by the Company or any of its Subsidiaries or, after
giving effect to the Acquisition pursuant to the terms of the Stock Purchase
Agreement, Falconite under any such policy or instrument as to which any
insurance company is denying liability or defending under a reservation of
rights clause.
(aa) The Company and each of its Subsidiaries and, after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite (i) are or will be and at all times have or will have been, in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have or will have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are or will
be in compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a Material Adverse Effect. Neither the Company
nor any of its Subsidiaries has been, and after giving effect to the Acquisition
pursuant to the terms of the Stock Purchase Agreement, Falconite will not have
been named as a "potentially responsible party" under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, or
any similar state statute.
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(ab) In connection with its acquisition of businesses, the Company
typically conducts a review of the effect of Environmental Laws on the business,
operations and properties of the acquired businesses, in the course of which it
identifies and evaluates associated costs and liabilities (including, without
limitation, any capital or operating expenditures required for clean-up, closure
of properties or compliance with Environmental Laws, or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties). On the basis of such review, the Company has
reasonably concluded that such associated costs and liabilities would not,
singly or in the aggregate, have a Material Adverse Effect.
8. Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder represents and warrants, severally and not jointly, to each
U.S. Underwriter that:
(a) Such Selling Stockholder now has valid and marketable title to
the Class B Common Stock to be converted in the reclassification into the Shares
to be sold by such Selling Stockholder, and on the Closing Date and any Option
Closing Date will have valid and marketable title to the Shares to be sold by
such Selling Stockholder, free and clear of any lien, claim, security interest
or other encumbrance, including, without limitation, any restriction on
transfer, except as otherwise described in the Prospectuses.
(b) Such Selling Stockholder now has, and on the Closing Date and any
Option Closing Date will have, full legal right, power and authorization, and
any approval required by law, to sell, assign, transfer and deliver such Shares
in the manner provided in this Agreement and the International Underwriting
Agreement, and upon delivery of and payment for such Shares hereunder, the
several U.S. Underwriters will acquire valid and marketable title to such Shares
free and clear of any lien, claim, security interest, or other encumbrance,
assuming the U.S. Underwriters purchase such Shares for value therefor pursuant
hereto without notice of any adverse claim, as defined in the Uniform Commercial
Code as adopted in the State of New York (the "UCC") and are otherwise bona fide
purchasers for the purposes of the UCC and that such U.S. Underwriters' rights
are not limited by subsection (4) of Section 8-302 of the UCC.
(c) This Agreement and the International Underwriting Agreement have
been duly authorized, executed and delivered by or on behalf of such Selling
Stockholder and are the valid and binding agreements of such Selling Stockholder
enforceable against such Selling Stockholder in accordance with their terms,
except as the enforcement hereof and thereof may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' right
generally and subject to the applicability of general principles of equity, and
except as rights to indemnity and contribution hereunder and thereunder may be
limited by Federal or state securities laws or principles of public policy.
(d) Neither the sale of the Shares, the execution, delivery or
performance of this Agreement or the International Underwriting Agreement by or
on behalf of such Selling Stockholder nor the consummation by or on behalf of
such Selling Stockholder of the transactions contemplated hereby and thereby (i)
requires any consent, approval, authorization or other order of, or registration
or filing with, any court, regulatory body, administrative agency or
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other governmental body, agency or official (except such as may be required for
the registration of the Shares under the Act or compliance with the securities
or Blue Sky laws of various jurisdictions), or (ii) conflicts or will conflict
with or constitutes or will constitute a breach of, or a default under, in any
material respect, any material agreement, indenture, lease or other instrument
to which such Selling Stockholder is a party or by which such Selling
Stockholder is or may be bound, or violates or will violate in any material
respect any statute, law, regulation or filing or judgment, injunction, order or
decree applicable to such Selling Stockholder, or will result in the creation or
imposition of any material lien, charge or encumbrance upon any property or
assets of such Selling Stockholder pursuant to the terms of any agreement or
instrument to which such Selling Stockholder is a party or by which such Selling
Stockholder may be bound or to which any of the property or assets of such
Selling Stockholder is subject.
(e) Such Selling Stockholder has not taken, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares, except for the lock-up arrangements referred
to in the Prospectuses.
(f) To the extent, but only to the extent, that any statements or
omissions made in the Registration Statement, any Preliminary Prospectus, the
Prospectuses or any amendment or supplement thereto are made in reliance upon
and in conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein, such Preliminary Prospectus and
the Registration Statement did, and the Prospectuses and any further amendments
or supplements to the Registration Statement and the Prospectuses, when they
become effective or are filed with the Commission, as the case may be, will
conform in all material respects to the requirements of the Act and the rules
and regulations of the Commission thereunder and the Registration Statement will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading and the Preliminary Prospectuses and Prospectuses will
not include any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
9. Indemnification and Contribution. (a) The Company agrees to indemnify
and hold harmless each of you and each other U.S. Underwriter and each person,
if any, who controls any U.S. Underwriter within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any U.S. Prepricing Prospectus
or in the Registration Statement or the U.S. Prospectus or in any amendment or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
any untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in conformity
with the information relating to such U.S. Underwriter or Manager furnished in
writing to the Company by or on behalf of any U.S. Underwriter through you or by
or on behalf of any Manager through a Lead Manager
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expressly for use in connection therewith; provided, however, that the
indemnification contained in this paragraph (a) with respect to any U.S.
Prepricing Prospectus shall not inure to the benefit of any U.S. Underwriter (or
to the benefit of any person controlling such U.S. Underwriter) on account of
any such loss, claim, damage, liability or expense arising from the sale of the
Shares by such U.S. Underwriter to any person if a copy of the U.S. Prospectus
shall not have been delivered or sent to such person within the time required by
the Act and the regulations thereunder, and the untrue statement or alleged
untrue statement or omission or alleged omission of a material fact contained in
such U.S. Prepricing Prospectus was corrected in the U.S. Prospectus, provided
that the Company has delivered the U.S. Prospectus to the several U.S.
Underwriters in requisite quantity on a timely basis to permit such delivery or
sending.
(b) If any action, suit or proceeding shall be brought against any
U.S. Underwriter or any person controlling any U.S. Underwriter in respect of
which indemnity may be sought against the Company, such U.S. Underwriter or such
controlling person shall promptly notify the parties against whom
indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such U.S. Underwriter or any
such controlling person shall have the right to employ separate counsel in any
such action, suit or proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such U.S.
Underwriter or such controlling person unless (i) the indemnifying parties have
agreed in writing to pay such fees and expenses, (ii) the indemnifying parties
have failed to assume the defense and employ counsel, or (iii) the named parties
to any such action, suit or proceeding (including any impleaded parties) include
both such U.S. Underwriter or such controlling person and the indemnifying
parties and such U.S. Underwriter or such controlling person shall have been
advised by its counsel that representation of such indemnified party and any
indemnifying party by the same counsel would be inappropriate under applicable
standards of professional conduct (whether or not such representation by the
same counsel has been proposed) due to actual or potential differing interests
between them (in which case the indemnifying party shall not have the right to
assume the defense of such action, suit or proceeding on behalf of such U.S.
Underwriter or such controlling person). It is understood, however, that the
indemnifying parties shall, in connection with any one such action, suit or
proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to one separate firm of attorneys per
jurisdiction acting as local counsel) at any time for all such U.S. Underwriters
and controlling persons not having actual or potential differing interests with
you or among themselves, which firm shall be designated in writing by Smith
Barney Inc., and that all such fees and expenses shall be reimbursed on a
monthly basis as provided in the preceding paragraph. The indemnifying parties
shall not be liable for any settlement of any such action, suit or proceeding
effected without their written consent, but if settled with such written
consent, or if there be a final judgment for the plaintiff in any such action,
suit or proceeding, the indemnifying parties agree to indemnify and hold
harmless any U.S. Underwriter, to the extent provided in the preceding
paragraph, and any such controlling person from and against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
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(c) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless each of you and each other U.S. Underwriter and each
person, if any, who controls any U.S. Underwriter within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, the Company, its directors,
its officers who sign the Registration Statement, and any person who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
each U.S. Underwriter, but only with respect to the information relating to such
Selling Stockholder furnished in writing by or on behalf of such Selling
Stockholder expressly for use in the Registration Statement, the U.S. Prospectus
or any U.S. Prepricing Prospectus, or any amendment or supplement thereto. If
any action, suit or proceeding shall be brought against any U.S. Underwriter,
any such controlling person of any U.S. Underwriter, the Company, any of its
directors, any such officer, or any such controlling person of the Company,
based on the Registration Statement, the U.S. Prospectus or any U.S. Prepricing
Prospectus or any amendment or supplement thereto, and in respect of which
indemnity may be sought against any Selling Stockholder pursuant to this
paragraph (c), such Selling Stockholder shall have the rights and duties given
to the Company by paragraph (b) above (except that if the Company or the U.S.
Underwriters shall have assumed the defense thereof such Selling Stockholder
shall not be required to do so, but may employ separate counsel therein and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at such Selling Stockholder's expense), and each U.S. Underwriter, each
such controlling person of any U.S. Underwriter, the Company, its directors, any
such officer, and any such controlling person of the Company shall have the
rights and duties given to the U.S. Underwriters by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which any
Selling Stockholder may otherwise have. Notwithstanding anything herein to the
contrary, no Selling Stockholder shall be required to indemnify any U.S.
Underwriter, any such controlling person of any U.S. Underwriter, the Company,
any of its directors, any such officer or any such controlling person of the
Company, in an aggregate amount in excess of the net amount received by such
Selling Stockholder (after deducting any underwriting discount) from the sale of
such Selling Stockholder's Shares pursuant to the U.S. Prospectus.
(d) Each U.S. Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, any person who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and the
Selling Stockholders, to the same extent as the foregoing indemnity from the
Company to each U.S. Underwriter, but only with respect to information relating
to such U.S. Underwriter furnished in writing by or on behalf of such U.S.
Underwriter through you expressly for use in the Registration Statement, the
U.S. Prospectus or any U.S. Prepricing Prospectus, or any amendment or
supplement thereto. If any action, suit or proceeding shall be brought against
the Company, any of its directors, any such officer, any such controlling person
or any Selling Stockholder based on the Registration Statement, the U.S.
Prospectus or any U.S. Prepricing Prospectus, or any amendment or supplement
thereto, and in respect of which indemnity may be sought against any U.S.
Underwriter pursuant to this paragraph (d), such U.S. Underwriter shall have the
rights and duties given to the Company by paragraph (b) above (except that if
the Company or the Selling Stockholders shall have assumed the defense thereof
such U.S. Underwriter shall not be required to do so, but may employ separate
counsel therein
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and participate in the defense thereof, but the fees and expenses of such
counsel shall be at such U.S. Underwriter's expense), and the Company, its
directors, any such officer, any such controlling person, and the Selling
Stockholders, shall have the rights and duties given to the U.S. Underwriters by
paragraph (b) above.
(e) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a), (c) or (d) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the Selling Stockholders and the U.S. Underwriters, respectively, from
the offering of the Shares, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company, the Selling Stockholders and the U.S.
Underwriters, respectively, in connection with the statements or omissions that
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company, the Selling Stockholders and the U.S. Underwriters, respectively,
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company and the Selling
Stockholders, respectively, bear to the total underwriting discounts and
commissions received by the U.S. Underwriters, in each case as set forth in the
table on the cover page of the U.S. Prospectus; provided that, in the event that
the U.S. Underwriters shall have purchased any Additional Shares hereunder, any
determination of the relative benefits received by the Selling Stockholders or
the U.S. Underwriters from the offering of the Shares shall include the net
proceeds (before deducting expenses) received by the Selling Stockholders, and
the underwriting discounts and commissions received by the U.S. Underwriters,
from the sale of such Additional Shares, in each case computed on the basis of
the respective amounts set forth in the notes to the table on the cover page of
the U.S. Prospectus. The relative fault of the Company, the Selling Stockholders
and the U.S. Underwriters, respectively, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Stockholders or the U.S.
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
(f) The Company, the Selling Stockholders and the U.S. Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by a pro rata allocation (even if the U.S.
Underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take account of the equitable considerations
referred to in paragraph (e) above. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities and expenses
referred to in paragraph (e) above shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating any claim or defending
any such action, suit or proceeding. Notwithstanding the provisions of this
Section 9, no U.S. Underwriter shall be required to contribute any amount in
excess of the
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amount by which the total price of the Shares underwritten by it and distributed
to the public exceeds the amount of any damages which such U.S. Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. Notwithstanding the provisions of
this Section 9, no Selling Stockholder shall be required to contribute any
amount in excess of the amount by which the net amount received by it (after
deducting any underwriting discount) from the sale of such Selling Stockholder's
Shares exceeds the amount of any damages which such Selling Stockholder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The U.S. Underwriters' obligations to contribute pursuant to
this Section 9 are several in proportion to the respective numbers of Firm
Shares set forth opposite their names in Schedule II hereto (or such numbers of
Firm Shares increased as set forth in Section 12 hereof) and not joint. The
Selling Stockholders' obligations to contribute pursuant to this Section 9 are
several in proportion to the respective numbers of Shares sold by each Selling
Stockholder pursuant to the U.S. Prospectus and not joint.
(g) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(h) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid on a monthly basis by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or expenses are
incurred. The indemnity and contribution agreements contained in this Section 9
and the representations and warranties of the Company and the Selling
Stockholders set forth in this Agreement shall remain operative and in full
force and effect, regardless of (i) any investigation made by or on behalf of
any U.S. Underwriter or any person controlling any U.S. Underwriter, the
Company, its directors or officers or the Selling Stockholders, any director,
officer or partner of a Selling Stockholder or any person controlling the
Company or any Selling Stockholder, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor
to any U.S. Underwriter or any person controlling any U.S. Underwriter, or to
the Company, its directors or officers, or to a Selling Stockholder, any
director, officer or partner of a Selling Stockholder or any person controlling
the Company or any Selling Stockholder, shall be entitled to the benefits of
the indemnity, contribution and reimbursement agreements contained in this
Section 9.
10. Conditions of U.S. Underwriters' Obligations. The several obligations
of the U.S. Underwriters to purchase the Firm Shares hereunder are subject to
the following conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before
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the offering of the Shares may commence, the Registration Statement or such
post-effective amendment shall have become effective not later than 5:30 P.M.
New York City time, on the date hereof, or at such later date and time as shall
be consented to in writing by you, and all filings, if any, required by Rules
424 and 430A under the Act shall have been timely made; no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or, to the knowledge of
the Company or any U.S. Underwriter, threatened by the Commission, and any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectuses or otherwise) shall have been
complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, that would have a Material Adverse Effect on the Company and the
Subsidiaries, taken as a whole, not contemplated by the Prospectuses, which in
your opinion, as Representatives of the several U.S. Underwriters, would
materially, adversely affect the market for the Shares, or (ii) any event or
development relating to or involving the Company or any officer or director of
the Company or any Selling Stockholder which makes any statement of material
fact made in the Prospectuses untrue or which, in the opinion of the Company and
its counsel or the U.S. Underwriters and their counsel, requires the making of
any addition to or change in the Prospectuses in order to state a material fact
required by the Act or any other law to be stated therein or necessary in order
to make the statements of material fact therein not misleading, if amending or
supplementing the Prospectuses to reflect such event or development would, in
your opinion, as Representatives of the several U.S. Underwriters, materially
adversely affect the market for the Shares.
(c) You shall have received on the Closing Date an opinion of Kirkland
& Ellis, counsel for the Company and the Selling Stockholders, dated the Closing
Date and addressed to you, as Representatives of the several U.S. Underwriters,
in substantially the form of Exhibit A hereto.
(d) You shall have received on the Closing Date an opinion of Latham &
Watkins, counsel for the U.S. Underwriters, dated the Closing Date, with respect
to the Registration Statement and the Prospectuses and such other related
matters as you may reasonably request.
(e) You shall have received a letter addressed to you, as
Representatives of the several U.S. Underwriters, and dated the date hereof and
the Closing Date from Price Waterhouse LLP, independent certified public
accountants, substantially in the forms heretofore approved by you.
(f) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of the Company, shall be contemplated by the
Commission at or prior to the Closing Date; (ii) there shall not have been any
material change in the capital stock of the Company nor any material increase in
the short-term or long-term debt of the Company (other than in the ordinary
course of business) from that set forth or contemplated in the Registration
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Statement or the Prospectuses (or any amendment or supplement thereto); (iii)
there shall not have been, since the respective dates as of which information is
given in the Registration Statement and the Prospectuses (or any amendment or
supplement thereto), except as may otherwise be stated in the Registration
Statement and Prospectuses (or any amendment or supplement thereto), any
material adverse change, or any development involving a prospective material
adverse change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and the
Subsidiaries taken as a whole; and (iv) all the representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects on and as of the date hereof and on and as of the Closing Date
as if made on and as of the Closing Date (except to the extent they expressly
relate to an earlier date), and you shall have received a certificate, dated the
Closing Date and signed by the chief executive officer and the chief financial
officer of the Company (or, at the Company's option, such other officers as are
acceptable to you), to the effect set forth in this Section 10(f) and in Section
10(g) hereof.
(g) The Company shall not have failed in any material respect at or
prior to the Closing Date to have performed or complied with any of its
agreements contained in this Agreement or the International Underwriting
Agreement and required to be performed or complied with by it hereunder at or
prior to the Closing Date.
(h) All the representations and warranties of the Selling Stockholders
contained in this Agreement shall be true and correct in all material respects,
on and as of the date hereof and on and as of the Closing Date (except to the
extent they expressly relate to an earlier date), as if made on and as of the
Closing Date, and you shall have received a certificate, dated the Closing Date
and signed by or on behalf of each Selling Stockholder to the effect set forth
in this Section 10(h) and in Section 10(i) hereof.
(i) The Selling Stockholders shall not have failed in any material
respect at or prior to the Closing Date to have performed or complied with any
of their agreements contained in this Agreement or the International
Underwriting Agreement and required to be performed or complied with by them at
or prior to the Closing Date.
(j) The Sellers shall have furnished or caused to be furnished to you
such further certificates and documents as you shall have reasonably requested.
(k) The Common Stock shall have been listed or approved for listing
subject to notice of issuance, on the New York Stock Exchange.
(l) The closing of the Reclassification and the Stock Split (as
defined in the Prospectuses) as described in the Prospectuses shall have
occurred.
(m) The closing under the International Underwriting Agreement shall
have occurred concurrently with the closing hereunder on the Closing Date,
unless such closing shall have failed to occur solely as a result of the failure
to occur of the closing hereunder.
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(n) The closing of the Acquisition of Falconite under the Stock
Purchase Agreement shall have occurred concurrently with the closing hereunder
on the Closing Date.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Company or
any Selling Stockholder and delivered to you, as Representatives of the U.S.
Underwriters, or to counsel for the U.S. Underwriters, shall be deemed a
representation and warranty by the Company, the Selling Stockholders or the
particular Selling Stockholder, as the case may be, to each U.S. Underwriter as
to the statements made therein.
The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the satisfaction on and as of any
Option Closing Date of the conditions set forth in this Section 10, except that,
if any Option Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in this Section 10 shall be dated the Option
Closing Date in question and the opinions or letters called for by paragraphs
(c), (d) and (e) shall be revised to reflect the sale of Additional Shares.
11. Expenses. The Company agrees to pay the following costs and expenses
and all other costs and expenses incident to the performance by the Sellers of
their obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each U.S. Prepricing Prospectus, the U.S.
Prospectus, and each amendment or supplement to any of them; (ii) the printing
(or reproduction) and delivery (including postage, air freight charges and
charges for counting and packaging) of such copies of the registration
statement, each U.S. Prepricing Prospectus, the U.S. Prospectus, and all
amendments or supplements to any of them as may be reasonably requested for use
in connection with the offering and sale of the Shares; (iii) the preparation,
printing, authentication, issuance and delivery of certificates for the Shares,
including any stamp taxes in connection with the original issuance and sale of
the Shares; (iv) the printing (or reproduction) and delivery of this Agreement,
the Blue Sky Memorandum and all other agreements or documents printed (or
reproduced) and delivered in connection with the original issuance and sale of
the Shares; (v) the registration of the Common Stock under the Exchange Act and
the listing of the Shares on the New York Stock Exchange; (vi) the registration
or qualification of the Shares for offer and sale under the securities or Blue
Sky laws of the several states as provided in Section 5(g) hereof (including the
reasonable fees, expenses and disbursements of counsel for the Underwriters
relating to the preparation, printing or reproduction, and delivery of the Blue
Sky Memorandum and such registration and qualification); (vii) the filing fees
and the fees and expenses of counsel for the Underwriters in connection with any
filings required to be made with the National Association of Securities Dealers,
Inc.; (viii) the transportation and other expenses incurred by or on behalf of
representatives of the Company in connection with presentations to prospective
purchasers of the Shares; and (ix) the fees and expenses of the Company's
accountants and the fees and expenses of counsel (including local and special
counsel) for the Company and the Selling Stockholders.
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Except as provided in Section 5(j) and this Section 11, the U.S. Underwriters
will pay all of their own costs and expenses, including the fees of their
counsel, stock transfer taxes on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.
12. Effective Date of Agreement. This Agreement shall become effective: (i)
upon the execution and delivery hereof by the parties hereto; or (ii) if, at the
time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence, when notification of
the effectiveness of the registration statement or such post-effective amendment
has been released by the Commission. Until such time as this Agreement shall
have become effective, it may be terminated by the Company, by notifying you, or
by you, as Representatives of the several U.S. Underwriters, by notifying the
Company and the Selling Stockholders.
If any one or more of the U.S. Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date or any Option Closing Date, and the aggregate number of Shares
which such defaulting U.S. Underwriter or Underwriters are obligated but fail or
refuse to purchase is not more than one-tenth of the aggregate number of Shares
which the U.S. Underwriters are obligated to purchase on the Closing Date or any
Option Closing Date, each non-defaulting U.S. Underwriter shall be obligated,
severally, in the proportion which the number of Firm Shares set forth opposite
its name in Schedule II hereto bears to the aggregate number of Firm Shares set
forth opposite the names of all non-defaulting U.S. Underwriters or in such
other proportion as you may specify in accordance with Section 20 of the Master
Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares which
such defaulting U.S. Underwriter or Underwriters are obligated, but fail or
refuse, to purchase. If any one or more of the U.S. Underwriters shall fail or
refuse to purchase Shares which it or they are obligated to purchase on the
Closing Date or any Option Closing Date and the aggregate number of Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Shares which the U.S. Underwriters are obligated to purchase on the
Closing Date or any Option Closing Date and arrangements satisfactory to you and
the Company for the purchase of such Shares by one or more non-defaulting U.S.
Underwriters or other party or parties approved by you and the Company are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting U.S. Underwriter, the Selling
Stockholders or the Company; provided, that if such default occurs with respect
to Additional Shares to be purchased on any Option Closing Date different from
the Closing Date, this Agreement will terminate only as to the Additional Shares
to be purchased on such Option Closing Date. In any such case which does not
result in termination of this Agreement, either you or the Company shall have
the right to postpone the Closing Date, but in no event for longer than seven
days, in order that the required changes, if any, in the Registration Statement
and the Prospectus or any other documents or arrangements may be effected.
Nothing in this paragraph shall relieve any defaulting U.S. Underwriter from
liability in respect of any such default of any such U.S. Underwriter under this
Agreement. The term "U.S. Underwriter" as used in this Agreement includes, for
all purposes of this Agreement, any party not listed in Schedule II hereto who,
with your approval and the
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approval of the Company, purchases Shares which a defaulting U.S. Underwriter is
obligated, but fails or refuses, to purchase.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
U.S. Underwriter to the Company or any Selling Stockholder, by notice to the
Company, if prior to the Closing Date or any Option Closing Date (if different
from the Closing Date and then only as to the Additional Shares), as the case
may be, (i) trading in securities generally on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market shall have been suspended
or materially limited, (ii) a general moratorium on commercial banking
activities in New York shall have been declared by either federal or state
authorities, or (iii) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to commence or continue the offering of the Shares
at the offering price to the public set forth on the cover page of the U.S.
Prospectus or to enforce contracts for the resale of the Shares by the U.S.
Underwriters.
Notice of such termination may be given by telegram, telecopy or
telephone and shall be subsequently confirmed by letter.
14. Information Furnished by the U.S. Underwriters and Selling
Stockholders. (a) The statements set forth in the last paragraph on the cover
page, the stabilization legend on the inside front cover page, and the
statements related to concessions and reallowances and the paragraph related to
stabilization, syndicate covering transactions and penalty bids under the
caption "Underwriting" in any U.S. Prepricing Prospectus and in the U.S.
Prospectus constitute the only information furnished by or on behalf of the U.S.
Underwriters relating to them through you as such information is referred to in
Sections 7(b) and 9 hereof.
(b) The number of shares of Common Stock beneficially owned by the
Selling Stockholders prior to and after the offerings of the Underwritten Shares
and related footnotes to the table under the caption "Principal and Selling
Stockholders" and the biographical data pertaining to the persons affiliated
with the Selling Stockholders in any U.S. Prepricing Prospectus and in the U.S.
Prospectus constitute the only information furnished by or on behalf of the
Selling Stockholders relating to them as such information is referred to in
Sections 7(b) and 9 hereof.
15. Miscellaneous. Except as otherwise provided in Sections 5, 12 and 13
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company or the Selling Stockholders
at the office of the Company at 1800 Sherman Avenue, Evanston, Illinois 60201,
Attention: Chief Financial Officer; or (ii) if to you, as Representatives of
the several U.S. Underwriters, care of Smith Barney Inc., 388 Greenwich Street,
New York, New York 10013, Attention: Manager, Investment Banking Division.
27
<PAGE>
This Agreement has been and is made solely for the benefit of the
several U.S. Underwriters, the Company, its directors and officers, the other
controlling persons referred to in Section 9 hereof and the Selling Stockholders
and their respective successors and assigns, to the extent provided herein, and
no other person shall acquire or have any right under or by virtue of this
Agreement. Neither the term "successor" nor the term "successors and assigns"
as used in this Agreement shall include a purchaser from any U.S. Underwriter of
any of the Shares in his status as such purchaser.
16. Applicable Law; Counterparts. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
In all dealings with the Company under this Agreement, you shall act
on behalf of each of the several U.S. Underwriters, and the Company shall be
entitled to act and rely upon any statement, request, notice or agreement made
or given by you jointly or by Smith Barney Inc. on behalf of you.
28
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several U.S. Underwriters.
Very truly yours,
NATIONAL EQUIPMENT SERVICES, INC.
By
-------------------------------------
President and Chief Executive Officer
Each of the Selling Stockholders
named in Schedule I hereto
By
-------------------------------------
By
-------------------------------------
29
<PAGE>
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several U.S.
Underwriters named in Schedule II
hereto.
SALOMON SMITH BARNEY
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON CORPORATION
NATIONSBANC MONTGOMERY SECURITIES LLC
As Representatives of the Several U.S. Underwriters
By SMITH BARNEY INC.
By:
---------------------------------
Managing Director
30
<PAGE>
SCHEDULE I
NATIONAL EQUIPMENT SERVICES, INC.
<TABLE>
<CAPTION>
Number of Maximum Number of
Selling Stockholders Firm Shares Additional Shares
- -------------------- ------------------ -------------------
<S> <C> <C>
Golder, Thoma, Cressey, Rauner Fund V, L.P. ..............
GTCR Associates V.........................................
Total................................................ 2,666,666 2,400,000
</TABLE>
31
<PAGE>
SCHEDULE II
NATIONAL EQUIPMENT SERVICES, INC.
<TABLE>
<CAPTION>
Underwriter Number of Firm Shares
----------- -------------------------
<S> <C>
Smith Barney Inc...............................................
William Blair & Company........................................
Credit Suisse First Boston Corporation.........................
Donaldson & Lufkin & Jenrette Securities Corporation...........
NationsBanc Montgomery Securities LLC..........................
-------------------------
Total................................................ 16,000,000
-------------------------
</TABLE>
32
<PAGE>
SCHEDULE III
Jurisdictions Where Qualified to Do Business
[to come]
33
<PAGE>
Exhibit A
---------
Form of Opinion of Kirkland & Ellis
34
<PAGE>
EXHIBIT 1.2
20,000,000 Shares
NATIONAL EQUIPMENT SERVICES, INC.
Common Stock
INTERNATIONAL UNDERWRITING AGREEMENT
------------------------------------
June , 1998
SALOMON SMITH BARNEY INTERNATIONAL
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
NATIONSBANC MONTGOMERY SECURITIES LLC
As Lead Managers of the Several Managers
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
National Equipment Services, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell an aggregate of 3,333,333 shares of its
common stock, par value $0.01 per share, and the persons named in Schedule I
hereto (the "Selling Stockholders") propose to sell an aggregate of 666,667
shares of common stock of the Company (together with the 3,333,333 shares of
common stock to be issued and sold by the Company, the "Firm Shares") to the
several Managers named in Schedule II hereto (the "Managers") for whom Smith
Barney Inc., William Blair & Company, L.L.C., Credit Suisse First Boston
(Europe) Limited, Donaldson, Lufkin & Jenrette International and NationsBanc
Montgomery Securities LLC are acting as Lead Managers (the "Lead Managers"). In
addition, solely for the purpose of covering over-allotments, the Selling
Stockholders propose to sell to the Managers, upon the terms and conditions set
forth in Section 2 hereof, up to an additional 600,000 shares (the "Additional
Shares") of the Company's common stock. The Company and the Selling
Stockholders are hereinafter sometimes referred to as the "Sellers." The Firm
Shares and the Additional Shares are hereinafter collectively referred to as the
"Shares." The Company's common stock, par value
<PAGE>
$0.01 per share, including the Shares and the U.S. Shares (as defined herein),
is hereinafter referred to as the "Common Stock."
It is understood that the Company and the Selling Stockholders are
concurrently entering into an U.S. Underwriting Agreement, dated the date hereof
(the "U.S. Underwriting Agreement"), providing for the sale of 16,000,000 shares
of the Common Stock (the "Firm U.S. Shares"), of which 13,333,334 shares will be
sold by the Company and 2,666,666 will be sold by the Selling Stockholders (plus
an option granted by the Selling Stockholders to purchase up to an additional
2,400,000 shares of Common Stock (the "Additional U.S. Shares") solely for the
purpose of covering over-allotments) through arrangements with certain
underwriters in the United States and Canada (the "U.S. Underwriters"), for whom
Smith Barney Inc., William Blair & Company, L.L.C., Credit Suisse First Boston
Corporation, Donaldson, Lufkin & Jenrette Securities Corporation and NationsBanc
Montgomery Securities LLC are acting as representatives (the "Representatives").
All shares of Common Stock proposed to be offered to the U.S. Underwriters
pursuant to the U.S. Underwriting Agreement, including the Firm U.S. Shares and
the Additional U.S. Shares, are herein called the "U.S. Shares;" the U.S. Shares
and the Shares, collectively, are herein called the "Underwritten Shares."
The Company and the Selling Stockholders also understand that the Lead
Managers and the Representatives have entered into an agreement (the "Agreement
Between U.S. Underwriters and Managers") contemplating the coordination of
certain transactions between the Managers and the U.S. Underwriters and that,
pursuant thereto and subject to the conditions set forth therein, the Managers
may purchase from the U.S. Underwriters a portion of the U.S. Shares or sell to
the U.S. Underwriters a portion of the Shares. The Company and the Selling
Stockholders understand that any such purchases and sales between the Managers
and the U.S. Underwriters shall be governed by the Agreement Between U.S.
Underwriters and Managers and shall not be governed by the terms of this
Agreement or the U.S. Underwriting Agreement.
The Company has entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement") dated as of April 1, 1998, as amended, by and among the
Company, Falconite, Inc. and the stockholders of Falconite, Inc. Unless the
context otherwise requires, all references to "Falconite" in this Agreement
refer to Falconite, Inc. and its subsidiaries. The Stock Purchase Agreement
provides that, subject to certain conditions as described therein, the Company
will acquire all of the common stock of Falconite (the "Acquisition") for a
purchase price of $65,750,000. A portion of the proceeds to the Company from
the sale to the U.S. Underwriters and Managers of the Common Stock will be used
to fund the Acquisition concurrent with such sale.
The Company and the Selling Stockholders wish to confirm as follows
their respective agreements with you and the other several Managers on whose
behalf you are acting, in connection with the several purchases of the Shares by
the Managers.
1. Registration Statement and Prospectus. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with
2
<PAGE>
the provisions of the Securities Act of 1933, as amended, and the rules and
regulations of the Commission thereunder (collectively, the "Act"), a
registration statement on Form S-1, including prospectuses subject to
completion, relating to the Underwritten Shares. The term "Registration
Statement" as used in this Agreement means the registration statement (including
all financial schedules and exhibits), as amended at the time it becomes
effective, and as thereafter amended by post-effective amendment. The term
"Prospectuses" as used in this Agreement means the prospectuses in the forms
included in the Registration Statement, or, if the prospectuses included in the
Registration Statement omit information in reliance on Rule 430A under the Act
and such information is included in prospectuses filed with the Commission
pursuant to Rule 424(b) under the Act, the term "Prospectuses" as used in this
Agreement means the prospectuses in the forms included in the Registration
Statement as supplemented by the addition of the Rule 430A information contained
in the prospectuses filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectuses" as used in this Agreement means the prospectuses
subject to completion in the forms included in the Registration Statement at the
time of the initial filing of the Registration Statement with the Commission,
and as such prospectuses shall have been amended from time to time prior to the
date of the Prospectuses.
It is understood that two forms of Prepricing Prospectus and two forms
of Prospectus are to be used in connection with the offering and sale of the
Underwritten Shares: a Prepricing Prospectus and a Prospectus relating to the
U.S. Shares that are to be offered and sold in the United States (as defined
herein) or Canada (as defined herein) to U.S. or Canadian Persons (the "U.S.
Prepricing Prospectus" and the "U.S. Prospectus," respectively), and a
Prepricing Prospectus and a Prospectus relating to the Shares which are to be
offered and sold outside the United States or Canada to persons other than U.S.
or Canadian Persons (the "International Prepricing Prospectus" and the
"International Prospectus," respectively). The U.S. Prospectus and the
International Prospectus are herein collectively called the "Prospectuses," and
the U.S. Prepricing Prospectus and the International Prepricing Prospectus are
herein called the "Prepricing Prospectuses." For purposes of this Agreement:
"Rules and Regulations" means the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable; "U.S. or Canadian Person" means any
resident or national of the United States or Canada, any corporation,
partnership or other entity created or organized in or under the laws of the
United States or Canada or any estate or trust the income of which is subject to
United States or Canadian income taxation regardless of the source of its income
(other than the foreign branch of any U.S. or Canadian Person), and includes any
United States or Canadian branch of a person other than a U.S. or Canadian
Person; "United States" means the United States of America (including the states
thereof and the District of Columbia) and its territories, its possessions and
other areas subject to its jurisdiction; and "Canada" means Canada and its
territories, its possessions and other areas subject to its jurisdiction.
2. Agreements to Sell and Purchase. Upon the basis of the
representations, warranties and agreements contained herein and subject to all
the terms and conditions set forth herein and to such adjustments as you may
determine to avoid fractional shares, the Company hereby agrees to issue and
sell to each Manager and each Manager agrees, severally and not
3
<PAGE>
jointly, to purchase from the Company, at a purchase price of $_____ per share
(the "purchase price per share"), the number of Firm Shares that bears the same
proportion to the aggregate number of Firm Shares to be issued and sold by the
Company as the number of Firm Shares set forth opposite the name of such Manager
in Schedule II hereto (or such number of Firm Shares increased as set forth in
Section 12 hereof) bears to the aggregate number of Firm Shares to be sold by
the Company and the Selling Stockholders.
Upon the basis of the representations, warranties and agreements
contained herein and subject to all the terms and conditions set forth herein
and to such adjustments as you may determine to avoid fractional shares, each
Selling Stockholder agrees, severally and not jointly, to sell to each Manager
and each Manager agrees, severally and not jointly, to purchase from each
Selling Stockholder, at the purchase price per share, the number of Firm Shares
that bears the same proportion to the number of Firm Shares set forth opposite
the name of such Selling Stockholder in Schedule I hereto as the number of Firm
Shares set forth opposite the name of such Manager in Schedule II hereto (or
such number of Firm Shares increased as set forth in Section 12 hereof) bears to
the aggregate number of Firm Shares to be sold by the Company and the Selling
Stockholders.
Upon the basis of the representations, warranties and agreements
contained herein and subject to all the terms and conditions set forth herein,
the Selling Stockholders also agree to sell to the Managers, and the Managers
shall have the right to purchase from the Selling Stockholders, at the purchase
price per share, pursuant to an option (the "over-allotment option") which may
be exercised prior to 5:00 p.m., New York City time, on the 30th day after the
date of the International Prospectus (or, if such 30th day shall be a Saturday
or Sunday or a holiday, on the next business day thereafter when the New York
Stock Exchange is open for trading), up to an aggregate of 600,000 Additional
Shares. The maximum number of Additional Shares that each Selling Stockholder
agrees to sell upon the exercise by the Managers of the over-allotment option is
set forth opposite their respective names in Schedule I hereto. The number of
Additional Shares that the Managers elect to purchase upon any exercise of the
over-allotment option shall be provided by each Selling Stockholder in
proportion to the respective maximum number of Additional Shares that each
Selling Stockholder has agreed to sell. Additional Shares may be purchased only
for the purpose of covering over-allotments made in connection with the offering
of the Firm Shares. Upon any exercise of the over-allotment option, each
Manager, severally and not jointly, agrees to purchase from each Selling
Stockholder the number of Additional Shares (subject to such adjustments as you
may determine in order to avoid fractional shares) that bears the same
proportion to the number of Additional Shares to be sold by such Selling
Stockholder as the number of Firm Shares set forth opposite the name of such
Manager in Schedule II hereto (or such number of Firm Shares increased as set
forth in Section 12 hereof) bears to the aggregate number of Firm Shares to be
sold by the Company and the Selling Stockholders.
Each Manager represents, warrants, covenants and agrees that, except
as contemplated under Section 2 of the Agreement Between U.S. Underwriters and
Managers dated the date hereof, (i) it is not purchasing any Shares for the
account of any U.S. or Canadian Person
4
<PAGE>
and (ii) it has not offered or sold, and will not offer, sell, resell or
deliver, directly or indirectly, any Shares or distribute any International
Prospectus in the United States or Canada or to any U.S. or Canadian Person.
3. Terms of Public Offering. The Sellers have been advised by you that
the Managers propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the International Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
Managers of and payment for the Firm Shares shall be made at the office of Smith
Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New York
City time, on , 1998 (the "Closing Date"). The place of closing
for the Firm Shares and the Closing Date may be varied by agreement among you,
the Company and Golder, Thoma, Cressey, Rauner Fund V, L.P. ("Golder Thoma Fund
V").
Delivery to the Managers of and payment for any Additional Shares
to be purchased by the Managers shall be made at the aforementioned office of
Smith Barney Inc. at such time on such date (the "Option Closing Date"), which
may be the same as the Closing Date but shall in no event be earlier than the
Closing Date nor earlier than two nor later than ten business days after the
giving of the notice hereinafter referred to, as shall be specified in a written
notice from you on behalf of the Managers to the Selling Stockholders of the
Managers' determination to purchase a number, specified in such notice, of
Additional Shares. The place of closing for any Additional Shares and the Option
Closing Date for such Shares may be varied by agreement among you and Golder
Thoma Fund V.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request by written notice prior to 9:30 A.M., New York City time,
on the second business day preceding the Closing Date or any Option Closing
Date, as the case may be. Such certificates shall be made available to you in
New York City for inspection and packaging not later than 9:30 A.M., New York
City time, on the business day next preceding the Closing Date or the Option
Closing Date, as the case may be. The certificates evidencing the Firm Shares
and any Additional Shares to be purchased hereunder shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, against payment
of the purchase price therefor by wire transfer in immediately available funds.
5. Agreements of the Company. The Company agrees with the several
Managers as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
Company will endeavor to cause the Registration Statement or such post-effective
amendment to become effective as soon as possible and will
5
<PAGE>
advise you promptly and, if requested by you, will confirm such advice in
writing, when the Registration Statement or such post-effective amendment has
become effective.
(b) The Company will advise you promptly after it becomes aware
thereof and, if requested by you, will confirm such advice in writing: (i) of
any request by the Commission for amendment of or a supplement to the
Registration Statement, any Prepricing Prospectuses or the Prospectuses or for
additional information; (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction or the
initiation of any proceeding for such purpose; and (iii) within the period of
time referred to in paragraph (f) below, of any material adverse change, or any
development involving a prospective material adverse change, in or affecting
general affairs, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, taken as a whole, or of the
happening of any event, including the filing of any information, documents or
reports pursuant to the Exchange Act that, in the case of this clause (iii),
makes any statement of a material fact made in the Registration Statement or the
Prospectuses (as then amended or supplemented) untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectuses (as then amended or supplemented) in order to state a material fact
required by the Act or the regulations thereunder to be stated therein or
necessary in order to make the statements therein not misleading, or of the
necessity to amend or supplement the Prospectuses (as then amended or
supplemented) to comply with the Act or any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible time.
(c) The Company will furnish to you, without charge, six signed copies
of the Registration Statement as originally filed with the Commission and of
each amendment thereto, including financial statements and all exhibits to the
Registration Statement and will also furnish to you, without charge, such number
of conformed copies of the Registration Statement as originally filed and of
each amendment thereto, but without exhibits, as you may reasonably request.
(d) The Company will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectuses of which you
shall not previously have been advised or to which you shall reasonably object
in writing after being so advised or (ii) so long as, in the written opinion of
counsel for the Managers (a copy of which shall be delivered to the Company), a
prospectus is required to be delivered in connection with sales by any Manager
or dealer, file any information, documents or reports pursuant to the Exchange
Act, without delivering a copy of such information, documents or reports to you,
as Lead Managers of the Managers, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the Company
has delivered or will deliver to you, without charge, in such quantities as you
have reasonably requested or may hereafter reasonably request, copies of each
form of the International
6
<PAGE>
Prepricing Prospectus. The Company consents to the use, in accordance with the
provisions of the Act and with the securities laws of the jurisdictions in which
the Shares are offered by the several Managers and by dealers, prior to the date
of the International Prospectus, of each International Prepricing Prospectus so
furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the written
opinion of counsel for the Managers an International Prospectus is required by
the Act to be delivered in connection with sales by any Manager or dealer, the
Company will expeditiously deliver to each Manager and each dealer, without
charge, as many copies of the International Prospectus (and of any amendment or
supplement thereto) as you may reasonably request. The Company consents to the
use of the International Prospectus (and of any amendment or supplement thereto)
in accordance with the provisions of the Act and with the securities laws of the
jurisdictions in which the Shares are offered by the several Managers and by all
dealers to whom Shares may be sold, both in connection with the offering and
sale of the Shares and for such period of time thereafter as the International
Prospectus is required by the Act to be delivered in connection with sales by
any Manager or dealer. If during such period of time any event shall occur that
in the judgment of the Company or in the written opinion of counsel for the
Managers is required to be set forth in the International Prospectus (as then
amended or supplemented) or should be set forth therein in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary to supplement or amend the
International Prospectus to comply with the Act or any other law, the Company
will forthwith prepare and, subject to the provisions of paragraph (d) above,
file with the Commission an appropriate supplement or amendment thereto and will
expeditiously furnish to the Managers and dealers a reasonable number of copies
thereof.
(g) The Company will cooperate with you and with counsel for the
Managers in connection with the registration or qualification of the Shares for
offering and sale by the several Managers and by dealers under the securities
laws of such jurisdictions as you may reasonably designate and will file such
consents to service of process or other documents necessary or appropriate in
order to effect such registration or qualification; provided that in no event
shall the Company be obligated to qualify to do business in any jurisdiction
where it is not now so qualified or to take any action that would subject it to
service of process in suits, other than those arising out of the offering or
sale of the Shares, in any jurisdiction where it is not now so subject.
(h) The Company will make generally available to its security holders
a consolidated earnings statement, which need not be audited, covering a twelve-
month period commencing after the effective date of the Registration Statement
and ending not later than 15 months thereafter, as soon as reasonably
practicable after the end of such period, which consolidated earnings statement
shall satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the Company
mailed to stockholders or filed
7
<PAGE>
with the Commission or the New York Stock Exchange, and (ii) from time to time
such other information concerning the Company as you may reasonably request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 12 hereof or by notice given by you terminating this
Agreement pursuant to Section 12 or Section 13 hereof) or if this Agreement
shall be terminated by the Managers because of any failure or refusal on the
part of the Company or any of the Selling Stockholders to comply, in any
material respect, with the terms or fulfill, in any material respect, any of the
conditions of this Agreement, the Company agrees to reimburse the Lead Managers
for all reasonable out-of-pocket expenses (including reasonable fees and
expenses of counsel for the Managers) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the
description set forth in the Prospectuses.
(l) If Rule 430A of the Act is employed, the Company will timely file
the Prospectuses pursuant to Rule 424(b) under the Act and will advise you of
the time and manner of such filing.
(m) For a period of 180 days after the date of the Prospectuses (the
"Lock-up Period"), the Company will not, without the prior written consent of
Smith Barney Inc., offer, sell, contract to sell or otherwise dispose of any
Common Stock (or any securities convertible into or exercisable or exchangeable
for Common Stock) or grant any options or warrants to purchase Common Stock,
except for (i) sales to the Managers pursuant to this Agreement and the U.S.
Underwriters pursuant to the U.S. Underwriting Agreement, (ii) the grant of
employee stock options pursuant to the Company's long term incentive plans as
described in the Prospectuses, (iii) the issuance of Common Stock upon exercise
of any such employee stock options and (iv) the issuance of Common Stock in
connection with the Company's acquisitions of other companies or businesses;
provided, however, that the Company will furnish to you "lock-up" letters, in
form and substance reasonably satisfactory to you, signed by each recipient of
Common Stock or stock options issued or granted pursuant to clause (ii), (iii)
or (iv) of this sentence.
(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers and directors and each of its stockholders designated by you.
(o) Except as stated in this Agreement and in the U.S. Underwriting
Agreement and in the Prepricing Prospectuses and Prospectuses, the Company has
not taken, nor will it take, directly or indirectly, any action designed to or
that might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Shares.
8
<PAGE>
(p) The Company will use its best efforts to have the Common Stock
listed, subject to notice of issuance, on the New York Stock Exchange
concurrently with the effectiveness of the registration statement.
6. Agreements of the Selling Stockholders. Each of the Selling
Stockholders agrees, severally and not jointly, with the several Managers as
follows:
(a) Such Selling Stockholder will cooperate to the extent necessary to
cause the registration statement or any post-effective amendment thereto to
become effective at the earliest possible time.
(b) Such Selling Stockholder will pay all Federal and other taxes, if
any on the transfer or sale of such Shares that are sold by the Selling
Stockholder to the Managers.
(c) Such Selling Stockholder will use such Selling Stockholder's
reasonable best efforts to do or perform all things reasonably required to be
done or performed by it prior to the Closing Date to satisfy all conditions
precedent to the delivery of the Shares pursuant to this Agreement.
(d) Such Selling Stockholder has executed or will execute a "lock-up"
letter as provided in Section 5(n) above and will not sell, contract to sell or
otherwise dispose of any Common Stock, except for the sale of Shares to the
Managers pursuant to this Agreement and the sale of U.S. Shares to the U.S.
Underwriters pursuant to the U.S. Underwriting Agreement, prior to the
expiration of 180 days after the date of the Prospectuses, without the prior
written consent of Smith Barney Inc.
(e) Except as stated in this Agreement and the U.S. Underwriting
Agreement and in the Prepricing Prospectuses and the Prospectuses, such Selling
Stockholder has not taken, nor will it take, directly or indirectly, any action
designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Shares.
(f) Such Selling Stockholder agrees to notify you as promptly as
practicable of any information that comes to such Selling Stockholder's
attention that would cause such Selling Stockholder to have reason to believe
that its representations, warranties and statements in this Agreement are not
accurate in all material respects.
7. Representations and Warranties of the Company. The Company
represents and warrants to each Manager that:
(a) Each International Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act; except that
this representation and warranty does not apply to statements in or omissions
from such International Prepricing Prospectus (or any amendment or supplement
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thereto) made in reliance upon and in conformity with information relating to
any Selling Stockholder or to any Manager or U.S. Underwriter furnished to the
Company in writing by a Manager through the Lead Managers or by a U.S.
Underwriter through the Representatives expressly for use therein. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.
(b) The Registration Statement in the form in which it became or
becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the Prospectuses and any supplement
or amendment thereto when filed with the Commission under Rule 424(b) under the
Act, complied or will comply in all material respects with the provisions of the
Act and will not at any such times contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; except that this representation
and warranty does not apply to statements in or omissions from the Registration
Statement or the Prospectuses made in reliance upon and in conformity with
information relating to any Selling Stockholder or to any Manager or U.S.
Underwriter furnished to the Company in writing by a Manager through the Lead
Managers or by a U.S. Underwriter through the Representatives expressly for use
therein.
(c) All the outstanding shares of Class A Common Stock (as defined in
the Prospectuses), Class B Common Stock and Common Stock, as the case may be, of
the Company have been duly authorized and validly issued, are fully paid and
nonassessable and are free of any preemptive or similar rights; the Shares to be
issued and sold by the Company have been duly authorized and, when issued and
delivered to the Managers against payment therefor in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and free of any
preemptive or similar rights; and the capital stock of the Company, before and
after giving effect to the Reclassification, conforms in all material respects
to the description thereof in the Registration Statement and the Prospectuses .
(d) The Company is a corporation duly organized and validly existing
in good standing under the laws of the State of Delaware with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectuses, and is
duly registered and qualified to conduct its business and is in good standing in
each jurisdiction where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify does not have a material adverse effect, or involve a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company, the Subsidiaries (as hereinafter defined) and, after giving effect
to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite, taken as a whole (a "Material Adverse Effect").
(e) All the Company's subsidiaries (collectively, the "Subsidiaries")
are listed in an exhibit to the Registration Statement. Each Subsidiary is, and
after giving effect to the Acquisition pursuant to the terms of the Stock
Purchase Agreement, Falconite will be, a corporation duly organized, validly
existing and in good standing in the jurisdiction of its
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incorporation, with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration
Statement and the Prospectus, and is, and after giving effect to the Acquisition
pursuant to the terms of the Stock Purchase Agreement, Falconite will be, duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify does not have a Material Adverse Effect; all the
outstanding shares of capital stock of each of the Subsidiaries have been, and
after giving effect to the Acquisition pursuant to the terms of the Stock
Purchase Agreement, all the outstanding shares of capital stock of Falconite
will have been duly authorized and validly issued, are or will be fully paid and
nonassessable, and are or will be owned by the Company directly, or indirectly
through one of the other Subsidiaries, free and clear of any lien, adverse
claim, security interest, equity or other encumbrance, except pursuant to and
otherwise permitted by the Credit Facility (as defined in the Prospectuses) as
described in the Prospectuses.
(f) Schedule III hereto lists the only jurisdictions or places where
the nature of the properties or the conduct of the businesses of the Company,
the Subsidiaries and, after giving effect to the Acquisition pursuant to the
terms of the Stock Purchase Agreement, Falconite requires the Company, the
Subsidiaries and, after giving effect to the Acquisition pursuant to the terms
of the Stock Purchase Agreement, Falconite to be duly registered, qualified and
in good standing, except where the failure to so register, qualify or be in good
standing would not have a Material Adverse Effect.
(g) There are no, and after giving effect to the Acquisition pursuant
to the terms of the Stock Purchase Agreement, there will not be any legal or
governmental proceedings pending or, to the knowledge of the Company, overtly
threatened, against the Company or any of the Subsidiaries which are or will be
materially adverse to the Company, its Subsidiaries and, after giving effect to
the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite, taken as a whole, or to which the Company or any of the Subsidiaries
and Falconite, or to which any of their respective properties, is subject which
are material to the Company, its Subsidiaries and, after giving effect to the
Acquisition pursuant to the terms of the Stock Purchase Agreement, Falconite,
taken as a whole, that are required to be described in the Registration
Statement or the Prospectuses but are not described as required, and there are
no agreements, contracts, indentures, leases or other instruments relating to
the Company that are required to be described in the Registration Statement or
the Prospectuses or to be filed as an exhibit to the Registration Statement that
are not described or filed as required by the Act or the Exchange Act. The
descriptions of the terms of any such contracts or documents contained in the
Registration Statement or the Prospectuses are correct in all material respects.
Neither the Company nor any Subsidiary is, and after giving effect to the
Acquisition pursuant to the terms of the Stock Purchase Agreement, Falconite
will not be involved in any strike, job action or labor dispute with any group
of employees, and, to the Company's knowledge, no such action or dispute is
overtly threatened.
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(h) Neither the Company nor any of the Subsidiaries is, and after
giving effect to the Acquisition pursuant to the terms of the Stock Purchase
Agreement, Falconite will not be, (i) in violation of its certificate or
articles of incorporation or by-laws, or other organizational documents, or of
any law, ordinance, administrative or governmental rule or regulation applicable
to the Company or any of the Subsidiaries or Falconite or of any decree of any
court or governmental agency or body having jurisdiction over the Company or any
of the Subsidiaries or Falconite (except where any such violation or violations
in the aggregate would not have a Material Adverse Effect), or (ii) in default
in any respect in the performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of indebtedness or
in any agreement, indenture, lease or other instrument to which the Company or
any of the Subsidiaries or Falconite is a party or by which any of them or any
of their respective properties may be bound, except as may be discussed in the
Prospectuses or where any such default or defaults in the aggregate would not
have a Material Adverse Effect.
(i) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement or the U.S. Underwriting Agreement by
the Company nor the consummation by the Company of the transactions contemplated
hereby and thereby or the performance by the Company of the Stock Purchase
Agreement and consummation of the Acquisition of Falconite pursuant thereto (i)
requires any consent, approval, authorization or other order of or registration
or filing with, any court, regulatory body, administrative agency or other
governmental body, agency or official (except such as may be required for the
registration of the Shares under the Act which has been or will be effected in
accordance with this Agreement, and compliance with the securities or Blue Sky
laws of various jurisdictions) or conflicts or will conflict with or constitutes
or will constitute a breach of, or a default under, the certificate or articles
of incorporation or bylaws, or other organizational documents, of the Company or
any of the Subsidiaries or, after giving effect to the Acquisition pursuant to
the terms of the Stock Purchase Agreement, Falconite or (ii) conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
in any material respect, any material agreement, indenture, lease or other
instrument to which the Company or any of the Subsidiaries or, after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite is a party or by which any of them or any of their respective
properties may be bound, or violates or will violate in any material respect any
statute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or any of the Subsidiaries or, after giving effect to
the Acquisition pursuant to the terms of the Stock Purchase Agreement, Falconite
or any of their respective properties, or will result in the creation or
imposition of any material lien, charge or encumbrance upon any property or
assets of the Company or any of the Subsidiaries or, after giving effect to the
Acquisition pursuant to the terms of the Stock Purchase Agreement, Falconite
pursuant to the terms of any agreement or instrument to which any of them is a
party or by which any of them may be bound or to which any of the property or
assets of any of them is subject.
(j) The accountants, Price Waterhouse LLP, Lawrence, Blackburn Meek
Maxey & Co. P.C., Albin, Randall & Bennett, Certified Public Accountants,
Coopers & Lybrand L.L.P. and KPMG Peat Marwick L.L.P., who have certified or
shall certify the financial
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statements filed or to be filed as part of the Registration Statement or the
Prospectuses (or any amendment or supplement thereto) are, to the Company's
knowledge independent public accountants under Rule 101 of the AICPA's Code of
Professional Conduct, and its interpretations and rulings.
(k) The financial statements (historical and pro forma), together with
related schedules and notes forming part of the Registration Statement and the
Prospectuses (and any amendment or supplement thereto), present fairly in all
material respects the consolidated financial position, results of operations,
cash flows and changes in stockholders' equity of the Company, the Subsidiaries
and Falconite on the basis stated in the Registration Statement at the
respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; the assumptions used in preparing
the pro forma financial information and related notes and schedules included in
the Registration Statement and the Prospectuses (and any amendment or supplement
thereto) are reasonable; and the other financial and statistical information and
data set forth in the Registration Statement and the Prospectuses (and any
amendment or supplement thereto) are accurately presented and, to the extent
such information and data are derived from the financial books and records of
the Company or Falconite, prepared on a basis consistent with the books and
records of the Company and its Subsidiaries or Falconite.
(l) The execution and delivery of, and the performance by the Company
of its obligations under, each of this Agreement and the U.S. Underwriting
Agreement have been duly and validly authorized by the Company, and each of this
Agreement and the U.S. Underwriting Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except as the enforcement hereof and thereof may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and subject to the applicability of general principles of equity, and
except as rights to indemnity and contribution hereunder and thereunder may be
limited by Federal or state securities laws or principles of public policy.
(m) Except as disclosed in the Registration Statement and the
Prospectuses (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectuses (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred, and after giving effect to
the Acquisition pursuant to the terms of the Stock Purchase Agreement, Falconite
will not have incurred, any liability or obligation, direct or contingent, or
entered into any transaction, not in the ordinary course of business, that is
material to the Company and the Subsidiaries taken as a whole or Falconite, and
there has not been, and after giving effect to the Acquisition pursuant to the
terms of the Stock Purchase Agreement, there will not have been any material
change in the capital stock of the Company, or material increase in the short-
term debt
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or long-term debt, of the Company or any of the Subsidiaries, or any development
having or which may reasonably be expected to have, a Material Adverse Effect.
(n) Each of the Company and the Subsidiaries has, and after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite will have good and marketable title to all property (real and
personal) described in the Prospectuses as being owned by it, free and clear of
all liens, claims, security interests or other encumbrances except pursuant to
and otherwise permitted by the Credit Facility as are described in the
Registration Statement and the Prospectuses or in a document filed as an exhibit
to the Registration Statement and all the property described in the Prospectuses
as being held under lease by each of the Company and the Subsidiaries is and,
after giving effect to the Acquisition pursuant to the terms of the Stock
Purchase Agreement, all the property described in the Prospectuses as being held
under lease by Falconite will be, held by it under valid, subsisting and
enforceable leases with only such exceptions as in the aggregate are not
materially burdensome and do not interfere in any material respect with the
conduct of the business of the Company and the Subsidiaries and, after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite, taken as a whole.
(o) The Company has not distributed and, prior to the later to occur
of (i) the Closing Date or the Option Closing Date, if any, and (ii) completion
of the distribution of the Shares, will not distribute any offering material in
connection with the offering and sale of the Shares other than the Registration
Statement, the Prepricing Prospectuses, the Prospectuses or other materials, if
any, permitted by the Act.
(p) The Company and each of the Subsidiaries has, and after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite will have such permits, licenses, franchises and authorizations of
governmental or regulatory authorities ("Permits") as are necessary to own its
respective properties and to conduct its business in the manner described in the
Prospectuses, except where the failure to have any such Permit would not have a
Material Adverse Effect; the Company and each of the Subsidiaries has, and after
giving effect to the Acquisition pursuant to the terms of the Stock Purchase
Agreement, Falconite will have, fulfilled and performed in all material respects
all its material obligations with respect to such Permits and no event has
occurred that allows, or after notice or lapse of time would allow, revocation
or termination thereof or results in any other material impairment of the rights
of the holder of any such Permit, subject in each case to such qualification as
may be set forth in the Prospectuses and except to the extent that any such
revocation or termination would not have a Material Adverse Effect; and, except
as described in the Prospectuses, none of such Permits contains any restriction
that is materially burdensome to the Company or any of the Subsidiaries or,
after giving effect to the Acquisition pursuant to the terms of the Stock
Purchase Agreement, Falconite.
(q) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to
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permit preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(r) To the Company's knowledge, neither the Company nor any of its
Subsidiaries nor any employee or agent of the Company or any Subsidiary has made
and, after giving effect to the Acquisition pursuant to the terms of the Stock
Purchase Agreement, neither Falconite nor any employee or agent of Falconite
will have made, any payment of funds of the Company or any Subsidiary or
received or retained any funds in violation of any law, rule or regulation,
which payment, receipt or retention of funds is of a character required to be
disclosed in the Prospectuses.
(s) Except as discussed in the Prospectuses, the Company and each of
the Subsidiaries have and, after giving effect to the Acquisition pursuant to
the terms of the Stock Purchase Agreement, Falconite will have, filed all tax
returns required to be filed, which returns are true and correct in all material
respects, and neither the Company nor any Subsidiary is and, after giving effect
to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite will not be, in default in the payment of any taxes which were payable
pursuant to said returns or any assessments with respect thereto, except where
the failure to file such returns and make such payments would not have a
Material Adverse Effect and except for the payment of any amounts that are being
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with generally accepted accounting principles have been
established.
(t) Except as described in the Prospectuses, no holder of any security
of the Company has any right to require registration of shares of Common Stock
or any other security of the Company because of the filing of the registration
statement or consummation of the transactions contemplated by this Agreement or
the U.S. Underwriting Agreement, or otherwise. No such rights with respect to
shares of Common Stock not listed in Schedule I hereto were exercised nor will
be exercised in connection with the sale of the Shares and for a period of 180
days after the date hereof. Except as described in or contemplated by the
Prospectuses, there are no outstanding options, warrants or other rights calling
for the issuance of, and there are no commitments, plans or arrangements to
issue, any shares of Common Stock of the Company or any security convertible
into or exchangeable or exercisable for Common Stock of the Company.
(u) The Company and the Subsidiaries own or possess, and after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite will own or possess, all patents, trademarks, trademark registration,
service marks, service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights described in the Prospectuses as being
owned by them or any of them or necessary for the conduct of their respective
businesses, and the Company is not aware of any claim to the contrary or any
challenge by any other person to the rights of the Company and the Subsidiaries
and Falconite
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with respect to the foregoing, except for such claims or challenges that would
not individually or in the aggregate be reasonably expected to result in a
Material Adverse Effect.
(v) The Company is not and, upon sale of the Shares to be issued and
sold in accordance herewith and upon application of the net proceeds to the
Company from such sale as described in the Prospectuses under the caption "Use
of Proceeds," will not be an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(w) The Company has complied with all provisions of Florida Statutes,
(S)517.075, relating to issuers doing business with Cuba.
(x) The Company and each of its Subsidiaries have and, after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite will have, fulfilled their obligations, if any, under the minimum
funding standards of Section 302 of the United States Employee Retirement Income
Security Act of 1974 ("ERISA") and the regulations and published interpretations
thereunder with respect to each "plan" (as defined in ERISA and such regulations
and published interpretations) in which employees of the Company and its
Subsidiaries and Falconite are, or will be, eligible to participate and each
such plan is in compliance in all material respects with the presently
applicable provisions of ERISA and such regulations and published
interpretations, and has not incurred any unpaid liability to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums in the
ordinary course) or to any such plan under Title IV of ERISA.
(y) The execution and delivery of this Agreement and the U.S.
Underwriting Agreement and the consummation of the transactions contemplated
hereby and thereby will not involve any prohibited transaction within the
meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code of
1986, as amended (the "Code").
(z) (i) The Company and each of its Subsidiaries are, and after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite will be, insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are customary in the
businesses in which they are engaged; (ii) all policies of insurance insuring
the Company or any of its Subsidiaries or, after giving effect to the
Acquisition pursuant to the terms of the Stock Purchase Agreement, Falconite, or
their respective businesses, assets, employees, officers and directors are, or
will be, in full force and effect; (iii) the Company and its Subsidiaries are,
and after giving effect to the Acquisition pursuant to the terms of the Stock
Purchase Agreement, Falconite will be, in compliance with the terms of such
policies and instruments in all material respects; and (iv) there are no
material claims by the Company or any of its Subsidiaries or, after giving
effect to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite under any such policy or instrument as to which any insurance company
is denying liability or defending under a reservation of rights clause.
(aa) The Company and each of its Subsidiaries and, after giving effect
to the Acquisition pursuant to the terms of the Stock Purchase Agreement,
Falconite (i) are or will be and at all times have or will have been, in
compliance with any and all applicable foreign,
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federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), (ii) have or will
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are or will be in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, have a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries has been, and after giving effect to the
Acquisition pursuant to the terms of the Stock Purchase Agreement, Falconite
will not have been named as a "potentially responsible party" under the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended, or any similar state statute.
(ab) In connection with its acquisition of businesses, the Company
typically conducts a review of the effect of Environmental Laws on the business,
operations and properties of the acquired businesses, in the course of which it
identifies and evaluates associated costs and liabilities (including, without
limitation, any capital or operating expenditures required for clean-up, closure
of properties or compliance with Environmental Laws, or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties). On the basis of such review, the Company has
reasonably concluded that such associated costs and liabilities would not,
singly or in the aggregate, have a Material Adverse Effect.
8. Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder represents and warrants, severally and not jointly, to each
Manager that:
(a) Such Selling Stockholder now has valid and marketable title to the
Class B Common Stock to be converted in the reclassification into the Shares to
be sold by such Selling Stockholder, and on the Closing Date and any Option
Closing Date will have valid and marketable title to the Shares to be sold by
such Selling Stockholder, free and clear of any lien, claim, security interest
or other encumbrance, including, without limitation, any restriction on
transfer, except as otherwise described in the Prospectuses.
(b) Such Selling Stockholder now has, and on the Closing Date and any
Option Closing Date will have, full legal right, power and authorization, and
any approval required by law, to sell, assign, transfer and deliver such Shares
in the manner provided in this Agreement and the U.S. Underwriting Agreement,
and upon delivery of and payment for such Shares hereunder, the several Managers
will acquire valid and marketable title to such Shares free and clear of any
lien, claim, security interest, or other encumbrance, assuming the Managers
purchase such Shares for value therefor pursuant hereto without notice of any
adverse claim, as defined in the Uniform Commercial Code as adopted in the State
of New York (the "UCC") and are otherwise bona fide purchasers for the purposes
of the UCC and that such Managers' rights are not limited by subsection (4) of
Section 8-302 of the UCC..
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(c) This Agreement and the U.S. Underwriting Agreement have been duly
authorized, executed and delivered by or on behalf of such Selling Stockholder
and are the valid and binding agreements of such Selling Stockholder enforceable
against such Selling Stockholder in accordance with their terms, except as the
enforcement hereof and thereof may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' right generally and subject
to the applicability of general principles of equity, and except as rights to
indemnity and contribution hereunder and thereunder may be limited by Federal or
state securities laws or principles of public policy.
(d) Neither the sale of the Shares, the execution, delivery or
performance of this Agreement or the U.S. Underwriting Agreement by or on behalf
of such Selling Stockholder nor the consummation by or on behalf of such Selling
Stockholder of the transactions contemplated hereby and thereby (i) requires any
consent, approval, authorization or other order of, or registration or filing
with, any court, regulatory body, administrative agency or other governmental
body, agency or official (except such as may be required for the registration of
the Shares under the Act or compliance with the securities laws of various
jurisdictions), or (ii) conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, in any material respect, any
material agreement, indenture, lease or other instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder is or may be bound,
or violates or will violate in any material respect any statute, law, regulation
or filing or judgment, injunction, order or decree applicable to such Selling
Stockholder, or will result in the creation or imposition of any material lien,
charge or encumbrance upon any property or assets of such Selling Stockholder
pursuant to the terms of any agreement or instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder may be bound or to
which any of the property or assets of such Selling Stockholder is subject.
(e) Such Selling Stockholder has not taken, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares, except for the lock-up arrangements referred
to in the Prospectuses.
(f) To the extent, but only to the extent, that any statements or
omissions made in the Registration Statement, any Preliminary Prospectus, the
Prospectuses or any amendment or supplement thereto are made in reliance upon
and in conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein, such Preliminary Prospectus and
the Registration Statement did, and the Prospectuses and any further amendments
or supplements to the Registration Statement and the Prospectuses, when they
become effective or are filed with the Commission, as the case may be, will
conform in all material respects to the requirements of the Act and the rules
and regulations of the Commission thereunder and the Registration Statement will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading and the Preliminary Prospectuses and Prospectuses will
not include any
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untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
9. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each of you and each other Manager and each person,
if any, who controls any Manager within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any International Prepricing Prospectus or in the
Registration Statement or the International Prospectus or in any amendment or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
any untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in conformity
with the information relating to such Manager or U.S. Underwriter furnished in
writing to the Company by or on behalf of any Manager through you or by or on
behalf of any U.S. Underwriter through a Representative expressly for use in
connection therewith; provided, however, that the indemnification contained in
this paragraph (a) with respect to any International Prepricing Prospectus shall
not inure to the benefit of any Manager (or to the benefit of any person
controlling such Manager) on account of any such loss, claim, damage, liability
or expense arising from the sale of the Shares by such Manager to any person if
a copy of the International Prospectus shall not have been delivered or sent to
such person within the time required by the Act and the regulations thereunder,
and the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such International Prepricing
Prospectus was corrected in the International Prospectus, provided that the
Company has delivered the International Prospectus to the several Managers in
requisite quantity on a timely basis to permit such delivery or sending.
(b) If any action, suit or proceeding shall be brought against any
Manager or any person controlling any Manager in respect of which indemnity may
be sought against the Company, such Manager or such controlling person shall
promptly notify the parties against whom indemnification is being sought (the
"indemnifying parties"), and such indemnifying parties shall assume the defense
thereof, including the employment of counsel and payment of all fees and
expenses. Such Manager or any such controlling person shall have the right to
employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Manager or such controlling person unless (i)
the indemnifying parties have agreed in writing to pay such fees and expenses,
(ii) the indemnifying parties have failed to assume the defense and employ
counsel, or (iii) the named parties to any such action, suit or proceeding
(including any impleaded parties) include both such Manager or such controlling
person and the indemnifying parties and such Manager or such controlling person
shall have been advised by its counsel that representation of such indemnified
party and any indemnifying party by the same counsel would be inappropriate
under applicable standards of professional conduct (whether or not such
representation by the
19
<PAGE>
same counsel has been proposed) due to actual or potential differing interests
between them (in which case the indemnifying party shall not have the right to
assume the defense of such action, suit or proceeding on behalf of such Manager
or such controlling person). It is understood, however, that the indemnifying
parties shall, in connection with any one such action, suit or proceeding or
separate but substantially similar or related actions, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to one separate firm of attorneys per
jurisdiction acting as local counsel) at any time for all such Managers and
controlling persons not having actual or potential differing interests with you
or among themselves, which firm shall be designated in writing by Smith Barney
Inc., and that all such fees and expenses shall be reimbursed on a monthly basis
as provided in the preceding paragraph. The indemnifying parties shall not be
liable for any settlement of any such action, suit or proceeding effected
without their written consent, but if settled with such written consent, or if
there be a final judgment for the plaintiff in any such action, suit or
proceeding, the indemnifying parties agree to indemnify and hold harmless any
Manager, to the extent provided in the preceding paragraph, and any such
controlling person from and against any loss, claim, damage, liability or
expense by reason of such settlement or judgment.
(c) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless each of you and each other Manager and each person,
if any, who controls any Manager within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, the Company, its directors, its officers who
sign the Registration Statement, and any person who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act to the
same extent as the foregoing indemnity from the Company to each Manager, but
only with respect to the information relating to such Selling Stockholder
furnished in writing by or on behalf of such Selling Stockholder expressly for
use in the Registration Statement, the International Prospectus or any
International Prepricing Prospectus, or any amendment or supplement thereto. If
any action, suit or proceeding shall be brought against any Manager, any such
controlling person of any Manager Underwriter, the Company, any of its
directors, any such officer, or any such controlling person of the Company,
based on the Registration Statement, the International Prospectus or any
International Prepricing Prospectus or any amendment or supplement thereto, and
in respect of which indemnity may be sought against any Selling Stockholder
pursuant to this paragraph (c), such Selling Stockholder shall have the rights
and duties given to the Company by paragraph (b) above (except that if the
Company or the Managers shall have assumed the defense thereof such Selling
Stockholder shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof, but the fees and expenses of
such counsel shall be at such Selling Stockholder's expense), and each Manager,
each such controlling person of any Manager Underwriter, the Company, its
directors, any such officer, and any such controlling person of the Company
shall have the rights and duties given to the Managers by paragraph (b) above.
The foregoing indemnity agreement shall be in addition to any liability which
any Selling Stockholder may otherwise have. Notwithstanding anything herein to
the contrary, no Selling Stockholder shall be required to indemnify any Manager,
any such controlling person of any Manager, the Company, any of its directors,
any such officer or any such controlling person of the Company, in an aggregate
20
<PAGE>
amount in excess of the net amount received by such Selling Stockholder (after
deducting any underwriting discount) from the sale of such Selling Stockholder's
Shares pursuant to the International Prospectus.
(d) Each Manager agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement, any person who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act and the Selling Stockholders, to
the same extent as the foregoing indemnity from the Company to each Manager, but
only with respect to information relating to such Manager furnished in writing
by or on behalf of such Manager through you expressly for use in the
Registration Statement, the International Prospectus or any International
Prepricing Prospectus, or any amendment or supplement thereto. If any action,
suit or proceeding shall be brought against the Company, any of its directors,
any such officer, any such controlling person or any Selling Stockholder based
on the Registration Statement, the International Prospectus or any International
Prepricing Prospectus, or any amendment or supplement thereto, and in respect of
which indemnity may be sought against any Manager pursuant to this paragraph
(d), such Manager shall have the rights and duties given to the Company by
paragraph (b) above (except that if the Company or the Selling Stockholders
shall have assumed the defense thereof such Manager shall not be required to do
so, but may employ separate counsel therein and participate in the defense
thereof, but the fees and expenses of such counsel shall be at such Manager's
expense), and the Company, its directors, any such officer, any such controlling
person, and the Selling Stockholders, shall have the rights and duties given to
the Managers by paragraph (b) above.
(e) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a), (c) or (d) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the Selling Stockholders and the Managers, respectively, from the
offering of the Shares, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company, the Selling Stockholders and the Managers,
respectively, in connection with the statements or omissions that resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the
Company, the Selling Stockholders and the Managers, respectively, shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling
Stockholders, respectively, bear to the total underwriting discounts and
commissions received by the Managers, in each case as set forth in the table on
the cover page of the International Prospectus; provided that, in the event that
the Managers shall have purchased any Additional Shares hereunder, any
determination of the relative benefits received by the Selling Stockholders or
the Managers from the offering of the Shares shall include the net proceeds
(before deducting expenses) received by the Selling
21
<PAGE>
Stockholders, and the underwriting discounts and commissions received by the
Managers, from the sale of such Additional Shares, in each case computed on the
basis of the respective amounts set forth in the notes to the table on the cover
page of the International Prospectus. The relative fault of the Company, the
Selling Stockholders and the Managers, respectively, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Stockholders, or the
Managers and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(f) The Company, the Selling Stockholders and the Managers agree
that it would not be just and equitable if contribution pursuant to this Section
9 were determined by a pro rata allocation (even if the Managers were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (e) above.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in paragraph (e) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 9, no Manager shall
be required to contribute any amount in excess of the amount by which the total
price of the Shares underwritten by it and distributed to the public exceeds the
amount of any damages which such Manager has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. Notwithstanding the provisions of this Section 9, no Selling
Stockholder shall be required to contribute any amount in excess of the amount
by which the net amount received by it (after deducting any underwriting
discount) from the sale of such Selling Stockholder's Shares exceeds the amount
of any damages which such Selling Stockholder has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Managers'
obligations to contribute pursuant to this Section 9 are several in proportion
to the respective numbers of Firm Shares set forth opposite their names in
Schedule II hereto (or such numbers of Firm Shares increased as set forth in
Section 12 hereof) and not joint. The Selling Stockholders' obligations to
contribute pursuant to this Section 9 are several in proportion to the
respective numbers of Shares sold by each Selling Stockholder pursuant to the
International Prospectus and not joint.
(g) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
22
<PAGE>
(h) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid on a monthly basis by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or expenses are
incurred. The indemnity and contribution agreements contained in this Section 9
and the representations and warranties of the Company and the Selling
Stockholders set forth in this Agreement shall remain operative and in full
force and effect, regardless of (i) any investigation made by or on behalf of
any Manager or any person controlling any Manager, the Company, its directors or
officers or the Selling Stockholders, any director, officer or partner of a
Selling Stockholder or any person controlling the Company or any Selling
Stockholder, (ii) acceptance of any Shares and payment therefor hereunder, and
(iii) any termination of this Agreement. A successor to any Manager or any
person controlling any Manager, or to the Company, its directors or officers, or
to a Selling Stockholder, any director, officer or partner of a Selling
Stockholder or any person controlling the Company or any Selling Stockholder,
shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 9.
10. Conditions of Managers' Obligations. The several obligations of
the Managers to purchase the Firm Shares hereunder are subject to the following
conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
Registration Statement or such post-effective amendment shall have become
effective not later than 5:30 P.M. New York City time, on the date hereof, or at
such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of the Company or any Manager, threatened
by the Commission, and any request of the Commission for additional information
(to be included in the Registration Statement or the Prospectuses or otherwise)
shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, that would have a Material Adverse Effect on the Company and the
Subsidiaries, taken as a whole, not contemplated by the Prospectuses, which in
your opinion, as Lead Managers of the several Managers, would materially,
adversely affect the market for the Shares, or (ii) any event or development
relating to or involving the Company or any officer or director of the Company
or any Selling Stockholder which makes any statement of material fact made in
the Prospectuses untrue or which, in the opinion of the Company and its counsel
or the Managers and their counsel, requires the making of any addition to or
change in the Prospectuses in order to state a material fact required by the Act
or any other law to be stated therein or necessary in order to make the
statements of material fact therein not misleading, if amending or supplementing
the
23
<PAGE>
Prospectuses to reflect such event or development would, in your opinion, as
Lead Managers of the several Managers, materially adversely affect the market
for the Shares.
(c) You shall have received on the Closing Date an opinion of
Kirkland & Ellis, counsel for the Company and the Selling Stockholders, dated
the Closing Date and addressed to you, as Lead Managers of the several Managers,
in substantially the form of Exhibit A hereto.
(d) You shall have received on the Closing Date an opinion of
Latham & Watkins, counsel for the Managers, dated the Closing Date, with respect
to the Registration Statement and the Prospectuses and such other related
matters as you may reasonably request.
(e) You shall have received a letter addressed to you, as Lead
Managers of the several Managers, and dated the date hereof and the Closing Date
from Price Waterhouse LLP, independent certified public accountants,
substantially in the forms heretofore approved by you.
(f) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there shall
not have been any material change in the capital stock of the Company nor any
material increase in the short-term or long-term debt of the Company (other than
in the ordinary course of business) from that set forth or contemplated in the
Registration Statement or the Prospectuses (or any amendment or supplement
thereto); (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectuses
(or any amendment or supplement thereto), except as may otherwise be stated in
the Registration Statement and Prospectuses (or any amendment or supplement
thereto), any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company and the Subsidiaries taken as a whole; and (iv) all the
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects on and as of the date hereof and on
and as of the Closing Date as if made on and as of the Closing Date (except to
the extent they expressly relate to an earlier date), and you shall have
received a certificate, dated the Closing Date and signed by the chief executive
officer and the chief financial officer of the Company (or at the Company's
option such other officers as are acceptable to you), to the effect set forth in
this Section 10(f) and in Section 10(g) hereof.
(g) The Company shall not have failed in any material respect at or
prior to the Closing Date to have performed or complied with any of its
agreements contained in this Agreement or the U.S. Underwriting Agreement and
required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(h) All the representations and warranties of the Selling
Stockholders contained in this Agreement shall be true and correct in all
material respects, on and as of the date hereof and on and as of the Closing
Date as if made on and as of the Closing Date (except to
24
<PAGE>
the extent they expressly relate to an earlier date), and you shall have
received a certificate, dated the Closing Date and signed by or on behalf of
each Selling Stockholder to the effect set forth in this Section 10(h) and in
Section 10(i) hereof.
(i) The Selling Stockholders shall not have failed in any material
respect at or prior to the Closing Date to have performed or complied with any
of their agreements contained in this Agreement or the U.S. Underwriting
Agreement and required to be performed or complied with by them at or prior to
the Closing Date.
(j) The Sellers shall have furnished or caused to be furnished to
you such further certificates and documents as you shall have reasonably
requested.
(k) The Common Stock shall have been listed or approved for listing
subject to notice of issuance, on the New York Stock Exchange.
(l) The closing of the Reclassification and the Stock Split (as
defined in the Prospectuses) as described in the Prospectuses shall have
occurred.
(m) The closing under the U.S. Underwriting Agreement shall have
occurred concurrently with the closing hereunder on the Closing Date, unless
such closing shall have failed to occur solely as a result of the failure to
occur of the closing hereunder.
(n) The closing of the Acquisition of Falconite under the Stock
Purchase Agreement shall have occurred concurrently with the closing hereunder
on the Closing Date.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Company or
any Selling Stockholder and delivered to you, as Lead Managers of the Managers,
or to counsel for the Managers, shall be deemed a representation and warranty by
the Company, the Selling Stockholders or the particular Selling Stockholder, as
the case may be, to each Manager as to the statements made therein.
The several obligations of the Managers to purchase Additional Shares
hereunder are subject to the satisfaction on and as of any Option Closing Date
of the conditions set forth in this Section 10, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in this Section 10 shall be dated the Option Closing Date in
question and the opinions or letters called for by paragraphs (c), (d) and (e)
shall be revised to reflect the sale of Additional Shares.
25
<PAGE>
11. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by the
Sellers of their obligations hereunder: (i) the preparation, printing or
reproduction, and filing with the Commission of the registration statement
(including financial statements and exhibits thereto), each International
Prepricing Prospectus, the International Prospectus, and each amendment or
supplement to any of them; (ii) the printing (or reproduction) and delivery
(including postage, air freight charges and charges for counting and packaging)
of such copies of the registration statement, each International Prepricing
Prospectus, the International Prospectus, and all amendments or supplements to
any of them as may be reasonably requested for use in connection with the
offering and sale of the Shares; (iii) the preparation, printing,
authentication, issuance and delivery of certificates for the Shares, including
any stamp taxes in connection with the original issuance and sale of the Shares;
(iv) the printing (or reproduction) and delivery of this Agreement, the Blue Sky
Memorandum and all other agreements or documents printed (or reproduced) and
delivered in connection with the original issuance and sale of the Shares; (v)
the registration of the Common Stock under the Exchange Act and the listing of
the Shares on the New York Stock Exchange; (vi) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the several jurisdictions as provided in Section 5(g) hereof (including
the reasonable fees, expenses and disbursements of counsel for the Underwriters
relating to the preparation, printing or reproduction, and delivery of the Blue
Sky Memorandum and such registration and qualification); (vii) the filing fees
and the fees and expenses of counsel for the Underwriters in connection with any
filings required to be made with the National Association of Securities Dealers,
Inc.; (viii) the transportation and other expenses incurred by or on behalf of
representatives of the Company in connection with presentations to prospective
purchasers of the Shares; and (ix) the fees and expenses of the Company's
accountants and the fees and expenses of counsel (including local and special
counsel) for the Company and the Selling Stockholders. Except as provided in
Section 5(j) and this Section 11, the Managers will pay all of their own costs
and expenses, including the fees of their counsel, stock transfer taxes on
resale of any of the Shares by them and any advertising expenses connected with
any offers they may make.
12. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the registration statement or such post-
effective amendment has been released by the Commission. Until such time as this
Agreement shall have become effective, it may be terminated by the Company, by
notifying you, or by you, as Lead Managers of the several Managers, by notifying
the Company and the Selling Stockholders.
If any one or more of the Managers shall fail or refuse to purchase
Shares which it or they are obligated to purchase hereunder on the Closing Date
or any Option Closing Date, and the aggregate number of Shares which such
defaulting Manager or Underwriters are obligated but fail or refuse to purchase
is not more than one-tenth of the aggregate number of Shares which the Managers
are obligated to purchase on the Closing Date or any Option Closing Date, each
26
<PAGE>
non-defaulting Manager shall be obligated, severally, in the proportion which
the number of Firm Shares set forth opposite its name in Schedule II hereto
bears to the aggregate number of Firm Shares set forth opposite the names of all
non-defaulting Managers or in such other proportion as you may specify in
accordance with Section 20 of the Master Agreement Among Underwriters of Smith
Barney Inc., to purchase the Shares which such defaulting Manager or Managers
are obligated, but fail or refuse, to purchase. If any one or more of the
Managers shall fail or refuse to purchase Shares which it or they are obligated
to purchase on the Closing Date or any Option Closing Date and the aggregate
number of Shares with respect to which such default occurs is more than one-
tenth of the aggregate number of Shares which the Managers are obligated to
purchase on the Closing Date or any Option Closing Date and arrangements
satisfactory to you and the Company for the purchase of such Shares by one or
more non-defaulting Managers or other party or parties approved by you and the
Company are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Manager, the
Selling Stockholders or the Company; provided, that if such default occurs with
respect to Additional Shares to be purchased on any Option Closing Date
different from the Closing Date, this Agreement will terminate only as to the
Additional Shares to be purchased on such Option Closing Date.. In any such
case which does not result in termination of this Agreement, either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. Nothing in this paragraph shall relieve any defaulting Manager
from liability in respect of any such default of any such Manager under this
Agreement. The term "Manager" as used in this Agreement includes, for all
purposes of this Agreement, any party not listed in Schedule II hereto who, with
your approval and the approval of the Company, purchases Shares which a
defaulting Manager is obligated, but fails or refuses, to purchase.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Manager to the Company or any Selling Stockholder, by notice to the Company, if
prior to the Closing Date or any Option Closing Date (if different from the
Closing Date and then only as to the Additional Shares), as the case may be, (i)
trading in securities generally on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market shall have been suspended or
materially limited, (ii) a general moratorium on commercial banking activities
in New York shall have been declared by either federal or state authorities, or
(iii) there shall have occurred any outbreak or escalation of hostilities or
other international or domestic calamity, crisis or change in political,
financial or economic conditions, the effect of which on the financial markets
of the United States is such as to make it, in your judgment, impracticable or
inadvisable to commence or continue the offering of the Shares at the offering
price to the public set forth on the cover page of the International Prospectus
or to enforce contracts for the resale of the Shares by the Managers.
27
<PAGE>
Notice of such termination may be given by telegram, telecopy or
telephone and shall be subsequently confirmed by letter.
14. Information Furnished by the Managers and Selling Stockholders.
(a) The statements set forth in the last paragraph on the cover page, the
stabilization legend on the inside front cover page, and the statements related
to concessions and reallowances and the paragraph related to stabilization,
syndicate covering transactions and penalty bids under the caption
"Underwriting" in any International Prepricing Prospectus and in the
International Prospectus constitute the only information furnished by or on
behalf of the Managers through you as such information is referred to in
Sections 7(b) and 9 hereof.
(b) The number of shares of Common Stock beneficially owned by the
Selling Stockholders prior to and after the offerings of the Underwritten Shares
and related footnotes to the table under the caption "Principal and Selling
Stockholders" and the biographical data pertaining to the persons affiliated
with the Selling Stockholders in any International Prepricing Prospectus and in
the International Prospectus constitute the only information furnished by or on
behalf of the Selling Stockholders relating to them as such information is
referred to in Sections 7(b) and 9 hereof.
15. Miscellaneous. Except as otherwise provided in Sections 5, 12
and 13 hereof, notice given pursuant to any provision of this Agreement shall be
in writing and shall be delivered (i) if to the Company or the Selling
Stockholders at the office of the Company at 1800 Sherman Avenue, Evanston,
Illinois 60201, Attention: Chief Financial Officer; or (ii) if to you, as Lead
Managers of the several Managers, care of Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013, Attention: Manager, Investment Banking
Division.
This Agreement has been and is made solely for the benefit of the
several Managers, the Company, its directors and officers, the other controlling
persons referred to in Section 9 hereof and the Selling Stockholders and their
respective successors and assigns, to the extent provided herein, and no other
person shall acquire or have any right under or by virtue of this Agreement.
Neither the term "successor" nor the term "successors and assigns" as used in
this Agreement shall include a purchaser from any Manager of any of the Shares
in his status as such purchaser.
16. Applicable Law; Counterparts. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
In all dealings with the Company under this Agreement, you shall act
on behalf of each of the several Managers, and the Company shall be entitled to
act and rely upon any
28
<PAGE>
statement, request, notice or agreement made or given by you jointly or by Smith
Barney Inc. on behalf of you.
29
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Managers.
Very truly yours,
NATIONAL EQUIPMENT SERVICES, INC.
By
---------------------------------
President and Chief Executive Officer
Each of the Selling Stockholders
named in Schedule I hereto
By
---------------------------------
By
---------------------------------
30
<PAGE>
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Managers named in Schedule II
hereto.
SALOMON SMITH BARNEY INTERNATIONAL
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY, L.L.C.
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
NATIONSBANC MONTGOMERY SECURITIES LLC
As Lead Managers of the Several Managers
By SMITH BARNEY INC.
By:
----------------------------
Managing Director
31
<PAGE>
SCHEDULE I
NATIONAL EQUIPMENT SERVICES, INC.
<TABLE>
<CAPTION>
Number of Maximum Number of
Selling Stockholders Firm Shares Additional Shares
-------------------- ----------- -----------------
<S> <C> <C>
Golder, Thoma, Cressey, Rauner Fund V, L.P....................
GTCR Associates V.............................................
Total............................................... 666,667 600,000
</TABLE>
32
<PAGE>
SCHEDULE II
NATIONAL EQUIPMENT SERVICES, INC.
<TABLE>
<CAPTION>
Manager Number of Firm Shares
------- ---------------------
<S> <C>
Smith Barney Inc...............................................
William Blair & Company, L.L.C.................................
Credit Suisse First Boston (Europe) Limited....................
Donaldson, Lufkin & Jenrette International.....................
NationsBanc Montgomery Securities LLC..........................
Total................................................ 4,000,000
</TABLE>
33
<PAGE>
SCHEDULE III
Jurisdictions Where Qualified to Do Business
[to come]
34
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Exhibit A
---------
Form of Opinion of Kirkland & Ellis
35
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Exhibit 3.1(ii)
FORM OF RESTATED CERTIFICATE OF INCORPORATION
OF
NATIONAL EQUIPMENT SERVICES, INC.
ARTICLE I - Name
----------------
The name of the corporation is National Equipment Services, Inc.
(hereinafter referred to as the "Corporation").
ARTICLE II - Registered Office
------------------------------
The address of the registered office of the Corporation in the State
of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle
19805. The name of the registered agent of the Corporation at such address is
The Prentice-Hall Corporation System, Inc.
ARTICLE III - Purpose
---------------------
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law").
ARTICLE IV - Capital Stock
--------------------------
Part A. General. The maximum number of shares of capital stock that
the Corporation is authorized to have outstanding at any one time is 55,000,000
shares, consisting of: (i) 10,000,000 shares of Preferred Stock, par value $0.01
per share (the "Preferred Stock") and (ii) 100,000,000 shares of Common Stock,
par value $0.01 per share (the "Common Stock").
Part B. Preferred Stock. Authority is hereby expressly vested in the
Board of Directors of the Corporation, subject to the provisions of this ARTICLE
IV and to the limitations prescribed by law, to authorize the issuance from time
to time of one or more series of Preferred Stock. The authority of the Board of
Directors with respect to each series shall include, but not be limited to, the
determination or fixing of the following by resolution or resolutions adopted by
the affirmative vote of a majority of the total number of the Directors then in
office:
<PAGE>
(1) The designation of such series;
(2) The dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the relation which such dividends shall
bear to the dividends payable on any other class or classes or series of the
Corporation's capital stock and whether such dividends shall be cumulative or
non-cumulative;
(3) Whether the shares of such series shall be subject to redemption
for cash, property or rights, including securities of any other corporation, by
the Corporation or upon the happening of a specified event and, if made subject
to any such redemption, the times or events, prices, rates, adjustments and
other terms and conditions of such redemptions;
(4) The terms and amount of any sinking fund provided for the purchase
or redemption of the shares of such series;
(5) Whether or not the shares of such series shall be convertible
into, or exchangeable for, at the option of either the holder or the Corporation
or upon the happening of a specified event, shares of any other class or classes
or of any other series of the same class of the Corporation's capital stock and,
if provision be made for conversion or exchange, the times or events, prices,
rates, adjustments and other terms and conditions of such conversions or
exchanges;
(6) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock;
(7) The rights of the holders of the shares of such series upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
(8) The provisions as to voting, optional and/or other special rights
and preferences, if any, including, without limitation, the right to elect one
or more Directors.
Part C. Common Stock. Except as otherwise provided by the Delaware
General Corporation Law or this Restated Certificate of Incorporation (the
"Restated Certificate"), the holders of Common Stock (i) subject to the rights
of holders of any series of Preferred Stock, shall share ratably in all
dividends payable in cash, stock or otherwise and other distributions, whether
in respect of liquidation or dissolution (voluntary or involuntary) or otherwise
and (ii) are subject to all the powers, rights, privileges, preferences and
priorities of any series of Preferred Stock as provided herein or in any
resolution or resolutions adopted by the Board of Directors pursuant to
authority expressly vested in it by the provisions of Part B of this ARTICLE IV.
(1) The Common Stock shall not be convertible into, or exchangeable
for, shares of any other class or classes or of any other series of the same
class of the Corporation's capital stock.
(2) No holder of Common Stock shall have any preemptive, subscription,
redemption, conversion or sinking fund rights with respect to the Common Stock,
or to any
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obligations convertible (directly or indirectly) into stock of the Corporation
whether now or hereafter authorized.
(3) Except as otherwise provided by the Delaware General Corporation
Law or the Restated Certificate and subject to the rights of holders of any
series of Preferred Stock, all of the voting power of the stockholders of the
Corporation shall be vested in the holders of the Common Stock, and each holder
of Common Stock shall have one vote for each share held by such holder on all
matters voted upon by the stockholders of the Corporation.
ARTICLE V - Existence
---------------------
The Corporation is to have perpetual existence.
ARTICLE VI - By-laws
--------------------
In furtherance and not in limitation of the powers conferred by the
Delaware General Corporation Law, the Board of Directors of the Corporation is
expressly authorized to make, alter, amend, change, add to or repeal the By-laws
of the Corporation by the affirmative vote of a majority of the total number of
Directors then in office. Any alteration or repeal of the By-laws of the
Corporation by the stockholders of the Corporation shall require the affirmative
vote of at least a majority of the voting power of the then outstanding shares
of capital stock of the Corporation entitled to vote on such alteration or
repeal, subject to ARTICLE IX hereof and ARTICLE VII of the Corporation's By-
laws.
ARTICLE VII - Stockholders and Directors
----------------------------------------
Part A. Stockholder Action. Election of Directors need not be by
written ballot unless the By-laws of the Corporation so provide. Subject to any
rights of holders of any series of Preferred Stock, from and after the date on
which the Common Stock of the Corporation is registered pursuant to the Exchange
Act, (i) any action required or permitted to be taken by the stockholders of the
Corporation must be effected at an annual or special meeting of stockholders of
the Corporation and may not be effected in lieu thereof by any consent in
writing by such stockholders, (ii) special meetings of stockholders of the
Corporation may be called only by either the Board of Directors pursuant to a
resolution adopted by the affirmative vote of the majority of the total number
of Directors then in office or by the chief executive officer of the Corporation
and (iii) advance notice of stockholder nominations of persons for election to
the Board of Directors of the Corporation and of business to be brought before
any annual meeting of the stockholders by the stockholders of the Corporation
shall be given in the manner provided in the By-laws of the Corporation.
Part B. Number of Directors and Term of Office. Subject to any rights
of holders of any series of Preferred Stock to elect additional Directors under
specified circumstances,
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the number of Directors which shall constitute the Board of Directors of the
Corporation shall be fixed from time to time in the manner set forth in the By-
laws of the Corporation. The Directors of the Corporation shall be divided into
three classes: Class I, Class II and Class III. Membership in each class shall
be as nearly equal in number as possible. The term of office of the initial
Class I Directors shall expire at the annual election of Directors by the
stockholders of the Corporation in 1999, the term of office of the initial Class
II Directors shall expire at the annual election of Directors by the
stockholders of the Corporation in 2000 and the term of office of the initial
Class III Directors shall expire at the annual election of Directors by the
stockholders of the Corporation in 2001, or thereafter when their respective
successors in each case are elected by the stockholders and qualified, subject
however, to prior death, resignation, retirement, disqualification or removal
from office for cause. At each succeeding annual election of Directors by the
stockholders of the Corporation beginning in 1999, the Directors chosen to
succeed those whose terms then expire shall be identified as being of the same
class as the Directors they succeed and shall be elected for a term expiring at
the third succeeding annual election of Directors by the stockholders of the
Corporation, or thereafter when their respective successors in each case are
elected by the stockholders and qualified. If the number of Directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of Directors in each class as nearly equal as possible,
and any additional Director of any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall coincide
with the remaining term of that class, but in no case shall a decrease in the
number of Directors shorten the term of any incumbent Director.
Part C. Removal and Resignation. No Director may be removed from
office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of Directors voting
together as a single class; provided, however, that if the holders of any class
or series of Preferred Stock are entitled by the provisions of this Restated
Certificate (it being understood that any references to this Restated
Certificate shall include any duly authorized certificate of designation) to
elect one or more Directors, such Director or Directors so elected may be
removed without cause only by the vote of the holders of a majority of the
outstanding shares of that class or series entitled to vote. Any Director may
resign at any time upon written notice to the Corporation.
Part D. Vacancies and Newly Created Directorships. Subject to any
rights of holders of any series of Preferred Stock to fill such newly created
Directorships or vacancies, any newly created Directorships resulting from any
increase in the authorized number of Directors and any vacancies in the Board of
Directors resulting from death, resignation, disqualification or removal from
office for cause shall, unless otherwise provided by law or by resolution
approved by the affirmative vote of a majority of the total number of Directors
then in office, be filled only by resolution approved by the affirmative vote of
a majority of the total number of Directors then in office. Any Director so
chosen shall hold office until the next election of the class for which such
Director shall have been chosen, and until his or her successor shall have been
duly elected and qualified, unless he or she shall resign, die, become
disqualified or be removed for cause.
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ARTICLE VIII - General Provisions
---------------------------------
Part A. Dividends. The Board of Directors shall have authority from
time to time to set apart out of any assets of the Corporation otherwise
available for dividends a reserve or reserves as working capital or for any
other purpose or purposes, and to abolish or add to any such reserve or reserves
from time to time as said Board may deem to be in the interest of the
Corporation; and said Board shall likewise have power to determine in its
discretion, except as herein otherwise provided, what part of the assets of the
Corporation available for dividends in excess of such reserve or reserves shall
be declared in dividends and paid to the stockholders of the Corporation.
Part B. Issuance of Stock. The shares of all classes of stock of the
Corporation may be issued by the Corporation from time to time for such
consideration as from time to time may be fixed by the Board of Directors of the
Corporation, provided that shares of stock having a par value shall not be
issued for a consideration less than such par value, as determined by the Board.
At any time, or from time to time, the Corporation may grant rights or options
to purchase from the Corporation any shares of its stock of any class or classes
to run for such period of time, for such consideration, upon such terms and
conditions, and in such form as the Board of Directors may determine. The Board
of Directors shall have authority, as provided by law, to determine that only a
part of the consideration which shall be received by the Corporation for the
shares of its stock which it shall issue from time to time, shall be capital;
provided, however, that, if all the shares issued shall be shares having a par
value, the amount of the part of such consideration so determined to be capital
shall be equal to the aggregate par value of such shares. The excess, if any, at
any time, of the total net assets of the Corporation over the amount so
determined to be capital, as aforesaid, shall be surplus. All classes of stock
of the Corporation shall be and remain at all times nonassessable.
The Board of Directors is hereby expressly authorized, in its
discretion, in connection with the issuance of any obligations or stock of the
Corporation (but without intending hereby to limit its general power so to do in
other cases), to grant rights or options to purchase stock of the Corporation of
any class upon such terms and during such period as the Board of Directors shall
determine, and to cause such rights to be evidenced by such warrants or other
instruments as it may deem advisable.
Part C. Inspection of Books and Records. The Board of Directors
shall have power from time to time to determine to what extent and at what times
and places and under what conditions and regulations the accounts and books of
the Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
Board of Directors or of the stockholders of the Corporation.
Part D. Location of Meetings, Books and Records. Except as otherwise
provided in the By-laws, the stockholders of the Corporation and the Board of
Directors may hold their meetings and have an office or offices outside of the
State of Delaware and, subject to the provisions of the laws of the State of
Delaware, may keep the books of the Corporation outside of
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<PAGE>
the State of Delaware at such places as may, from time to time, be designated by
the Board of Directors.
ARTICLE IX - Amendments
-----------------------
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate in the manner now or
hereinafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding anything contained in this Restated Certificate to
the contrary, Parts A, B and C of ARTICLE IV, ARTICLE VII, ARTICLE X, and this
ARTICLE IX of this Restated Certificate shall not be altered, amended or
repealed and no provision inconsistent therewith shall be adopted without the
affirmative vote of the holders of at least 80% of the voting power of the then
outstanding shares of capital stock of the Corporation entitled to vote on such
alteration, amendment or repeal, voting together as a single class (other than
any alteration or amendment to Part A of ARTICLE IV that increases the
authorized number of shares of Preferred Stock or Common Stock).
ARTICLE X - Liability
---------------------
Part A. Limitation of Liability.
(1) To the fullest extent permitted by the Delaware General
Corporation Law as it now exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), and except as otherwise provided in the Corporation's By-laws, 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.
(2) Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such repeal
or modification.
Part B. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved (including
involvement as a witness) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding"), by reason of the
fact that he or she is or was a Director or officer of the Corporation or, while
a Director or officer of the Corporation, is or was serving at the request of
the Corporation as a Director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (an "indemnitee"), whether the basis of
such proceeding is alleged action in an official capacity as a Director or
officer or in any other capacity while serving as a Director or officer, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the
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<PAGE>
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than permitted prior thereto), against all
expense, liability and loss (including attorneys' fees, judgments, fines, excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith and such indemnification
shall continue as to an indemnitee who has ceased to be a Director, officer,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators; provided, however, that, except as provided in
Part C of this ARTICLE X with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Part B of this
ARTICLE X shall be a contract right and shall include the obligation of the
Corporation to pay the expenses incurred in defending any such proceeding in
advance of its final disposition (an "advance of expenses"); provided, however,
that, if and to the extent that the Delaware General Corporation Law requires,
an advance of expenses incurred by an indemnitee in his or her capacity as a
Director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Part B or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same or lesser scope and effect as the foregoing indemnification of
Directors and officers.
Part C. Procedure for Indemnification. Any indemnification of a
Director or officer of the Corporation or advance of expenses under Part B of
this ARTICLE X shall be made promptly, and in any event within forty-five days
(or, in the case of an advance of expenses, twenty days), upon the written
request of the Director or officer. If a determination by the Corporation that
the Director or officer is entitled to indemnification pursuant to this ARTICLE
X is required, and the Corporation fails to respond within sixty days to a
written request for indemnity, the Corporation shall be deemed to have approved
the request. If the Corporation denies a written request for indemnification or
advance of expenses, in whole or in part, or if payment in full pursuant to such
request is not made within forty-five days (or, in the case of an advance of
expenses, twenty days), the right to indemnification or advances as granted by
this ARTICLE X shall be enforceable by the Director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of expenses where the undertaking required pursuant to
Part B of this ARTICLE X, if any, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant
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is proper in the circumstances because he or she has met the applicable standard
of conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct. The procedure
for indemnification of other employees and agents for whom indemnification is
provided pursuant to Part B of this ARTICLE X shall be the same procedure set
forth in this Part C for Directors or officers, unless otherwise set forth in
the action of the Board of Directors providing indemnification for such employee
or agent.
Part D. Insurance. The Corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
Director, officer, employee or agent of the Corporation 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
expense, liability or loss 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 expense, liability or loss under the Delaware
General Corporation Law.
Part E. Service for Subsidiaries. Any person serving as a Director,
officer, employee or agent of another corporation, partnership, limited
liability company, joint venture or other enterprise, at least 50% of whose
equity interests are owned by the Corporation (a "subsidiary" for this ARTICLE
X) shall be conclusively presumed to be serving in such capacity at the request
of the Corporation.
Part F. Reliance. Persons who after the date of the adoption of this
provision become or remain Directors or officers of the Corporation or who,
while a Director or officer of the Corporation, become or remain a Director,
officer, employee or agent of a subsidiary, shall be conclusively presumed to
have relied on the rights to indemnity, advance of expenses and other rights
contained in this ARTICLE X in entering into or continuing such service. The
rights to indemnification and to the advance of expenses conferred in this
ARTICLE X shall apply to claims made against an indemnitee arising out of acts
or omissions which occurred or occur both prior and subsequent to the adoption
hereof.
Part G. Non-Exclusivity of Rights. The rights to indemnification and
to the advance of expenses conferred in this ARTICLE X shall not be exclusive of
any other right which any person may have or hereafter acquire under this
Restated Certificate or under any statute, by-law, agreement, vote of
stockholders or disinterested Directors or otherwise.
Part H. Merger or Consolidation. For purposes of this ARTICLE X,
references to the "Corporation" shall include, in addition to the resulting
Corporation, any constituent Corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
Directors, officers and employees or agents, so that any person who is or was a
Director, officer, employee or agent of such constituent Corporation, or is or
was serving at the request of such constituent Corporation as a Director,
officer, employee or agent of another Corporation, partnership,
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joint venture, trust or other enterprise, shall stand in the same position under
this ARTICLE X with respect to the resulting or surviving Corporation as he or
she would have with respect to such constituent Corporation if its separate
existence had continued.
ARTICLE XI - Business Combinations
----------------------------------
The Corporation expressly elects to be governed by Section 203 of the
Delaware General Corporation Law.
* * * * *
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Exhibit 3.2(ii)
FORM OF RESTATED BY-LAWS
OF
NATIONAL EQUIPMENT SERVICES, INC.
A Delaware Corporation
(Adopted as of May 31, 1996, and Restated on ________ __, 1998)
ARTICLE I
---------
OFFICES
-------
Section 1. Registered Office. The registered office of National Equipment
Services, Inc. (the "Corporation") in the State of Delaware shall be located at
1013 Centre Road, in the City of Wilmington, Delaware, County of New Castle
19805. The name of the Corporation's registered agent at such address shall be
The Prentice-Hall Corporation System, Inc. The registered office and/ or
registered agent of the Corporation may be changed from time to time by action
of the Board of Directors.
Section 2. Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Annual Meeting. An annual meeting of the stockholders shall
be held each year within 150 days after the close of the immediately preceding
fiscal year of the Corporation or at such other time specified by the Board of
Directors for the purpose of electing Directors and conducting such other proper
business as may come before the annual meeting. At the annual meeting,
stockholders shall elect Directors and transact such other business as properly
may be brought before the annual meeting pursuant to Section 11 of ARTICLE II
hereof.
Section 2. Special Meetings. Special meetings of the stockholders may
only be called in the manner provided in the Corporation's certificate of
incorporation.
<PAGE>
Section 3. Place of Meetings. The Board of Directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting. If no designation is made,
or if a special meeting be otherwise called, the place of meeting shall be the
principal executive office of the Corporation. If for any reason any annual
meeting shall not be held during any year, the business thereof may be
transacted at any special meeting of the stockholders.
Section 4. Notice. Whenever stockholders are required or permitted to
take action at a meeting, written or printed notice stating the place, date,
time and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than 10 nor more than 60 days before the date of the meeting. All such
notices shall be delivered, either personally or by mail, by or at the direction
of the Board of Directors, the chairman of the board, the president or the
secretary, and if mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
Corporation. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the Corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
capital stock entitled to vote, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders, except as otherwise
provided by the General Corporation Law of the State of Delaware or by the
Corporation's certificate of incorporation. If a quorum is not present, the
holders of a majority of the shares present in person or represented by proxy at
the meeting, and entitled to vote at the meeting, may adjourn the meeting to
another time and/or place. When a specified item of business requires a vote by
a class or series (if the Corporation shall then have outstanding shares of more
than one class or series) voting as a class or series, the holders of a majority
of the shares of such class or series shall constitute a quorum (as to such
class or series) for the transaction of such item of business.
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Section 7. Adjourned Meetings. When a meeting is adjourned to another
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless (i) by express provisions of an applicable law or of the
Corporation's certificate of incorporation a different vote is required, in
which case such express provision shall govern and control the decision of such
question, or (ii) the subject matter is the election of Directors, in which case
Section 2 of ARTICLE III hereof shall govern and control the approval of such
subject matter.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware, the Corporation's certificate of
incorporation or these By-laws, every stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
common stock held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the
stockholders, and before any voting commences, all proxies filed at or before
the meeting shall be submitted to and examined by the secretary or a person
designated by the secretary, and no shares may be represented or voted under a
proxy that has been found to be invalid or irregular.
Section 11. Business Brought Before an Annual Meeting. At an annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
brought before the meeting by or at the direction of the Board of Directors or
(iii) otherwise
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properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation, not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that less than 70 days' notice or prior public announcement of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 10th day
following the date on which such notice of the date of the annual meeting was
mailed or such public announcement was made. A stockholder's notice to the
secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting, (ii) the name and address, as they appear on
the Corporation's books, of the stockholder proposing such business, (iii) the
class and number of shares of the Corporation which are beneficially owned by
the stockholder and (iv) any material interest of the stockholder in such
business. Notwithstanding anything in these By-laws to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
procedures set forth in this section. The presiding officer of an annual
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting and in accordance with the
provisions of this section; if he or she should so determine, he or she shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted. For purposes of this section, "public
announcement" shall mean disclosure in a press release reported by Dow Jones
News Service, Associated Press or a comparable national news service. Nothing
in this section shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
ARTICLE III
-----------
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. In
addition to such powers as are herein and in the Corporation's certificate of
incorporation expressly conferred upon it, the Board of Directors shall have and
may exercise all the powers of the Corporation, subject to the provisions of the
laws of Delaware, the Corporation's certificate of incorporation and these By-
laws.
Section 2. Number, Election and Term of Office. Subject to any rights of
the holders of any series of preferred stock to elect additional Directors under
specified circumstances, the number of Directors which shall constitute the
Board of Directors shall be fixed from time to time by resolution adopted by the
affirmative vote of a majority of the total number of Directors then in office.
The Directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote in the
election of Directors; provided that, whenever the
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holders of any class or series of preferred stock of the Corporation are
entitled to elect one or more Directors pursuant to the provisions of the
Corporation's certificate of incorporation (including, but not limited to, for
purposes of these By-laws, pursuant to any duly authorized certificate of
designation), such Directors shall be elected by a plurality of the votes of
such class or series present in person or represented by proxy at the meeting
and entitled to vote in the election of such Directors. The Directors shall be
elected and shall hold office only in the manner provided in the Corporation's
certificate of incorporation.
Section 3. Removal and Resignation. No Director may be removed from
office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock
entitled to vote generally in the election of Directors voting together as a
single class; provided, however, that if the holders of any class or series of
preferred stock are entitled by the provisions of the Corporation's certificate
of incorporation (it being understood that any references to the Corporation's
certificate of incorporation shall include any duly authorized certificate of
designation) to elect one or more Directors, such Director or Directors so
elected may be removed without cause only by the vote of the holders of a
majority of the outstanding shares of that class or series entitled to vote.
Any Director may resign at any time upon written notice to the Corporation.
Section 4. Vacancies. Vacancies and newly created directorships resulting
from any increase in the total number of Directors may be filled only in the
manner provided in the Corporation's certificate of incorporation.
Section 5. Nominations.
(a) Only persons who are nominated in accordance with the procedures
set forth in these By-laws shall be eligible to serve as Directors. Nominations
of persons for election to the Board of Directors of the Corporation may be made
at a meeting of stockholders (i) by or at the direction of the Board of
Directors or (ii) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of notice provided for in this By-law, who is
entitled to vote generally in the election of Directors at the meeting and who
shall have complied with the notice procedures set forth below in Section 5(b).
(b) In order for a stockholder to nominate a person for election to
the Board of Directors of the Corporation at a meeting of stockholders, such
stockholder shall have delivered timely notice of such stockholder's intent to
make such nomination in writing to the secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation (i) in the case of an annual
meeting, not less than 60 nor more than 90 days prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is changed by more than 30 days from such
anniversary date, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the earlier of the
day on which notice of the date of the
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meeting was mailed or public disclosure of the meeting was made, and (ii) in the
case of a special meeting at which Directors are to be elected, not later than
the close of business on the 10th day following the earlier of the day on which
notice of the date of the meeting was mailed or public disclosure of the meeting
was made. Such stockholder's notice shall set forth (i) as to each person whom
the stockholder proposes to nominate for election as a Director at such meeting
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Exchange Act (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a Director if elected); (ii) as to the stockholder giving the
notice (A) the name and address, as they appear on the Corporation's books, of
such stockholder and (B) the class and number of shares of the Corporation which
are beneficially owned by such stockholder and also which are owned of record by
such stockholder; and (iii) as to the beneficial owner, if any, on whose behalf
the nomination is made, (A) the name and address of such person and (B) the
class and number of shares of the Corporation which are beneficially owned by
such person. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a Director shall furnish to the secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee.
(c) No person shall be eligible to serve as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
section. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this section, and if he or she should so determine, he
or she shall so declare to the meeting and the defective nomination shall be
disregarded. A stockholder seeking to nominate a person to serve as a Director
must also comply with all applicable requirements of the Exchange Act, and the
rules and regulations thereunder with respect to the matters set forth in this
section.
Section 6. Annual Meetings. The annual meeting of the Board of Directors
shall be held without other notice than this By-law immediately after, and at
the same place as, the annual meeting of stockholders.
Section 7. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the Board of Directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the Board of Directors. Special meetings of the Board of Directors may be
called by the chairman of the board, the chief executive officer (if the chief
executive officer is a Director) or, upon the written request of at least a
majority of the Directors then in office, the secretary of the Corporation on at
least 24 hours notice to each Director, either personally, by telephone, by mail
or by telecopy.
Section 8. Chairman of the Board, Quorum, Required Vote and Adjournment.
The Board of Directors shall elect, by the affirmative vote of a majority of the
total number of Directors then in office, a chairman of the board, who shall
preside at all meetings of the stockholders and Board of
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Directors at which he or she is present and shall have such powers and perform
such duties as the Board of Directors may from time to time prescribe. If the
chairman of the board is not present at a meeting of the stockholders or the
Board of Directors, the chief executive officer (if the chief executive officer
is a Director and is not also the chairman of the board) shall preside at such
meeting, and, if the chief executive officer is not present at such meeting, a
majority of the Directors present at such meeting shall elect one of their
members to so preside. A majority of the total number of Directors then in
office shall constitute a quorum for the transaction of business. Unless by
express provision of an applicable law, the Corporation's certificate of
incorporation or these By-laws a different vote is required, the vote of a
majority of Directors present at a meeting at which a quorum is present shall be
the act of the Board of Directors. If a quorum shall not be present at any
meeting of the Board of Directors, the Directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 9. Committees. The Board of Directors may, by resolution passed
by a majority of the total number of Directors then in office, designate one or
more committees, each committee to consist of one or more of the Directors of
the Corporation, which to the extent provided in such resolution or these By-
laws shall have, and may exercise, the powers of the Board of Directors in the
management and affairs of the Corporation, except as otherwise limited by law.
The Board of Directors may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board
of Directors. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors upon request.
Section 10. Committee Rules. Each committee of the Board of Directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the Board of
Directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. Unless otherwise provided in such a
resolution, in the event that a member and that member's alternate, if
alternates are designated by the Board of Directors, of such committee is or are
absent or disqualified, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.
Section 11. Communications Equipment. Members of the Board of Directors
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.
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Section 12. Waiver of Notice and Presumption of Assent. Any member of the
Board of Directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 13. Action by Written Consent. Unless otherwise restricted by the
Corporation's certificate of incorporation, any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of such board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Number. The officers of the Corporation shall be elected by
the Board of Directors and shall consist of a chairman of the board, a chief
executive officer, a president, a chief financial officer, one or more vice-
presidents, a secretary and such other officers and assistant officers as may be
deemed necessary or desirable by the Board of Directors. Any number of offices
may be held by the same person, except that neither the chief executive officer
nor the president shall also hold the office of secretary. In its discretion,
the Board of Directors may choose not to fill any office for any period as it
may deem advisable, except that the offices of president and secretary shall be
filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the Board of Directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as convenient.
Vacancies may be filled or new offices created and filled at any meeting of the
Board of Directors. Each officer shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the Board of
Directors may be removed by the Board of Directors at its discretion, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
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Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise may be filled by the
Board of Directors.
Section 5. Compensation. Compensation of all executive officers shall be
approved by the Board of Directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a Director of the
Corporation; provided however, that compensation of all executive officers may
be determined by a committee established for that purpose if so authorized by
the Board of Directors.
Section 6. Chairman of the Board. The chairman of the board shall preside
at all meetings of the stockholders and of the Board of Directors and shall have
such other powers and perform such other duties as may be prescribed to him or
her by the Board of Directors or provided in these By-laws.
Section 7. Chief Executive Officer. The chief executive officer shall
have the powers and perform the duties incident to that position. Subject to
the powers of the Board of Directors and the chairman of the board, the chief
executive officer shall be in the general and active charge of the entire
business and affairs of the Corporation, and shall be its chief policy making
officer. The chief executive officer shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or provided in
these By-laws. The chief executive officer is authorized to execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. Whenever the president is unable to serve, by reason of
sickness, absence or otherwise, the chief executive officer shall perform all
the duties and responsibilities and exercise all the powers of the president.
Section 8. The President. The president of the Corporation shall, subject
to the powers of the Board of Directors, the chairman of the board and the chief
executive officer, have general charge of the business, affairs and property of
the Corporation, and control over its officers, agents and employees. The
president shall see that all orders and resolutions of the Board of Directors
are carried into effect. The president is authorized to execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. The president shall have such other powers and perform such
other duties as may be prescribed by the chairman of the board, the chief
executive officer, the Board of Directors or as may be provided in these By-
laws.
Section 9. The Chief Financial Officer. The chief financial officer shall
have the custody of the corporate funds and securities; shall keep full and
accurate all books and accounts of the Corporation as shall be necessary or
desirable in accordance with applicable law or generally accepted accounting
principles; shall deposit all monies and other valuable effects in the name and
to the credit
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of the Corporation as may be ordered by the chairman of the board or the Board
of Directors; shall cause the funds of the Corporation to be disbursed when such
disbursements have been duly authorized, taking proper vouchers for such
disbursements; and shall render to the Board of Directors, at its regular
meeting or when the Board of Directors so requires, an account of the
Corporation; shall have such powers and perform such duties as the Board of
Directors, the chairman of the board, the chief executive officer, the president
or these By-laws may, from time to time, prescribe. If required by the Board of
Directors, the chief financial officer shall give the Corporation a bond (which
shall be rendered every six years) in such sums and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of the office of chief financial officer and for the restoration
to the Corporation, in case of death, resignation, retirement or removal from
office of all books, papers, vouchers, money and other property of whatever kind
in the possession or under the control of the chief financial officer belonging
to the Corporation.
Section 10. Vice-Presidents. The vice-president, or if there shall be
more than one, the vice-presidents in the order determined by the Board of
Directors or the chairman of the board, shall, in the absence or disability of
the president, act with all of the powers and be subject to all the restrictions
of the president. The vice-presidents shall also perform such other duties and
have such other powers as the Board of Directors, the chairman of the board, the
chief executive officer, the president or these By-laws may, from time to time,
prescribe. The vice-presidents may also be designated as executive vice-
presidents or senior vice-presidents, as the Board of Directors may from time to
time prescribe.
Section 11. The Secretary and Assistant Secretaries. The secretary shall
attend all meetings of the Board of Directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose or shall ensure that
his or her designee attends each such meeting to act in such capacity. Under the
chairman of the board's supervision, the secretary shall give, or cause to be
given, all notices required to be given by these By-laws or by law; shall have
such powers and perform such duties as the Board of Directors, the chairman of
the board, the chief executive officer, the president or these By-laws may, from
time to time, prescribe; and shall have custody of the corporate seal of the
Corporation. The secretary, or an assistant secretary, shall have authority to
affix the corporate seal to any instrument requiring it and when so affixed, it
may be attested by his or her signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
or her signature. The assistant secretary, or if there be more than one, any of
the assistant secretaries, shall in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors, the
chairman of the board, the chief executive officer, the president, or secretary
may, from time to time, prescribe.
Section 12. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these By-laws, shall have such
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authority and perform such duties as may from time to time be prescribed by
resolution of the Board of Directors.
Section 13. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may by resolution delegate the powers and
duties of such officer to any other officer or to any Director, or to any other
person selected by it.
ARTICLE V
---------
CERTIFICATES OF STOCK
---------------------
Section 1. Form. Every holder of stock in the Corporation shall be
entitled to have a certificate, signed by, or in the name of the Corporation by
the chairman of the board, the chief executive officer or the president and the
secretary or an assistant secretary of the Corporation, certifying the number of
shares owned by such holder in the Corporation. If such a certificate is
countersigned (i) by a transfer agent or an assistant transfer agent other than
the Corporation or its employee or (ii) by a registrar, other than the
Corporation or its employee, the signature of any such chairman of the board,
chief executive officer, president, secretary or assistant secretary may be
facsimiles. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on, any such certificate or certificates
shall cease to be such officer or officers of the Corporation whether because of
death, resignation or otherwise before such certificate or certificates have
been delivered by the Corporation, such certificate or certificates may neverthe
less be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the Corporation.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
books of the Corporation. Shares of stock of the Corporation shall only be
transferred on the books of the Corporation by the holder of record thereof or
by such holder's attorney duly authorized in writing, upon surrender to the
Corporation of the certificate or certificates for such shares endorsed by the
appropriate person or persons, with such evidence of the authenticity of such
endorsement, transfer, authorization and other matters as the Corporation may
reasonably require, and accompanied by all necessary stock transfer stamps. In
that event, it shall be the duty of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate or certificates and
record the transaction on its books. The Board of Directors may appoint a bank
or trust company organized under the laws of the United States or any state
thereof to act as its transfer agent or registrar, or both in connection with
the transfer of any class or series of securities of the Corporation.
Section 2. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the Corporation
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alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Corporation may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his or her legal representative, to give the
Corporation a bond sufficient to indemnify the Corporation against any claim
that may be made against the Corporation on account of the loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
the Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than 60 nor less than 10 days
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day preceding the day on which notice is first given. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 4. Fixing a Record Date for Other Purposes. In order that the
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than 60 days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
Section 5. Registered Stockholders. Prior to the surrender to the
Corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the Corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications and otherwise to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 6. Subscriptions for Stock. Unless otherwise provided for in the
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
Board of Directors. Any call made by the Board of Directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
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shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the Corporation may proceed to collect the
amount due in the same manner as any debt due the Corporation.
ARTICLE VI
----------
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Corporation's certificate of
incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting, in accordance with applicable law. Dividends may be paid in
cash, in property or in shares of the capital stock, subject to the provisions
of the Corporation's certificate of incorporation. Before payment of any
dividend, there may be set aside out of any funds of the Corporation available
for dividends such sum or sums as the Directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or any other purpose and the Directors may modify
or abolish any such reserve in the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts or other orders
for the payment of money by or to the Corporation and all notes and other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officers, agent or agents of the Corporation, and in such
manner, as shall be determined by resolution of the Board of Directors or a duly
authorized committee thereof.
Section 3. Contracts. In addition to the powers otherwise granted to
officers pursuant to ARTICLE IV hereof, the Board of Directors may authorize any
officer or officers, or any agent or agents, of the Corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to
specific instances.
Section 4. Loans. The Corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiaries, including any officer or employee who is a
Director of the Corporation or its subsidiaries, whenever, in the judgment of
the Directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the Corporation at common law
or under any statute.
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Section 5. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 6. Corporate Seal. The Board of Directors may provide a corporate
seal which shall be in the form of a circle and shall have inscribed thereon the
name of the Corporation and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
any other corporation held by the Corporation shall be voted by the chief
executive officer, the president or a vice-president, unless the Board of
Directors specifically confers authority to vote with respect thereto, which
authority may be general or confined to specific instances, upon some other
person or officer. Any person authorized to vote securities shall have the
power to appoint proxies, with general power of substitution.
Section 8. Inspection of Books and Records. The Board of Directors shall
have power from time to time to determine to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
Board of Directors or of the stockholders of the Corporation.
Section 9. Section Headings. Section headings in these By-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
these By-laws is or becomes inconsistent with any provision of the Corporation's
certificate of incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these By-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
ARTICLE VII
-----------
AMENDMENTS
----------
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation is expressly authorized to make,
alter, amend, change, add to or repeal these By-laws by the affirmative vote of
a majority of the total number of Directors then in office. Any alteration or
repeal of these By-laws by the stockholders of the Corporation shall require the
affirma-
-14-
<PAGE>
tive vote of a majority of the outstanding shares of the Corporation entitled to
vote on such alteration or repeal; provided, however, that Section 11 of ARTICLE
II and Sections 2, 3, 4 and 5 of ARTICLE III and this ARTICLE VII of these By-
laws shall not be altered, amended or repealed and no provision inconsistent
therewith shall be adopted without the affirmative vote of the holders of at
least 80% of the outstanding shares of the Corporation entitled to vote on such
alteration or repeal.
-15-
<PAGE>
COMMON COMMON
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THIS STATE OF DELAWARE CUSIP 635847 10 6
[LOGO GOES HERE]
NATIONAL EQUIPMENT SERVICES, INC.
This Certificates that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK
PAR VALUE $.01 PER SHARE, OF
National Equipment Services, Inc. transferable on the books of the Corporation
by the holder hereof in person or by duly authorized attorney, upon surrender of
this certificate properly endorsed.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile signatures of its duly authorized officers
Dated:
Kevin P. Rodgers
COUNTERSIGNED AND REGISTERED: PRESIDENT
HARRIS TRUST AND SAVINGS BANK AND CHIEF EXECUTIVE OFFICER
TRANSFER AGENT
AND REGISTRAR
BY:
Paul R. Ingersoll
AUTHORIZED SIGNATURE SECRETARY
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC.
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT-_________Custodian________
TEN ENT -- as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to Minors
JT TEN -- as joint tentants with Act______________
right of survivorship and (State)
not as tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, ________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
[--------------------------------------] -------------------------------------
- ------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
_________________________________________________________________________shares
of the capital stock represented by the within Certificate and do hereby
irrevocably constitute and appoint_____________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated_______________________
- ------------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
Signature(s) Guaranteed:
_____________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
__________________________________________________
AMERICAN BANK NOTE COMPANY
680 BLAIR MILL ROAD
HORSHAM, PA 19044
(215) 657-3480
----------------------------------
SALES: BILL WARNER: 1-708-599-0404
----------------------------------
/NET/BANKNOTE/HOME42/N2/National 56478
__________________________________________________
__________________________________________________
PRODUCTION COORDINATOR: BELINDA BECK: 215-830-2198
PROOF OF MAY 1, 1998
NATIONAL EQUIPMENT SERVICES, INC.
H 56478bk
-----------------------------------
OPERATOR: JW/hj
-----------------------------------
NEW
__________________________________________________
<PAGE>
Exhibit 10.34
May 14, 1998
National Equipment Services, Inc.
1800 Sherman Avenue, Suite 100
Evanston, Illinois 60201
Attention: Mr. Paul Ingersoll
Vice President, Secretary
Dear Paul:
You have advised us that National Equipment Services, Inc. (the "Borrower")
seeks financing for the refinancing of its existing indebtedness, for capital
expenditures, for ongoing working capital requirements and for other general
corporate purposes, which may include the acquisition (the "Acquisition") of
Falconite, Inc. (the "Acquired Company") for a purchase price not in excess of
$185 million and other permitted acquisitions, together with the costs and
expenses related thereto. You have further advised us that $300 million in
senior debt financing, together with the proceeds of the Borrower's proposed
initial public offering of its capital stock (the "IPO"), will be required in
order to provide for the foregoing financing needs.
In connection with the foregoing, First Union National Bank ("First Union"
or the "Agent") is pleased to advise you of its commitment to provide the full
principal amount of the Credit Facility described in the term sheet attached
hereto as Annex I (the "Term Sheet"). First Union Capital Markets, a division of
Wheat First Securities, Inc. ("FUCM"), is pleased to advise you of its
commitment, as Arranger and Syndication Agent for the Credit Facility, to form a
syndicate of financial institutions (the "Lenders"), reasonably acceptable to
you, for the Credit Facility. All capitalized terms used and not otherwise
defined herein shall have the meanings set forth in the Term Sheet.
The commitments of First Union and FUCM hereunder are subject to the
satisfaction of each of the following conditions precedent in a manner
acceptable to First Union and FUCM in their reasonable discretion:
(a) the negotiation, execution and delivery of definitive documentation
with respect to the Credit Facility consistent with the Term Sheet and
otherwise satisfactory to First Union and FUCM;
(b) completion of the IPO for net proceeds of at least $200 million;
(c) the purchase price for the Acquired Company not exceeding $185
million;
(d) execution of a fee letter among the Borrower, First Union and FUCM
prior to or concurrently with the acceptance by the Borrower of this
letter;
(e) there not having occurred and being continuing since December 31,
1997, in the opinion of First Union and FUCM, a material adverse
change in the business, assets, liabilities (actual or contingent),
operations or condition (financial or otherwise) of the Borrower, the
Acquired Company or their respective subsidiaries (taken as a whole);
and
(f) there not having occurred and being continuing since the date hereof a
material disruption of, or a material adverse change in, banking
conditions generally, as determined by First Union and FUCM in their
reasonable discretion.
First Union will act as Agent for the Credit Facility and FUCM will act as
Arranger and Syndication Agent for the Credit Facility. No additional agents
will be appointed without the prior approval of First Union and FUCM.
<PAGE>
The commitments of First Union and FUCM hereunder are based upon the
financial and other information regarding the Borrower, its subsidiaries and the
Acquired Company previously provided to First Union and FUCM. If, however, the
continuing review by First Union and FUCM of the Borrower or the Acquired
Company discloses information relating to conditions or events not previously
disclosed to First Union and FUCM or relating to new information or additional
developments concerning conditions or events previously disclosed to First Union
and FUCM which First Union and FUCM in their reasonable discretion believe may
have a material adverse effect on the condition (financial or otherwise),
assets, properties, business or operations of the Borrower, the Acquired Company
or their respective subsidiaries (taken as a whole), First Union and FUCM may,
in their reasonable discretion, suggest alternative financing amounts or
structures that ensure adequate protection for the Lenders or decline to
participate in the proposed financing.
You acknowledge that it is the intent of First Union and FUCM to syndicate
the Credit Facility prior to the closing of the Credit Facility. You agree to
actively assist First Union and FUCM in achieving a syndication of the Credit
Facility that is satisfactory to First Union, FUCM and you. Syndication of the
Credit Facility will be accomplished by a variety of means, including direct
contact during the syndication between senior management and advisors of the
Borrower and the proposed Lenders. To assist First Union and FUCM in the
syndication efforts, you hereby agree to (a) provide and cause your advisors to
provide First Union and FUCM and the other Lenders upon request with all
information reasonably deemed necessary by First Union and FUCM to complete
syndication, including but not limited to information and evaluations prepared
by the Borrower and its advisors, or on its behalf, relating to the Acquisition,
(b) assist First Union and FUCM upon their reasonable request in the preparation
of an Information Memorandum to be used in connection with the syndication of
the Credit Facility and (c) otherwise assist First Union and FUCM in their
syndication efforts, including by making available officers and advisors of the
Borrower and its subsidiaries from time to time to attend and make presentations
regarding the business and prospects of the Borrower and its subsidiaries, as
appropriate, at a meeting or meetings of prospective Lenders. You further agree
to refrain from engaging in any additional financings for the Acquired Company
during such syndication process unless otherwise agreed to by First Union and
FUCM.
It is understood and agreed that First Union and FUCM, after consultation
with you, will manage and control all aspects of the syndication, including
decisions as to the selection of proposed Lenders and any titles offered to
proposed Lenders, when commitments will be accepted and the final allocations of
the commitments among the Lenders. It is understood that no Lender participating
in the Credit Facility will receive compensation from you outside the terms
contained herein and in the Term Sheet in order to obtain its commitment. It is
also understood and agreed that the amount and distribution of the fees among
the Lenders will be at the sole discretion of First Union and FUCM and that any
syndication prior to execution of definitive documentation will reduce the
commitment of First Union.
The Borrower also agrees that First Union and its affiliates will be
afforded an opportunity to offer proposals to provide, arrange, underwrite or
administer (i) any interest rate caps, currency swaps and other hedging
transactions to be entered into by the Borrower or any subsidiary or affiliate
thereof, (ii) any cash management, funds transfer, trade, corporate trust and
securities services to be obtained by the Borrower or any subsidiary or
affiliate thereof and (iii) any public or private debt or equity instruments or
securities to be issued by the Borrower or any subsidiary thereof.
You hereby represent, warrant and covenant that (i) all information, other
than Projections (as defined below), which has been or is hereafter made
available to First Union and FUCM or the Lenders by you or any of your
representatives in connection with the transactions contemplated hereby
("Information") is and will be complete and correct in all material respects and
does not and will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained therein not
misleading and (ii) all financial projections concerning the Borrower and the
Acquired Company that have been or are hereafter made available to First Union
and FUCM or the Lenders by you or any of your representatives (the
"Projections") have
2
<PAGE>
been or will be prepared in good faith based upon reasonable assumptions. You
agree to furnish us with such Information and Projections as we may reasonably
request and to supplement the Information and the Projections from time to time
until the closing date for the Credit Facility so that the representation and
warranty in the preceding sentence is correct on the such date. In arranging and
syndicating the Credit Facility, First Union and FUCM will be using and relying
on the Information and the Projections without independent verification thereof.
By executing this letter agreement, you agree to reimburse First Union and
FUCM from time to time on demand for all reasonable out-of-pocket fees and
expenses (including, but not limited to, all due diligence expenses, syndication
expenses and the reasonable fees, disbursements and other charges of Moore & Van
Allen, PLLC, as counsel to First Union and the other Lenders) incurred in
connection with the preparation, negotiation, execution and delivery of this
commitment and the preparation, negotiation, execution, delivery,
administration, syndication and enforcement of all documents executed in
connection with the Credit Facility.
In the event that First Union or FUCM becomes involved in any capacity in
any action, proceeding or investigation in connection with any matter
contemplated by this letter, the Borrower will reimburse First Union and FUCM
for their legal and other expenses (including the cost of any investigation and
preparation) as they are incurred by First Union or FUCM. The Borrower also
agrees to indemnify and hold harmless First Union, FUCM and their affiliates and
their respective directors, officers, employees and agents (each an "Indemnified
Party") from and against any and all losses, claims, damages and liabilities,
joint or several, related to or arising out of any matters contemplated by this
letter, unless and only to the extent that it shall be finally judicially
determined that such losses, claims, damages or liabilities resulted primarily
from the gross negligence or willful misconduct of an Indemnified Party.
The provisions of the immediately preceding two paragraphs shall remain in
full force and effect regardless of whether definitive financing documentation
shall be executed and delivered and notwithstanding the termination of this
letter agreement or the commitment of First Union and FUCM hereunder, provided,
however, that the Borrower shall be deemed released of its obligations under the
immediately preceding two paragraphs upon the execution of definitive financing
documentation.
As described herein and in the Term Sheet, FUCM will act as Arranger and
Syndication Agent for the Credit Facility. First Union reserves the right to
allocate, in whole or in part, to FUCM certain fees payable to First Union in
such manner as First Union and FUCM agree in their sole discretion. You
acknowledge and agree that First Union may share with any of its affiliates
(including specifically FUCM) any information relating to the Credit Facility,
the Borrower, its subsidiaries and affiliates and the Acquired Company.
The Borrower is not authorized to show or circulate this Commitment or the
Term Sheet, or disclose the contents thereof, to any other person or entity
(other than to its directors, officers and legal and financial counsel;
provided, that each of such persons shall also be bound by the confidentiality
provisions hereof), except as may be required by law or applicable judicial
process. The Borrower is also not authorized to disclose the contents of the
Commitment in any press release, judicial proceeding or securities filing
without the approval of First Union and FUCM.
This letter agreement may not be assigned by you without the prior written
consent of First Union and FUCM.
3
<PAGE>
If you are in agreement with the foregoing, please execute and return the
enclosed copy of this letter agreement no later than the close of business on
May 15, 1998. This letter agreement will become effective upon your delivery to
us of executed counterparts of this letter agreement and the fee letter of even
date herewith (the "Fee Letter") and, without limiting the more specific terms
hereof and of the Term Sheet, you agree upon acceptance of this commitment to
pay the fees set forth in the Term Sheet and in the Fee Letter. This commitment
shall terminate if not so accepted by you prior to that time. Following
acceptance by you, this commitment will terminate on August 31, 1998, unless the
Credit Facility is closed by such time.
This letter may be executed in counterparts which, when taken together,
shall constitute an original. This letter, together with the Term Sheet and the
Fee Letter, embodies the entire agreement and understanding among First Union,
FUCM, the Borrower with respect to the specific matters set forth herein and
supersedes all prior agreements and understandings relating to the subject
matter hereof. No party has been authorized by First Union or FUCM to make any
oral or written statements inconsistent with this letter. THIS LETTER SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW.
Very truly yours,
FIRST UNION NATIONAL BANK
By:/s/ Eric Butler
----------------------------------------
Title:
-------------------------------------
FIRST UNION CAPITAL MARKETS,
a division of Wheat First Securities, Inc.
By:/s/ Theodore Heldring
----------------------------------------
Title:
-------------------------------------
ACCEPTED AND AGREED TO:
NATIONAL EQUIPMENT SERVICES, INC.
By:/s/ Paul Ingersoll
-------------------------------------
Title: Vice President and Secretary
----------------------------------
Date: May 14, 1998
-----------------------------------
4
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC.
SUMMARY OF TERMS & CONDITIONS
May 14, 1998
================================================================================
BORROWER: National Equipment Services, Inc., a Delaware
corporation (the "Borrower").
GUARANTORS: All present and future, direct and indirect,
subsidiaries of the Borrower including hereafter
acquired subsidiaries including Falconite, Inc. (the
"Target" or "Falconite").
AGENT: First Union National Bank (the "Agent" or "First Union")
will act as sole and exclusive administrative agent. As
such, First Union will negotiate with the Borrower, act
as the primary contact for the Borrower and perform all
other duties associated with the role of exclusive
administrative agent. No other agents or co-agents may
be appointed without the prior written consent of First
Union and FUCM.
ARRANGER &
SYNDICATION AGENT: First Union Capital Markets, a division of Wheat First
Securities, Inc. ("FUCM").
LENDERS: A syndicate of financial institutions (including First
Union) arranged by FUCM, which institutions shall be
acceptable to the Borrower and the Agent (collectively,
the "Lenders").
CREDIT FACILITY: $300 million revolving credit facility which will
include a $25 million sublimit for the issuance of
standby letters of credit (each a "Letter of Credit").
Letters of Credit will be issued by First Union (in such
capacity, the "Fronting Bank"), and each Lender will
purchase an irrevocable and unconditional participation
in each Letter of Credit.
PURPOSE: The proceeds of the Credit Facility, together with the
proceeds of the initial public offering of the
Borrower's common stock (the "IPO"), shall be used to
refinance existing indebtedness to finance the
acquisition of the Target (the "Acquisition"), to
finance other permitted acquisitions, to provide ongoing
working capital for the Borrower and its subsidiaries,
to pay related fees and expenses, and for general
corporate purposes.
INTEREST RATES: The Credit Facility shall bear interest as set forth on
Addendum I hereto.
<PAGE>
MATURITY: The Credit Facility shall terminate and all amounts
outstanding thereunder shall be due and payable in full
5 years from Closing.
SECURITY: The Agent (on behalf of the Lenders) shall receive a
first priority pledge of all the capital stock of all
now owned or hereafter acquired direct and indirect
subsidiaries of the Borrower. A negative pledge will be
required on all other assets of the Borrower, the
Guarantors and their respective subsidiaries, subject to
customary permitted liens to be agreed upon.
The foregoing security shall ratably secure the Credit
Facility and any interest rate swap/foreign currency
swap or similar agreements with a Lender under the
Credit Facility.
MANDATORY
PREPAYMENTS: The revolving loans under the Credit Facility will be
prepaid by an amount equal to: (i) 100% of the net cash
proceeds of all Asset Sales (defined below) by the
Borrower or any of its subsidiaries (including stock of
subsidiaries) and (ii) 100% of any casualty insurance
proceeds for major losses, subject, in each case, to de
minimus baskets and reinvestment provisions to be agreed
upon and net of selling expenses and taxes to the extent
such taxes are paid.
OPTIONAL PREPAYMENTS
AND COMMITMENT
REDUCTIONS: The Borrower may prepay the revolving loans under the
Credit Facility and permanently reduce the commitments
in whole or in part at any time without penalty, subject
to reimbursement of the Lenders' breakage and
redeployment costs in the case of prepayment of LIBOR
borrowings.
CONDITIONS PRECEDENT
TO CLOSING: The initial funding of the Credit Facility will be
subject to reasonable satisfaction of the conditions
precedent deemed appropriate by the Agent and the
Lenders for this type of financing generally and for
this transaction in particular, including but not
limited to the following:
(i) The negotiation, execution and delivery of
definitive documentation with respect to the
Credit Facility reasonably satisfactory to the
Agent and the Lenders.
(ii) The Acquisition shall have been consummated in
accordance with the terms of the Purchase
Agreement and in compliance with applicable law
and regulatory
2
<PAGE>
approvals. The Purchase Agreement shall not be
altered, amended or otherwise changed or
supplemented or any condition therein waived,
without the prior written consent of the Agent.
The purchase price paid for Target shall not
exceed $185 million.
(iii) The corporate capital and ownership structure
(including articles of incorporation and by-laws),
equityholder agreements and management of the
Borrower and its subsidiaries (after giving effect
to the Acquisition) shall be reasonably
satisfactory to the Agent. Without limiting the
generality of the above, the Agent shall be
satisfied that the Borrower shall have received
net proceeds of at least $200 million from the
IPO.
(iv) There shall not have occurred a material adverse
change since December 31, 1997 in the business,
assets, operations or condition (financial or
otherwise) of the Borrower, the Target or their
respective subsidiaries (taken as a whole) or in
the facts and information regarding such entities
or assets as represented to date.
(v) The Agent shall have received satisfactory
evidence as to the solvency of the Borrower and
its subsidiaries (including Target) (after giving
effect to the Acquisition and the incurrence of
indebtedness related thereto).
(vi) The Agent shall have received (A) satisfactory
opinions of counsel to the Borrower and its
subsidiaries (which shall cover, among other
things, authority, legality, validity, binding
effect and enforceability of the documents for the
Credit Facility) and such resolutions,
certificates and other documents as the Agent
shall reasonably require and (B) satisfactory
evidence that the Agent (on behalf of the Lenders)
holds a perfected, first priority lien in all
pledged collateral for the Credit Facility,
subject to no other liens except for permitted
liens to be determined.
(vii) Receipt of all governmental, equityholder and
third party consents (including Hart-Scott Rodino
clearance) and approvals necessary or, in the
reasonable opinion of the Agent, desirable in
connection with the Acquisition and the related
financing and other transactions contemplated
hereby and expiration of all
3
<PAGE>
applicable waiting periods without any action
being taken by any authority that could restrain,
prevent or impose any material adverse conditions
on the consummation of the Acquisition or such
other transactions or that could seek or threaten
any of the foregoing, and no law or regulation
shall be applicable which in the reasonable
opinion of the Agent would have such effect.
(viii) The absence of any action, suit, investigation or
proceeding pending or threatened in any court or
before any arbitrator or governmental authority
that could have a material adverse effect on any
transactions contemplated hereby or on the ability
of the Borrower and its subsidiaries to perform
its obligations under the documents to be executed
in connection with the Credit Facility and the
Acquisition.
(ix) The Borrower and its subsidiaries shall be in
compliance with all existing financial obligations
(after giving effect to the Acquisition) under its
contracts relating to or evidencing indebtedness.
(x) Total Funded Debt (defined below) of the Borrower
and its subsidiaries (including Target) at closing
of the Credit Facility shall be comprised of at
least $98.7 million of the Borrower's 10% Senior
Subordinated Notes Due 2004.
(xi) Transaction fees and expenses of the Borrower and
its subsidiaries in respect of the IPO, the
Acquisition and the Credit Facility shall not
exceed $22 million.
(xii) The Agent shall have received a Phase I
environmental report on the Falconite facilities
to be acquired by the Borrower in form and
substance reasonably satisfactory to the Agent.
(xiii) The Agent shall have received the final Price
Waterhouse due diligence report on the Target in
form and substance reasonably satisfactory to the
Agent.
(xiv) The Agent shall have received the following
financial statements of the Borrower and the
Target: (a) the unaudited consolidated balance
sheet and statement of income and cash flow of the
Borrower and its subsidiaries for the three-month
period ended on March 31, 1998, (b) the unaudited
consolidated balance sheet
4
<PAGE>
and statement of income and cash flow of the
Target and its subsidiaries for the three-month
period ended on March 31, 1998, (c) the unaudited
pro forma consolidated and consolidating balance
sheets and statements of income of the Borrower
and the Target on a combined basis for the three-
month period ended on March 31, 1998, in each case
prepared in accordance with GAAP and in form and
substance satisfactory to the Agent and (d)
financial projections of the Borrower and its
subsidiaries (including the Target) for the five
year period following closing.
(xv) The pro forma combined EBITDA (defined below) of
the Borrower and its subsidiaries and the Target
and its subsidiaries for the twelve-month period
ended on March 31, 1998 shall not be less than $75
million.
(xvi) The Borrower shall have paid to the Lenders and
the Agent all fees and expenses due and payable at
Closing.
REPRESENTATIONS &
WARRANTIES: Usual and customary for transactions of this type, to
include without limitation: (i) corporate status; (ii)
corporate power and authority/enforceability; (iii) no
violation of law or contracts or organizational
documents; (iv) no material litigation; (v) correctness
of specified financial statements and no material
adverse change; (vi) no required governmental or third
party approvals; (vii) use of proceeds/compliance with
margin regulations; (viii) status under Investment
Company Act; (ix) ERISA; (x) environmental matters; (xi)
perfected liens and security interests; and (xii)
payment of taxes.
FINANCIAL REPORTING: The Borrower will provide the Agent with (i) audited
consolidated financial statements on an annual basis
prepared in accordance with GAAP, (ii) unaudited
consolidated and consolidating financial statements on a
monthly basis prepared in accordance with GAAP, (iii)
unaudited consolidated financial statements on a
quarterly basis prepared in accordance with GAAP, (iv)
quarterly financial covenant compliance certificates,
(v) at each year end, a budget for the following year,
by month, with a level of detail acceptable to the
Agent, (vi) all public filings with the SEC and other
governmental agencies and (vii) such other reports and
information as reasonably required by the Agent. The
Agent would reserve the right to inspect the books and
records of the Borrowers at any time and, from time to
time, in its sole
5
<PAGE>
discretion, to conduct periodic field exams and/or
appraisals of the rental fleet of the Borrower and its
subsidiaries.
AFFIRMATIVE
COVENANTS: Usual and customary for transactions of this type, to
include without limitation, (i) delivery of the
financial reports described above, (ii) notices of
default, material litigation and material governmental
and environmental proceedings, (iii) compliance with
laws, (iv) payment of taxes, and (v) maintenance of
insurance.
NEGATIVE COVENANTS: Usual and customary for transactions of this type, to
include without limitation:
1. Additional Indebtedness: The Borrower and its
subsidiaries will not create, assume, incur, guarantee
or in any manner become liable for any debt other than
the Credit Facility, existing indebtedness and certain
other debt in amounts to be negotiated.
2. Acquisitions and Investments: Neither the Borrower
nor any of its subsidiaries may purchase or otherwise
acquire the assets of any business enterprise except for
Permitted Acquisitions described below (which will not
require any Lender consent), other acquisitions
permitted by the Required Lenders and/or investments to
be negotiated.
3. Liens: The Borrower and its subsidiaries will not
create, incur, assume or suffer to exist any lien of any
nature except for: (i) carriers' warehousemen's and
mechanics' liens; (ii) liens arising under worker
compensation laws; (iii) existing liens approved by the
Agent; (iv) purchase money liens and liens securing
capital leases in an aggregate amount to be determined;
(v) liens for taxes; and (vi) baskets for other purposes
in amounts to be negotiated.
4. Restricted Payments: No restricted payments except
for permitted dividends and distributions in amounts and
nature to be negotiated.
5. Asset Sales: Sale of assets prohibited above a
threshold level to be negotiated.
6. Mergers or Consolidation: Neither the Borrower nor
any of its subsidiaries will merge into or consolidate
with any person other than mergers and consolidations of
any subsidiary of the Borrower with or into any other
subsidiary of the Borrower or
mergers and consolidations of any third party with or
into any
6
<PAGE>
subsidiary of the Borrower in connection with any
Permitted Acquisition.
7. Transactions with Affiliates: Limited to arms-length
transactions other than with respect to certain types of
transactions with affiliates to be negotiated.
8. Line of Business: No material change in the
Borrower's or any subsidiary's line of business.
9. Accounting: No material change in the Borrower's
accounting methods, including, but not limited to,
depreciation methodology.
10. Other: Any other negative covenants reasonably
deemed appropriate by the Lenders in the context of the
Credit Facilities.
FINANCIAL COVENANTS: Financial covenants to include (but not limited to) the
following (capitalized financial terms used herein are
defined in Addendum II hereto):
. Maintenance as of the last day of each fiscal quarter
a ratio of Total Funded Debt to EBITDA (computed for
the four fiscal quarterly periods then ending) which
shall not exceed 3.25 to 1.0.
. Maintenance as of the last day of each fiscal quarter
a ratio of Total Senior Funded Debt (defined below) to
EBITDA (computed for the four fiscal quarterly periods
then ending) which shall not exceed 2.5 to 1.0.
Maintenance as of the last day of each fiscal quarter
a Fixed Charge Coverage Ratio (defined below)
(computed for the four fiscal quarterly periods then
ending) which shall not be less than 2.5 to 1.0.
. Maintenance of book net worth of at least $200 million
plus 50% of cumulative net income of the Borrower and
its subsidiaries (including Target) since December 31,
1997 at all times.
. As of the last day of each fiscal quarter the sum of
Total Senior Funded Debt plus letter of credit
obligations shall not exceed the sum of (i) 85% of net
accounts receivable, (ii) 50% of net parts inventory,
(iii) 100% of the net book value of rental equipment
and (iv) 80% of the net book
7
<PAGE>
value of equipment held for resale, in each case, as
determined in accordance with GAAP.
All financial covenants herein shall be calculated on a
pro forma basis to appropriately reflect acquisitions
made by the Borrower or any of its subsidiaries during
the relevant period of calculation thereof.
PERMITTED
ACQUISITIONS: The Borrower shall be permitted, without the approval of
the Required Lenders, to acquire companies (whether by
acquisition of stock or assets or by merger) so long as
the following conditions are satisfied to the
satisfaction of the Agent: (i) the acquired company is
an operating company that engages in a line of business
substantially similar to the line of business of the
Borrower, (ii) the total consideration paid for the
acquired company, when added to the aggregate total
consideration paid for all other acquisitions during the
prior 12-month period, shall not exceed $100 million,
(iii) the Borrower has completed its due diligence
process with respect to the acquisition in form and
substance reasonably satisfactory to the Agent, (iv) the
contemplated acquisition must not be hostile, (v) no
default or event of default shall exist with respect to
the Credit Facility immediately prior to or after the
acquisition, (vi) execution by the acquired company (or
any subsidiary formed to consummate the acquisition) of
any and all loan documentation required by the Agent and
receipt of Phase I environmental reports for all real
property of the acquired company, (vii) the ratio of
Total Funded Debt to EBITDA after giving pro forma
effect to the proposed acquisition must be 0.25 less
than the maximum allowable ratio of Total Funded Debt to
EBITDA as of the fiscal quarter ending immediately
preceding the date of such proposed acquisition, (viii)
the Borrower shall be in pro forma compliance with all
financial covenants as of the fiscal quarter ending
immediately preceding the date of such proposed
acquisition, (ix) the Borrower shall demonstrate pro
forma compliance with all financial covenants for the
period commencing with the date of the proposed
acquisition through the last day covered by the
financial projections delivered at the closing of the
Credit Facility, (x) the Agent shall have received: (A)
the final due diligence report on the acquired company
prepared by Price Waterhouse (or another nationally
recognized accounting firm acceptable to the Agent) in
form and substance satisfactory to the Agent, (B) the
"Board Paper" for the acquired company (i.e., a short
memo prepared by the Borrower with respect to the
acquired company), and (C) a description of the proposed
acquisition in reasonable detail and
8
<PAGE>
the corresponding documentation and historical financial
information of the acquired company and (xi)(A) so long
as the ratio of Total Senior Funded Debt to EBITDA would
be less than or equal to 2.0 to 1.0 on a pro forma basis
after giving effect to a proposed acquisition, the
aggregate consideration to be paid for any such
acquisition could not exceed $40 million and (B) so long
as the ratio of Total Senior Funded Debt to EBITDA would
exceed 2.0 to 1.0 on a pro forma basis after giving
effect to a proposed acquisition, the aggregate
consideration to be paid for any such acquisition could
not exceed $25 million. All information, documents and
financial data required in connection with any Permitted
Acquisition shall be furnished to the Agent at least 15
business days prior to the proposed acquisition.
Any proposed acquisition which fails to satisfy the
foregoing conditions shall be prohibited unless
otherwise approved by the Required Lenders.
EVENTS OF DEFAULT: Usual and customary in transactions of this nature, and
to include, without limitation, (i) nonpayment of
principal, interest, fees or other amounts with respect
to either of the Credit Facility, (ii) violation of
covenants, (iii) material inaccuracy of representations
and warranties, (iv) cross-default to other material
agreements and indebtedness, (v) bankruptcy, (vi)
material judgments, (vii) ERISA, (viii) actual or
asserted invalidity of any loan documents or security
interests, and (ix) Change of Control (defined below).
REQUIRED LENDERS: 51%.
ASSIGNMENTS/
PARTICIPATIONS: Each Lender will be permitted to make minimum
assignments of $5 million to other financial
institutions approved by the Borrower and the Agent,
which approval shall not be unreasonably withheld.
Lenders will be permitted to sell participations with
voting rights limited to significant matters such as
changes in amount, rate, and maturity date.
WAIVERS &
AMENDMENTS: Amendments and waivers of the provisions of the loan
agreement and other definitive credit documentation will
require the approval of the Required Lenders, except
that the consent of all the Lenders affected thereby
shall be required with respect to (i) increases in
commitment amounts, (ii) reductions of principal,
interest, or fees, (iii) extensions of scheduled
maturities or scheduled amortization or times for
payment and (iv) releases of all or substantially all
collateral.
9
<PAGE>
INDEMNIFICATION: The Borrower and the Guarantors shall indemnify the
Lenders from and against all losses, liabilities,
claims, damages or expenses (including but not limited
to reasonable attorneys' fees and settlement costs)
relating to the loans, the Borrower's use of loan
proceeds or the commitments except to the extent arising
from the gross negligence or willful misconduct of an
indemnified party. This indemnification shall survive
and continue for the benefit of the Lenders at all times
after the Borrower's acceptance of the Lenders'
commitment for the Credit Facility, notwithstanding any
failure of the Credit Facility to close.
GOVERNING LAW: New York.
FEES/EXPENSES: As outlined in ADDENDUM I.
OTHER: This term sheet is intended as an outline only and does
not purport to summarize all the conditions, covenants,
representations, warranties and other provisions which
would be contained in definitive legal documentation for
the Credit Facility contemplated hereby. The Borrower
and each of the Guarantors shall waive their right to a
trial by jury.
10
<PAGE>
ADDENDUM I
FEES AND INTEREST RATES
===============================================================================
UNUSED FEE: The Applicable Unused Fee Percentage as set forth in the
Pricing Grid below (calculated on the basis of actual
number of days elapsed in a year of 360 days) on the
committed undrawn amount of the Credit Facility. The
Unused Fee shall be payable quarterly in arrears.
INTEREST RATES: At the Borrower's option:
(1) Base Rate + Applicable Base Rate Margin; or
(2) LIBOR Rate + Applicable LIBOR Rate Margin for 1, 2,
3 or 6 month interest periods.
No more than 8 LIBOR Rate loans shall be outstanding at
any time.
The Base Rate is defined as the higher of (i) the
applicable prime rate of First Union and (ii) the
federal funds rate + 1/2 of 1%.
LIBOR Rate is defined as the London Interbank Offered
Rate ("LIBOR") as shown on Telerate page 3750 for 1, 2,
3, or 6 months adjusted for reserves, if any.
The Applicable Base Rate Margin and the Applicable LIBOR
Rate Margin are equal to the respective percentages set
forth in the Pricing Grid below.
Interest in respect of Base Rate loans shall be payable
quarterly in arrears. Interest in respect of LIBOR Rate
loans shall be payable at the end of the applicable
Interest Period, but not less frequently than quarterly.
All interest and fees will be calculated on the basis of
the number of actual days elapsed in a 360 day year.
A penalty rate shall apply on all loans in the event of
default at a rate per annum of 2% above the applicable
interest rate.
PRICING GRID: For the period commencing on the Closing Date through
the first calculation date occurring after the fiscal
quarter ended September 30, 1998, the Applicable LIBOR
Rate Margin shall be 1.0%, the Applicable Base Rate
Margin shall be 0% and the Applicable Unused Fee
Percentage shall be 0.25%. Thereafter, the Applicable
LIBOR Margin, the Applicable Base Rate Margin and the
11
<PAGE>
Applicable Unused Fee shall be calculated quarterly as
set forth below based upon the Borrower's ratio of Total
Funded Debt to EBITDA (calculated on a rolling four
quarter basis):
<TABLE>
<CAPTION>
Applicable Applicable Applicable
Total LIBOR Base Rate Unused
Funded Debt/EBITDA Rate Margin Margin Fee Percentage
------------------ ----------- ---------- --------------
<S> <C> <C> <C>
Greater than 3.0 to 1.0 1.375% 0% 0.375%
---------------------------------------------------------------------------------------------------------------
Greater than 2.5 to 1.0 but less than or equal to 3.0 to 1.0 1.125% 0% 0.250%
---------------------------------------------------------------------------------------------------------------
Greater than 2.0 to 1.0 but less than or equal to 2.5 to 1.0 1.000% 0% 0.250%
---------------------------------------------------------------------------------------------------------------
Less than or equal to 2.0 to 1.0 0.875% 0% 0.250%
---------------------------------------------------------------------------------------------------------------
</TABLE>
LETTER OF
CREDIT FEES: The Borrower shall pay a per annum standby letter of
credit fee on the outstanding amount of all standby
letters of credit. The applicable standby letter of
credit fee shall be the percentage set forth for the
LIBOR Rate Margin in the Pricing Grid above. The standby
letter of credit fee shall be due monthly in arrears and
shared proportionately by the Lenders.
In addition, the Borrower shall pay the Agent for its
own account a per annum facing fee of 0.25% on the
outstanding amount of all standby letters of credit. The
standby letter of credit facing fee shall be due monthly
in arrears.
COSTS AND YIELD
PROTECTION: Usual for transactions and facilities of this type,
including, without limitation, in respect of
prepayments, changes in capital adequacy and capital
requirements or their interpretation, illegality,
unavailability, reserves without proration or offset.
12
<PAGE>
ADDENDUM II
DEFINED TERMS
================================================================================
"Asset Sales": The disposition (other than a sale or disposition of new or
used equipment held for resale made in the ordinary course of business) of any
or all of the assets (including without limitation the Capital Stock of a
Subsidiary) of the Borrower or any of its Subsidiaries whether by sale, lease,
transfer or otherwise. Asset Sales will also exclude (i) sales of rental
equipment so long as such equipment is replaced within 180 days, (ii) sales of
non-rental equipment so long as such equipment is replaced within 90 days and
(iii) sales of fixed assets not to exceed $5 million in the aggregate in any
fiscal year.
"Change of Control": Any of the following events: (1) any person or group
of persons (within the meaning of Section 13 or 14 of the Securities Exchange
Act of 1934, as amended), other than Golder, Thoma, Cressey, Rauner, Inc. (or
any of its affiliates), shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission
under said Act) of 10% or more in voting power of the outstanding capital stock
of the Borrower or (2) during any period of twelve consecutive months,
individuals who were directors of the Borrower on the first day of such period
shall cease to constitute a majority of the board of directors of the Borrower
other than because of the replacement as a result of death or disability of one
or more such directors.
"EBITDA": For any quarterly period of determination, net income of the
Borrower and its subsidiaries before deducting interest expense, taxes,
depreciation and amortization and without giving effect to nonrecurring charges
and extraordinary cash losses or gains.
"Fixed Charge Coverage Ratio": For any quarterly period of determination,
the ratio of (1) EBITDA minus cash taxes and cash dividends minus non-rental
fleet capital expenditures, to (2) the sum of all scheduled payments of
principal on Total Funded Debt and all cash interest expense related thereto.
"Total Funded Debt": All debt for borrowed money, notes, bonds or other
instruments, guarantees, letters of credit and bankers' acceptances, obligations
under conditional sales or other title retention agreements, and obligations
issued or assumed as the deferred purchase price of property or services of the
Borrower and its subsidiaries.
"Total Senior Funded Debt": All Total Funded Debt of the Borrower and its
subsidiaries excluding the 10% Senior Subordinated Notes Due 2004 of the
Borrower and any other subordinated debt of the Borrower and its subsidiaries
permitted under the Credit Agreement or approved by the Required Lenders.
13
<PAGE>
May 14, 1998
National Equipment Services, Inc.
1800 Sherman Avenue, Suite 100
Evanston, Illinois 60201
Attention: Mr. Paul Ingersoll
Vice President,
Secretary
Dear Paul:
Reference is hereby made to the Commitment Letter dated May 14, 1998 for
the Credit Facility referred to therein to National Equipment Services, Inc.
(the "Company") provided by the undersigned. Capitalized terms not defined
herein shall have the meanings assigned to such terms in the Commitment Letter.
First Union and FUCM hereby consent to your disclosure to the underwriters
for the IPO and to potential investors in the IPO of the contents of the
Commitment Letter and Term Sheet and the inclusion thereof in the SEC filings
for the IPO. The terms of the related Fee Letter remain confidential subject to
the terms thereof.
Very truly yours,
FIRST UNION CAPITAL MARKETS,
a Division of Wheat First Securities, Inc.
By:/s/ Theodore Heldring
---------------------------------------
Title:
------------------------------------
Date: May 14, 1998
-------------------------------------
FIRST UNION NATIONAL BANK
By:/s/ Eric Butler
---------------------------------------
Title:
------------------------------------
Date: May 14, 1998
-------------------------------------
<PAGE>
Exhibit 10.35
-------------
NATIONAL EQUIPMENT SERVICES, INC.
1998 LONG TERM INCENTIVE PLAN
---------------------------------------
1. Purpose.
-------
This plan shall be known as the National Equipment Services, Inc. 1998
Long Term Incentive Plan (the "Plan"). The purpose of this Plan shall be to
promote the long term growth and profitability of National Equipment Services,
Inc. (the "Company") and its Subsidiaries by (i) providing certain directors,
officers and key employees of, and certain other key individuals who perform
services for, the Company and its Subsidiaries with incentives to maximize
stockholder value and otherwise contribute to the success of the Company and
(ii) enabling the Company to attract, retain and reward the best available
persons for positions of substantial responsibility. Grants of incentive or
nonqualified stock options, stock appreciation rights ("SARs"), either alone or
in tandem with options, restricted stock, performance awards, or any combination
of the foregoing may be made under this Plan.
2. Definitions.
-----------
(a) "Board of Directors" and "Board" mean the board of directors of
the Company.
(b) "Cause" means the occurrence of one of the following events: (i)
conviction of a felony or any crime or offense lesser than a felony involving
the property of the Company or a Subsidiary; (ii) conduct that has caused
demonstrable and serious injury to the Company or a Subsidiary, monetary or
otherwise; (iii) willful refusal to perform or substantial disregard of duties
properly assigned, as determined by the Company; or (iv) breach of duty of
loyalty to the Company or a Subsidiary or other act of fraud or dishonesty with
respect to the Company or a Subsidiary.
(c) "Change in Control" means the occurrence of one of the following
events:
(i) if any "person" or "group" as those terms are used in
Sections 13(d) and 14(d) of the Exchange Act is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities;
(ii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board and any new directors
whose election by the Board or nomination for election by the Company's
stockholders was approved by at least two-thirds of the directors then
still in office who either were directors at the beginning of the period or
whose election was previously so approved, cease for any reason to
constitute a majority thereof;
<PAGE>
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation (A) which would result in all or a portion of the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than 50% of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation
or (B) by which the corporate existence of the Company is not affected and
following which the Company's chief executive officer and directors retain
their positions with the Company (and constitute at least a majority of the
Board); or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all the Company's assets.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the Compensation Committee of the Board. The
membership of the Committee shall be constituted so as to comply at all times
with the applicable requirements of Rule 16b-3 under the Exchange Act and
Section 162(m) of the Code.
(f) "Common Stock" means the Common Stock, par value $.01 per share,
of the Company, and any other shares into which such stock may be changed by
reason of a recapitalization, reorganization, merger, consolidation or any other
change in the corporate structure or capital stock of the Company.
(g) "Competition" is deemed to occur if a person whose employment
with the Company or its Subsidiaries has terminated obtains a position as a
full-time or part-time employee of, as a member of the board of directors of, or
as a consultant or advisor with or to, or acquires an ownership interest in
excess of 5% of, a corporation, partnership, firm or other entity that engages
in any of the businesses of the Company or any Subsidiary with which the person
was involved in a management role at any time during his or her last five years
of employment with or other service for the Company or any Subsidiary.
(h) "Disability" means (i) a disability that would entitle an
eligible participant to payment of disability payments under any Company
disability plan or (ii) a disability otherwise approved by the Committee.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" of a share of Common Stock of the Company
means, with respect to the date in question, the officially-quoted closing
selling price of the stock (or if no selling price is quoted, the bid price) on
the principal securities exchange on which the Common Stock is then listed for
trading (including for this purpose the Nasdaq National Market) (the "Market")
for the immediately preceding trading day or, if the Common Stock is not then
listed or
-2-
<PAGE>
quoted in the Market, the Fair Market Value shall be the fair value of the
Common Stock determined in good faith by the Board; provided, however, that when
shares received upon exercise of an option are immediately sold in the open
market, the Committee may use the net sale price received to determine the Fair
Market Value of any shares used to pay the exercise price or withholding taxes
and to compute the withholding taxes.
(k) "Incentive Stock Option" means an option conforming to the
requirements of Section 422 of the Code and any successor thereto.
(l) "Non-Employee Director" has the meaning given to such term in
Rule 16b-3 under the Exchange Act.
(m) "Nonqualified Stock Option" means any stock option other than an
Incentive Stock Option.
(n) "Other Company Securities" mean securities of the Company other
than Common Stock, which may include, without limitation, unbundled stock units
or components thereof, debentures, preferred stock, warrants and securities
convertible into or exchangeable for Common Stock or other property.
(p) "Person" means a natural person, partnership (whether general or
limited), limited liability company, trust, estate, association, corporation,
custodian, nominee or any other individual or entity in its own or any
representative capacity.
(o) "Retirement" means retirement as defined under any Company
pension plan or retirement program or termination of one's employment on
retirement with the approval of the Committee.
(p) "Subsidiary" means a corporation or other entity of which
outstanding shares or ownership interests representing 50% or more of the
combined voting power of such corporation or other entity entitled to elect the
management thereof, or such lesser percentage as may be approved by the
Committee, are owned directly or indirectly by the Company.
3. Administration.
--------------
This Plan shall be administered by the Committee; provided that the
Board may, in its discretion, at any time and from time to time, resolve to
administer this Plan, in which case the term "Committee" shall be deemed to mean
the Board for all purposes herein. The Committee shall consist of at least two
Non-Employee Directors (unless the Committee consists of the entire Board).
Subject to the provisions of this Plan, the Committee shall be authorized to (i)
select persons to participate in this Plan, (ii) determine the form and
substance of grants made under this Plan to each participant, and the conditions
and restrictions, if any, subject to which such grants will be made, (iii)
modify the terms of grants made under this Plan, (iv) interpret this Plan and
grants made thereunder, and (v) adopt, amend, or rescind such rules and
regulations, and make such other determinations, for carrying out this Plan as
it may deem appropriate. Decisions of the Committee
-3-
<PAGE>
on all matters relating to this Plan shall be in the Committee's sole discretion
and shall be conclusive and binding on all parties. The validity, construction,
and effect of this Plan and any rules and regulations relating to this Plan
shall be determined in accordance with applicable federal and state laws and
rules and regulations promulgated pursuant thereto. No member of the Committee
and no officer or other director of the Company shall be liable for any action
taken or omitted to be taken by such member, by any other member of the
Committee or by any officer or other director of the Company in connection with
the performance of duties under this Plan, except for such person's own willful
misconduct or as expressly provided by statute.
The expenses of this Plan shall be borne by the Company. This Plan
shall not be required to establish any special or separate fund or make any
other segregation of assets to assume the payment of any award under this Plan,
and rights to the payment of such awards shall be no greater than the rights of
the Company's general creditors.
4. Shares Available for this Plan.
------------------------------
Subject to adjustments as provided in Section 15, an aggregate of
3,150,000 shares of Common Stock (the "Shares") may be issued pursuant to this
Plan. Such Shares may be in whole or in part authorized and unissued, or shares
which are held by the Company as treasury shares. If any grant under this Plan
expires or terminates unexercised, becomes unexercisable or is forfeited as to
any Shares, such unpurchased or forfeited Shares shall thereafter be available
for further grants under this Plan unless, in the case of options granted under
this Plan, related SARs are exercised.
Without limiting the generality of the foregoing provisions of this
Section 4 or the generality of the provisions of Sections 3, 6 or 17 or any
other section of this Plan, the Committee may, at any time or from time to time,
and on such terms and conditions (that are consistent with and not in
contravention of the other provisions of this Plan) as the Committee may, in its
sole discretion, determine, enter into agreements (or take other actions with
respect to the options) for new options containing terms (including exercise
prices) more (or less) favorable than the outstanding options.
5. Participation.
-------------
Participation in this Plan shall be limited to those directors
(including Non-Employee Directors), officers and key employees of, and other key
individuals performing services for, the Company and its Subsidiaries selected
by the Committee. Nothing in this Plan or in any grant thereunder shall confer
any right on a participant to continue in the employ of or the performance of
services for the Company or shall interfere in any way with the right of the
Company to terminate the employment or performance of services of a participant
at any time. By accepting any award under this Plan, each participant and each
person claiming under or through him or her shall be conclusively deemed to have
indicated his or her acceptance and ratification of, and consent to, any action
taken under this Plan by the Company, the Board or the Committee.
Incentive Stock Options or Nonqualified Stock Options, SARs , alone or
in tandem with options, restricted stock awards, performance awards, or any
combination thereof, may be granted to such persons and for such number of
Shares as the Committee shall determine (such
-4-
<PAGE>
individuals to whom grants are made being sometimes herein called "optionees" or
"grantees," as the case may be). Determinations made by the Committee under this
Plan need not be uniform and may be made selectively among eligible individuals
under this Plan, whether or not such individuals are similarly situated. A grant
of any type made hereunder in any one year to an eligible participant shall
neither guarantee nor preclude a further grant of that or any other type to such
participant in that year or subsequent years.
6. Incentive and Nonqualified Options.
----------------------------------
The Committee may from time to time grant to eligible participants
Incentive Stock Options, Nonqualified Stock Options, or any combination thereof;
provided that the Committee may grant Incentive Stock Options only to eligible
employees of the Company or its subsidiaries (as defined for this purpose in
Section 424(f) of the Code). In any one calendar year, the Committee shall not
grant to any one participant, options or SARs to purchase a number of shares of
Common Stock in excess of 500,000 (as adjusted from time to time pursuant to
Section 15). The options granted shall take such form as the Committee shall
determine, subject to the following terms and conditions.
It is the Company's intent that Nonqualified Stock Options granted
under this Plan not be classified as Incentive Stock Options, that Incentive
Stock Options be consistent with and contain or be deemed to contain all
provisions required under Section 422 of the Code and any successor thereto, and
that any ambiguities in construction be interpreted in order to effectuate such
intent. If an Incentive Stock Option granted under this Plan does not qualify
as such for any reason, then to the extent of such nonqualification, the stock
option represented thereby shall be regarded as a Nonqualified Stock Option duly
granted under this Plan, provided that such stock option otherwise meets this
Plan's requirements for Nonqualified Stock Options.
(a) Price. The price per Share deliverable upon the exercise of each
option ("exercise price") shall be established by the Committee, except that in
the case of the grant of any Incentive Stock Option, the exercise price may not
be less than 100% of the Fair Market Value of a share of Common Stock as of the
date of grant of the option, and in the case of the grant of any Incentive Stock
Option to an employee who, at the time of the grant, owns more than 10% of the
total combined voting power of all classes of stock of the Company or any of its
Subsidiaries, the exercise price may not be less that 110% of the Fair Market
Value of a share of Common Stock as of the date of grant of the option, in each
case unless otherwise permitted by Section 422 of the Code.
(b) Payment. Options may be exercised, in whole or in part, upon
payment of the exercise price of the Shares to be acquired. Unless otherwise
determined by the Committee, payment shall be made (i) in cash (including check,
bank draft or money order), (ii) by delivery of outstanding shares of Common
Stock with a Fair Market Value on the date of exercise equal to the aggregate
exercise price payable with respect to the options' exercise, (iii) by
simultaneous sale through a broker reasonably acceptable to the Committee of
Shares acquired on exercise, as permitted under Regulation T of the Federal
Reserve Board, (iv) by authorizing the Company to withhold from issuance a
number of Shares issuable upon exercise of the options which, when multiplied by
the
-5-
<PAGE>
Fair Market Value of a share of Common Stock on the date of exercise is equal to
the aggregate exercise price payable with respect to the options so exercised or
(v) by any combination of the foregoing. Options may also be exercised upon
payment of the exercise price of the Shares to be acquired by delivery of the
optionee's promissory note, but only to the extent specifically approved by and
in accordance with the policies of the Committee.
In the event a grantee elects to pay the exercise price payable with
respect to an option pursuant to clause (ii) above, (A) only a whole number of
share(s) of Common Stock (and not fractional shares of Common Stock) may be
tendered in payment, (B) such grantee must present evidence acceptable to the
Company that he or she has owned any such shares of Common Stock tendered in
payment of the exercise price (and that such tendered shares of Common Stock
have not been subject to any substantial risk of forfeiture) for at least six
months prior to the date of exercise, and (C) Common Stock must be delivered to
the Company. Delivery for this purpose may, at the election of the grantee, be
made either by (A) physical delivery of the certificate(s) for all such shares
of Common Stock tendered in payment of the price, accompanied by duly executed
instruments of transfer in a form acceptable to the Company, or (B) direction to
the grantee's broker to transfer, by book entry, such shares of Common Stock
from a brokerage account of the grantee to a brokerage account specified by the
Company. When payment of the exercise price is made by delivery of Common
Stock, the difference, if any, between the aggregate exercise price payable with
respect to the option being exercised and the Fair Market Value of the share(s)
of Common Stock tendered in payment (plus any applicable taxes) shall be paid in
cash. No grantee may tender shares of Common Stock having a Fair Market Value
exceeding the aggregate exercise price payable with respect to the option being
exercised (plus any applicable taxes).
In the event a grantee elects to pay the exercise price payable with
respect to an option pursuant to clause (iv) above, (A) only a whole number of
Share(s) (and not fractional Shares) may be withheld in payment and (B) such
grantee must present evidence acceptable to the Company that he or she has owned
a number of shares of Common Stock at least equal to the number of Shares to be
withheld in payment of the exercise price (and that such owned shares of Common
Stock have not been subject to any substantial risk of forfeiture) for at least
six months prior to the date of exercise. When payment of the exercise price is
made by withholding of Shares, the difference, if any, between the aggregate
exercise price payable with respect to the option being exercised and the Fair
Market Value of the Share(s) withheld in payment (plus any applicable taxes)
shall be paid in cash. No grantee may authorize the withholding of Shares
having a Fair Market Value exceeding the aggregate exercise price payable with
respect to the option being exercised (plus any applicable taxes). Any withheld
Shares shall no longer be issuable under such option.
(c) Terms of Options. The term during which each option may be
exercised shall be determined by the Committee, but, except as otherwise
provided herein, in no event shall an option be exercisable in whole or in part
(i) in the case of a Nonqualified Stock Option or an Incentive Stock Option
(other than as described below), more than ten years and one day from the date
it is granted or (ii) in the case of an Incentive Stock Option, ten years from
the date it is granted; provided, that, in the case of an Incentive Stock Option
granted to an employee who at the time of the grant owns more than 10% of the
total combined voting power of all classes of stock of the Company or any of its
Subsidiaries, in no event shall such option be exercisable, if required by the
-6-
<PAGE>
Code, more than five years from the date it is granted. All rights to purchase
Shares pursuant to an option shall, unless sooner terminated, expire at the date
designated by the Committee. The Committee shall determine the date on which
each option shall become exercisable and may provide that an option shall become
exercisable in installments. The Shares constituting each installment may be
purchased in whole or in part at any time after such installment becomes
exercisable, subject to such minimum exercise requirements as may be designated
by the Committee. Unless otherwise provided herein or in the terms of the
related grant, an optionee may exercise an option only if he or she is, and has
been continuously since the date the option was granted, a director, officer or
employee of, or performed other services for, the Company or a Subsidiary. Prior
to the exercise of an option and delivery of the Shares represented thereby, the
optionee shall have no rights as a stockholder with respect to any Shares
covered by such outstanding option (including any dividend or voting rights).
(d) Limitations on Grants. If required by the Code, the aggregate
Fair Market Value (determined as of the grant date) of Shares for which an
Incentive Stock Option is exercisable for the first time during any calendar
year under all equity incentive plans of the Company and its Subsidiaries (as
defined in Section 422 of the Code) may not exceed $100,000.
(e) Termination of Employment; Change in Control.
(i) If a participant ceases to be a director, officer or
employee of, or to perform other services for, the Company or any
Subsidiary due to death or Disability, all of the participant's options and
SARs shall become fully vested and exercisable and shall remain so for a
period of one year from the date of such death or Disability, but in no
event after the expiration date of the options or SARs. Notwithstanding the
foregoing, if the Disability giving rise to the termination of employment
is not within the meaning of Section 422(e)(3) of the Code, Incentive Stock
Options not exercised by such participant within 90 days after the date of
termination of employment will cease to qualify as Incentive Stock Options
and will be treated as Nonqualified Stock Options under this Plan if
required to be so treated under the Code.
(ii) If a participant ceases to be a director, officer or
employee of, or to perform other services for, the Company or any
Subsidiary upon the occurrence of his or her Retirement, (A) all of the
participant's options and SARs that were exercisable on the date of
Retirement shall remain exercisable for, and shall otherwise terminate at
the end of, a period of up to three years after the date of Retirement, but
in no event after the expiration date of the options or SARs; provided that
the participant does not engage in Competition during such three-year
period unless he or she receives written consent to do so from the Board or
the Committee, and (B) all of the participant's options and SARs that were
not exercisable on the date of Retirement shall be forfeited immediately
upon such cessation. Notwithstanding the foregoing, Incentive Stock Options
not exercised by such participant within 90 days after Retirement will
cease to qualify as Incentive Stock Options and will be treated as
Nonqualified Stock Options under this Plan if required to be so treated
under the Code.
-7-
<PAGE>
(iii) If a participant ceases to be a director, officer or
employee of, or to perform other services for, the Company or a Subsidiary
due to Cause, all of the participant's options and SARs shall be forfeited
immediately upon such cessation, whether or not then exercisable.
(iv) Unless otherwise determined by the Committee, if a
participant ceases to be a director, officer or employee of, or to
otherwise perform services for, the Company or a Subsidiary for any reason
other than death, Disability, Retirement or Cause, (A) all of the
participant's options and SARs that were exercisable on the date of such
cessation shall remain exercisable for, and shall otherwise terminate at
the end of, a period of 90 days after the date of such cessation, but in no
event after the expiration date of the options or SARs; provided that the
participant does not engage in Competition during such 90-day period unless
he or she receives written consent to do so from the Board or the
Committee, and (B) all of the participant's options and SARs that were not
exercisable on the date of such cessation shall be forfeited immediately
upon such cessation.
(v) If there is a Change in Control of the Company, all of the
participant's options and SARs shall become fully vested and exercisable
immediately prior to such Change in Control and shall remain so until the
expiration date of the options and SARs.
(f) Grant of Reload Options. The Committee may provide (either at
the time of grant or exercise of an option), in its discretion, for the grant to
a grantee who exercises all or any portion of an option ("Exercised Options")
and who pays all or part of such exercise price with shares of Common Stock, of
an additional option (a "Reload Option") for a number of shares of Common Stock
equal to the sum (the "Reload Number") of the number of shares of Common Stock
tendered or withheld in payment of such exercise price for the Exercised Options
plus, if so provided by the Committee, the number of shares of Common Stock, if
any, tendered or withheld by the grantee or withheld by the Company in
connection with the exercise of the Exercised Options to satisfy any federal,
state or local tax withholding requirements. The terms of each Reload Option,
including the date of its expiration and the terms and conditions of its
exercisability and transferability, shall be the same as the terms of the
Exercised Option to which it relates, except that (i) the grant date for each
Reload Option shall be the date of exercise of the Exercised Option to which it
relates and (ii) the exercise price for each Reload Option shall be the Fair
Market Value of the Common Stock on the grant date of the Reload Option.
7. Stock Appreciation Rights.
-------------------------
The Committee shall have the authority to grant SARs under this Plan,
either alone or to any optionee in tandem with options (either at the time of
grant of the related option or thereafter by amendment to an outstanding
option). SARs shall be subject to such terms and conditions as the Committee
may specify.
No SAR may be exercised unless the Fair Market Value of a share of
Common Stock of the Company on the date of exercise exceeds the exercise price
of the SAR or, in the case of SARs granted in tandem with options, any options
to which the SARs correspond. Prior to the exercise
-8-
<PAGE>
of the SAR and delivery of the cash and/or Shares represented thereby, the
participant shall have no rights as a stockholder with respect to Shares covered
by such outstanding SAR (including any dividend or voting rights).
SARs granted in tandem with options shall be exercisable only when, to
the extent and on the conditions that any related option is exercisable. The
exercise of an option shall result in an immediate forfeiture of any related SAR
to the extent the option is exercised, and the exercise of an SAR shall cause an
immediate forfeiture of any related option to the extent the SAR is exercised.
Upon the exercise of an SAR, the participant shall be entitled to a
distribution in an amount equal to the difference between the Fair Market Value
of a share of Common Stock of the Company on the date of exercise and the
exercise price of the SAR or, in the case of SARs granted in tandem with
options, any option to which the SAR is related, multiplied by the number of
Shares as to which the SAR is exercised. The Committee shall decide whether
such distribution shall be in cash, in Shares having a Fair Market Value equal
to such amount, in Other Company Securities having a Fair Market Value equal to
such amount or in a combination thereof.
All SARs will be exercised automatically on the last day prior to the
expiration date of the SAR or, in the case of SARs granted in tandem with
options, any related option, so long as the Fair Market Value of a share of the
Company's Common Stock on that date exceeds the exercise price of the SAR or any
related option, as applicable. An SAR granted in tandem with options shall
expire at the same time as any related option expires and shall be transferable
only when, and under the same conditions as, any related option is transferable.
8. Restricted Stock.
----------------
The Committee may at any time and from time to time grant Shares of
restricted stock under this Plan to such participants and in such amounts as it
determines. Each grant of restricted stock shall specify the applicable
restrictions on such Shares, the duration of such restrictions (which shall be
at least six months except as otherwise provided in the third paragraph of this
Section 8), and the time or times at which such restrictions shall lapse with
respect to all or a specified number of Shares that are part of the grant.
The participant will be required to pay the Company the aggregate par
value of any Shares of restricted stock (or such larger amount as the Board may
determine to constitute capital under Section 154 of the Delaware General
Corporation Law, as amended) within ten days of the date of grant, unless such
Shares of restricted stock are treasury shares. Unless otherwise determined by
the Committee, certificates representing Shares of restricted stock granted
under this Plan will be held in escrow by the Company on the participant's
behalf during any period of restriction thereon and will bear an appropriate
legend specifying the applicable restrictions thereon, and the participant will
be required to execute a blank stock power therefor. Except as otherwise
provided by the Committee, during such period of restriction the participant
shall have all of the rights of a holder of Common Stock, including but not
limited to the rights to receive dividends and to vote, and any
-9-
<PAGE>
stock or other securities received as a distribution with respect to such
participant's restricted stock shall be subject to the same restrictions as then
in effect for the restricted stock.
Except as otherwise provided by the Committee, immediately prior to a
Change in Control or at such time as a participant ceases to be a director,
officer or employee of, or to otherwise perform services for, the Company and
its Subsidiaries due to death, Disability or Retirement during any period of
restriction, all restrictions on Shares granted to such participant shall lapse.
At such time as a participant ceases to be a director, officer or employee of,
or to otherwise perform services for, the Company or its Subsidiaries for any
other reason, all Shares of restricted stock granted to such participant on
which the restrictions have not lapsed shall be immediately forfeited to the
Company.
9. Performance Awards.
------------------
Performance awards may be granted on a contingent basis to
participants at any time and from time to time as determined by the Committee.
The Committee shall have complete discretion in determining the size and
composition of performance awards so granted to a participant and the
appropriate period over which performance is to be measured (a "performance
cycle"). Performance awards may include (i) specific dollar-value target awards
(ii) performance units, the value of each such unit being determined by the
Committee at the time of issuance, and/or (iii) performance Shares, the value of
each such Share being equal to the Fair Market Value of a share of the Company's
Common Stock.
The value of each performance award may be fixed or it may be
permitted to fluctuate based on a performance factor (e.g., return on equity)
selected by the Committee.
The Committee shall establish performance goals and objectives for
each performance cycle on the basis of such criteria and objectives as the
Committee may select from time to time, including, without limitation, the
performance of the participant, the Company, one or more of its Subsidiaries or
divisions or any combination of the foregoing. During any performance cycle,
the Committee shall have the authority to adjust the performance goals and
objectives for such cycle for such reasons as it deems equitable.
The Committee shall determine the portion of each performance award
that is earned by a participant on the basis of the Company's performance over
the performance cycle in relation to the performance goals for such cycle. The
earned portion of a performance award may be paid out in Shares, cash, Other
Company Securities, or any combination thereof, as the Committee may determine.
A participant must be a director, officer or employee of, or otherwise
perform services for, the Company or its Subsidiaries at the end of the
performance cycle in order to be entitled to payment of a performance award
issued in respect of such cycle; provided, however, that, except as otherwise
determined by the Committee, if a participant ceases to be a director, officer
or employee of, or to otherwise perform services for, the Company and its
Subsidiaries upon his or her death, Retirement, or Disability prior to the end
of the performance cycle, the participant shall earn a
-10-
<PAGE>
proportionate portion of the performance award based upon the elapsed portion of
the performance cycle and the Company's performance over that portion of such
cycle.
In the event of a Change in Control, a participant shall earn no less
than the portion of the performance award that the participant would have earned
if the performance cycle(s) had terminated as of the date of the Change in
Control.
10. Withholding Taxes.
-----------------
(a) Participant Election. Unless otherwise determined by the
Committee, a participant may elect to deliver shares of Common Stock (or have
the Company withhold shares acquired upon exercise of an option or SAR or
deliverable upon grant or vesting of restricted stock, as the case may be) to
satisfy, in whole or in part, the amount the Company is required to withhold for
taxes in connection with the exercise of an option or SAR or the delivery of
restricted stock upon grant or vesting, as the case may be. Such election must
be made on or before the date the amount of tax to be withheld is determined.
Once made, the election shall be irrevocable. The fair market value of the
shares to be withheld or delivered will be the Fair Market Value as of the date
the amount of tax to be withheld is determined. In the event a participant
elects to deliver shares of Common Stock pursuant to this Section 10(a), such
delivery must be made subject to the conditions and pursuant to the procedures
set forth in Section 6(b) with respect to the delivery of Common Stock in
payment of the exercise price of options.
(b) Company Requirement. The Company may require, as a condition to
any grant or exercise under this Plan or to the delivery of certificates for
Shares issued hereunder, that the grantee make provision for the payment to the
Company, either pursuant to Section 10(a) or this Section 10(b), of any federal,
state or local taxes of any kind required by law to be withheld with respect to
any grant or any delivery of Shares. The Company, to the extent permitted or
required by law, shall have the right to deduct from any payment of any kind
(including salary or bonus) otherwise due to a grantee, an amount equal to any
federal, state or local taxes of any kind required by law to be withheld with
respect to any grant or to the delivery of Shares under this Plan, or to retain
or sell without notice a sufficient number of the Shares to be issued to such
grantee to cover any such taxes, the payment of which has not otherwise been
provided for in accordance with the terms of this Plan; provided that the
Company shall not sell any such Shares if such sale would be considered a sale
by such grantee for purposes of Section 16 of the Exchange Act that is not
exempt from matching thereunder.
11. Written Agreement; Vesting.
--------------------------
Each employee to whom a grant is made under this Plan shall enter into
a written agreement with the Company that shall contain such provisions,
including without limitation vesting requirements, consistent with the
provisions of this Plan, as may be approved by the Committee. Unless the
Committee determines otherwise and except as otherwise provided in Sections 6,
7, 8 and 9 in connection with a Change of Control or certain occurrences of
termination, no grant under this Plan may be exercised, and no restrictions
relating thereto may lapse, within six months of the date such grant is made.
-11-
<PAGE>
12. Transferability.
---------------
Unless the Committee determines otherwise, no option, SAR, performance
award, or restricted stock granted under this Plan shall be transferable by a
participant otherwise than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code. Unless
the Committee determines otherwise, an option, SAR, or performance award may be
exercised only by the optionee or grantee thereof or his guardian or legal
representative; provided that Incentive Stock Options may be exercised by such
guardian or legal representative only if permitted by the Code and any
regulations promulgated thereunder.
13. Listing, Registration and Qualification.
---------------------------------------
If the Committee determines that the listing, registration or
qualification upon any securities exchange or under any law of Shares subject to
any option, SAR, performance award or restricted stock grant is necessary or
desirable as a condition of, or in connection with, the granting of same or the
issue or purchase of Shares thereunder, no such option or SAR may be exercised
in whole or in part, no such performance award may be paid out and no Shares may
be issued unless such listing, registration or qualification is effected free of
any conditions not acceptable to the Committee.
It is the intent of the Company that this Plan comply in all respects
with Section 162(m) of the Code, that awards made hereunder comply in all
respects with Rule 16b-3 under the Exchange Act, that any ambiguities or
inconsistencies in construction of this Plan be interpreted to give effect to
such intention and that if any provision of this Plan is found not to be in
compliance with Section 162(m), such provision shall be deemed null and void to
the extent required to permit this Plan to comply with Section 162(m), as the
case may be.
14. Transfer of Employee.
--------------------
The transfer of an employee from the Company to a Subsidiary, from a
Subsidiary to the Company, or from one Subsidiary to another shall not be
considered a termination of employment; nor shall it be considered a termination
of employment if an employee is placed on military or sick leave or such other
leave of absence which is considered by the Committee as continuing intact the
employment relationship.
15. Adjustments.
-----------
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of assets,
or any other change in the corporate structure or shares of the Company, the
Committee shall make such adjustment as it deems appropriate in the number and
kind of Shares or other property reserved for issuance under this Plan, in the
number and kind of Shares or other property covered by grants previously made
under this Plan, and in the exercise price of outstanding options and SARs. Any
such adjustment shall be final, conclusive and binding for all purposes of this
Plan. In the event of any merger, consolidation or other reorganization in
which the Company is not the surviving or continuing corporation or in
-12-
<PAGE>
which a Change in Control is to occur, all of the Company's obligations
regarding options, SARs performance awards, and restricted stock that were
granted hereunder and that are outstanding on the date of such event shall, on
such terms as may be approved by the Committee prior to such event, be assumed
by the surviving or continuing corporation or canceled in exchange for property
(including cash).
Without limitation of the foregoing, in connection with any
transaction of the type specified by clause (iii) of the definition of a Change
in Control in Section 2(c), the Committee may, in its discretion, (i) cancel any
or all outstanding options under this Plan in consideration for payment to the
holders thereof of an amount equal to the portion of the consideration that
would have been payable to such holders pursuant to such transaction if their
options had been fully exercised immediately prior to such transaction, less the
aggregate exercise price that would have been payable therefor, or (ii) if the
amount that would have been payable to the option holders pursuant to such
transaction if their options had been fully exercised immediately prior thereto
would be less than the aggregate exercise price that would have been payable
therefor, cancel any or all such options for no consideration or payment of any
kind. Payment of any amount payable pursuant to the preceding sentence may be
made in cash or, in the event that the consideration to be received in such
transaction includes securities or other property, in cash and/or securities or
other property in the Committee's discretion.
16. Termination and Modification of this Plan.
-----------------------------------------
The Board of Directors or the Committee, without further approval of
the stockholders, may modify or terminate this Plan, except that no modification
shall become effective without prior approval of the stockholders of the Company
if stockholder approval would be required for continued compliance with the
performance-based compensation exception of Section 162(m) of the Code or any
listing requirement of the principal stock exchange on which the Common Stock is
then listed.
17. Amendment or Substitution of Awards under this Plan.
---------------------------------------------------
The terms of any outstanding award under this Plan may be amended from
time to time by the Committee in its discretion in any manner that it deems
appropriate (including, but not limited to, acceleration of the date of exercise
of any award and/or payments thereunder or of the date of lapse of restrictions
on Shares); provided that, except as otherwise provided in Section 15, no such
amendment shall adversely affect in a material manner any right of a participant
under the award without his or her written consent. The Committee may, in its
discretion, permit holders of awards under this Plan to surrender outstanding
awards in order to exercise or realize rights under other awards, or in exchange
for the grant of new awards, or require holders of awards to surrender
outstanding awards as a condition precedent to the grant of new awards under
this Plan.
18. Commencement Date; Termination Date.
-----------------------------------
The date of commencement of this Plan shall be May 15, 1998, subject
to approval by the shareholders of the Company. Unless previously terminated
upon the adoption of a resolution
-13-
<PAGE>
of the Board terminating this Plan, this Plan shall terminate at the close of
business on May 15, 2008; provided that the Board may, prior to such
termination, extend the term of this Plan for up to five years for the grant of
awards other than Incentive Stock Options. No termination of this Plan shall
materially and adversely affect any of the rights or obligations of any person,
without his or her consent, under any grant of options or other incentives
theretofore granted under this Plan.
19. Governing Law.
-------------
The corporate laws of the State of Delaware will govern all questions
concerning this Plan to the extent such laws are applicable to this Plan. All
other questions concerning the construction, validity and interpretation of this
Plan will be governed by and construed in accordance with the domestic laws of
the State of Illinois, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of Illinois or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Illinois.
-14-
<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 $23,377
Fixed charges:
Interest expense on all indebtedness 0 4,545 15,857
Rental expense representative of an interest factor 0 220 1,105
----- ------ -------
Total fixed charges 0 4,765 16,962
----- ------ -------
Earnings before income taxes and fixed charges $(332) $6,688 $40,339
===== ====== =======
Ratio of earnings to fixed charges (A) 1.40 2.38
===== ====== =======
<CAPTION>
For the Pro Forma
Three Months For the Three Months
Ended Ended
March 31, 1998 March 31, 1998
-------------- --------------------
<S> <C> <C>
Pre-tax income (loss) $ 139 $1,743
Fixed charges:
Interest expense on all indebtedness 3,300 3,964
Rental expense representative of an interest factor 116 185
------ ------
Total fixed charges 3,416 4,149
------ ------
Earnings before income taxes and fixed charges $3,555 $5,892
====== ======
Ratio of earnings to fixed charges 1.04 1.42
====== ======
</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-1 of our reports relating to the respective
financial statements which appear in such Prospectus.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS DATE
-------------------- ----
<S> <C>
National Equipment Services, Inc. and Subsidiaries....... April 1, 1998
Aerial Platforms, Inc.................................... November 4, 1997
Lone Star Rentals, Inc................................... November 4, 1997
BAT Rentals, Inc......................................... November 4, 1997
Sprintank and Sprintank Mobile Storage
(divisions of Sprint Industrial Services, Inc.)......... November 4, 1997
MST Enterprises, Inc. d/b/a Equipco Rental and Sales..... November 4, 1997
Work Safe Supply Company, Inc. and Subsidiaries.......... March 4, 1998
Genpower Pump & Equipment, Inc........................... March 3, 1998
Albany Ladder Company, Inc. ............................. March 31, 1998
</TABLE>
We also consent to the application of the National Equipment Services, Inc.
and Subsidiaries report to the Financial Statement Schedules for the period
from inception (June 4, 1996) through December 31, 1996 and the year ended
December 31, 1997 listed under Item 16(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/ Price Waterhouse LLP
Chicago, Illinois
May 14, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of National
Equipment Services, Inc. on Amendment No. 1 to Form S-1 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, CPAs
May 14, 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. 1 to Form S-1 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/ Coopers & Lybrand L.L.P.
Louisville, Kentucky
May 14, 1998
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Falconite, Inc.
We consent to the inclusion 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
May 14, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 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.
May 14, 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>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS OTHER 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1997 JUN-04-1996 JAN-01-1998 JUN-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1996 MAR-31-1998 MAR-31-1997
<CASH> 35,682 12 3,773 2,264
<SECURITIES> 0 0 0 0
<RECEIVABLES> 8,610 0 24,832 2,561
<ALLOWANCES> 254 0 737 35
<INVENTORY> 2,239 0 7,158 1,695
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 55,198 20 120,031 17,930
<DEPRECIATION> 5,385 3 8,126 350
<TOTAL-ASSETS> 131,137 216 242,303 29,416
<CURRENT-LIABILITIES> 0 0 0 0
<BONDS> 98,782 0 193,954 21,000
0 0 0 0
0 0 0 0
<COMMON> 2 1 2 2
<OTHER-SE> 26,471 105 26,858 6,428
<TOTAL-LIABILITY-AND-EQUITY> 131,137 216 242,303 29,416
<SALES> 14,890 0 6,336 1,043
<TOTAL-REVENUES> 41,288 0 22,151 2,319
<CGS> 7,807 0 3,224 381
<TOTAL-COSTS> 25,715 0 13,500 1,476
<OTHER-EXPENSES> 9,386 336 5,338 871
<LOSS-PROVISION> 479 0 483 35
<INTEREST-EXPENSE> 4,545 (4) 3,300 268
<INCOME-PRETAX> 1,923 (332) 290 (290)
<INCOME-TAX> 818 (137) 151 (135)
<INCOME-CONTINUING> 1,105 (195) 139 (155)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,105 (195) 139 (155)
<EPS-PRIMARY> 0.09 (0.05) 0.01 (0.02)
<EPS-DILUTED> 0.08 (0.05) 0.01 (0.01)
</TABLE>
