<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1998
REGISTRATION NO. 333-69691
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
NATIONSRENT, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7353 31-1570069
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
<TABLE>
<S> <C>
JAMES L. KIRK
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
450 EAST LAS OLAS BOULEVARD 450 EAST LAS OLAS BOULEVARD
FORT LAUDERDALE, FL 33301 FORT LAUDERDALE, FL 33301
(954) 760-6550 (954) 760-6550
(Address, Including Zip Code, and Telephone Number, (Name, Address, Including Zip Code, and Telephone
Including Area Code, of Registrant's Principal Number,
Executive Offices) Including Area Code, of Agent for Service)
</TABLE>
---------------------
COPIES TO:
STEPHEN K. RODDENBERRY, ESQ.
AKERMAN, SENTERFITT & EIDSON, P.A.
ONE S.E. THIRD AVENUE, 28TH FLOOR
MIAMI, FL 33131
(305) 374-5600
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration 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 number of the earlier effective registration statement for the same
offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- ------------------------------------------------------------------------------------------------------------------------------
PROPOSED
AMOUNT MAXIMUM PROPOSED AMOUNT OF
TITLE OF EACH CLASS TO BE OFFERING PRICE MAXIMUM REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 3/8% Senior Subordinated
Notes due 2008.............. $175,000,000 100% $175,000,000 $48,650(2)
- ------------------------------------------------------------------------------------------------------------------------------
Guarantees(3)................. (4) (4) (4)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
(2) Previously filed.
(3) The Company's wholly-owned domestic subsidiaries, listed in the table on the
following page (the "Guarantors"), have guaranteed on a senior unsecured
basis, jointly and severally, the payment of the principal of, premium, if
any, and interest on the 10 3/8% Senior Subordinated Notes due 2008 being
registered hereby (the "Guarantees"). The Guarantors are registering the
Guarantees. Pursuant to Rule 457(n) under the Securities Act of 1933, as
amended, no registration fee is required with respect to the Guarantees.
(4) Not applicable.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CO-REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY STANDARD
INDUSTRIAL I.R.S. EMPLOYER
STATE OF CLASSIFICATION IDENTIFICATION
NAME OF ADDITIONAL REGISTRANT INCORPORATION CODE CODE
----------------------------- ------------- ---------------- ---------------
<S> <C> <C> <C>
A-Action Rental, Inc........................ Pennsylvania 7353 25-1213243
Acme Rental, Inc............................ Michigan 7359 38-2196609
A to Z Rents It, Inc........................ Texas 7359 74-2375781
A to Z Rents It, Inc. #2.................... Texas 7359 74-2587622
Central Alabama Rental Center, Inc.......... Alabama 7353 63-0911089
Gabriel Trailer Manufacturing Company,
Inc....................................... Ohio 7353 31-0788963
Gold Coast Aerial Lift, Inc................. Florida 7353 59-2652858
High Reach Company, Inc..................... Florida 7353 59-1871216
NationsRent of Alabama, Inc................. Delaware 7353 65-0857655
NationsRent of California, Inc.............. Delaware 7353 pending
NationsRent of Florida, Inc................. Delaware 7353 65-0822618
NationsRent of Georgia, Inc................. Delaware 7353 65-0857652
NationsRent of Indiana, Inc................. Delaware 7353 31-1579278
NationsRent of Kentucky, Inc................ Delaware 7353 61-1316067
NationsRent of Louisiana, Inc............... Delaware 7353 65-0857650
NationsRent of Michigan, Inc................ Delaware 7353 65-0857648
NationsRent of New Hampshire, Inc........... Delaware 7353 65-0872984
NationsRent of Ohio, Inc.................... Delaware 7353 31-1578491
NationsRent of Tennessee, Inc............... Delaware 7353 65-0857647
NationsRent of Texas, Inc................... Delaware 7353 65-0843067
NationsRent of West Virginia, Inc........... Delaware 7353 31-1579293
NRI/LEC Merger Corp., Inc................... Delaware 7353 65-0872986
Raymond Equipment Company................... Kentucky 7353 61-0509732
Sam's Equipment Rental, Inc................. Ohio 7353 31-1373557
Southeast Rental & Leasing, Inc............. Florida 7353 59-3132678
Tennessee Tool & Supply, Inc................ Tennessee 5084 62-1263696
The Bode-Finn Company....................... Ohio 5084 31-0207079
The J. Kelly Co., Inc....................... Michigan 5084 38-2309159
Titan Rentals, Inc.......................... West Virginia 7353 55-0696220
</TABLE>
(ii)
<PAGE> 3
OFFER TO EXCHANGE
10 3/8% SENIOR SUBORDINATED NOTES DUE 2008, WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT, FOR ANY AND ALL
OUTSTANDING 10 3/8% SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE NOT BEEN SO REGISTERED
OF
NATIONSRENT, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON FEBRUARY 1, 1999, UNLESS EXTENDED
---------------------
NationsRent, Inc., a Delaware corporation (the "Company"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to $175,000,000 aggregate principal amount of 10 3/8%
Senior Subordinated Notes due 2008 (the "New Notes"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), for a like
principal amount at maturity of the issued and outstanding 10 3/8% Senior
Subordinated Notes due 2008 (the "Old Notes," and, together with the New Notes,
the "Notes") from the holders (the "Holders") thereof. The terms of the New
Notes are substantially identical in all material respects to the Old Notes,
except for certain transfer restrictions and registration rights relating to the
Old Notes. We issued $175,000,000 aggregate principal amount of Old Notes on
December 11, 1998, pursuant to exemptions from, or transactions not subject to,
the registration requirements of the Securities Act and applicable state
securities laws (the "Private Debt Offering"). The New Notes will be issued
pursuant to an indenture dated as of December 11, 1998 between the Company and
The Bank of New York (the "Trustee"). Set forth below is a summary of the terms
of the Notes offered by this Prospectus. For more detail see "Description of
Notes."
- -INTEREST
The Notes have a fixed annual rate of 10 3/8% which will be paid every six
months on June 15 and December 15.
- -MATURITY
The Notes will mature on December 15, 2008.
- -GUARANTEES
If we cannot make payments on the Notes when they are due, our existing
subsidiaries have guaranteed the Notes and must make payments instead. Certain
of our future subsidiaries will also guarantee the Notes.
The Notes are unsecured obligations of our Company and the Guarantees are
unsecured obligations of the guarantor subsidiaries.
- -MANDATORY OFFER TO REPURCHASE
If we sell certain assets or experience specific kinds of changes in control,
we must offer to repurchase the Notes.
- -RANKING
The Notes and the Guarantees are subordinated to certain of our current debts
and certain of our future debts that we are permitted to incur under our senior
credit facilities and the indenture governing the Notes.
If we or any guarantor subsidiary goes into bankruptcy, payments on the Notes
will only be made after our senior debt or the senior debt of such guarantor
subsidiary has been paid in full.
- -REDEMPTION
At any time on or after December 15, 2003, we may, at our option, redeem the
Notes at the prices set forth in this Prospectus.
At any time on or prior to December 15, 2001, we may redeem up to 35% of the
principal amount of the Notes and of any additional notes issued under the
indenture governing the Notes with the proceeds of certain equity offerings by
our Company.
---------------------
THIS INVESTMENT INVOLVES RISKS. SEE THE RISK FACTORS SECTION BEGINNING ON
PAGE 13.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES OR DETERMINED THAT THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is December 31, 1998
<PAGE> 4
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future senior debt of the
Company. The Notes rank equal to any future senior subordinated indebtedness of
the Company and rank senior in right of payment to all other subordinated
obligations of the Company. The Notes are unconditionally guaranteed (the
"Guarantees") on a senior subordinated basis by all of our existing and certain
future subsidiaries (the "Guarantors"). The Guarantees are general unsecured
obligations of the Guarantors and are subordinated in right of payment to all
existing and future senior debt of the Guarantors. The Guarantees rank equal to
any future senior subordinated indebtedness of the Guarantors and rank senior in
right of payment to all other subordinated obligations of the Guarantors. The
Indenture permits us to incur additional indebtedness, including senior debt
under our senior credit facilities. See "Description of the Notes."
For each Old Note accepted for exchange, the Holder thereof will receive a
New Note having a principal amount equal to that of the surrendered Old Note.
The New Notes will bear interest from the date of initial issuance of the New
Notes, plus an amount equal to the accrued interest on the Old Notes from the
most recent date to which interest has been paid to the date of exchange thereof
for New Notes. Old Notes accepted for exchange will cease to accrue interest
upon issuance of the New Notes. Holders of Old Notes accepted for exchange will
not receive any payment in respect of accrued interest on such Old Notes.
The New Notes are being offered hereunder in order to satisfy certain
obligations of ours contained in a Registration Rights Agreement between us and
the initial purchasers of the Old Notes. We are making the Exchange Offer
pursuant to the Registration Statement of which this Prospectus is a part in
reliance upon the position of the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters addressed
to other parties in other transactions. However, we have not sought our own
no-action letter and there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer. Based on
the interpretations by the staff of the Commission set forth in these no-action
letters, we believe that the New Notes issued pursuant to the Exchange Offer may
be offered for resale, resold and otherwise transferred by the Holders thereof
without further compliance with the registration and prospectus delivery
requirements of the Securities Act subject to certain conditions. Such
conditions include that the New Notes may not be offered for resale, resold or
otherwise transferred by the Holders thereof to (1) any such Holder that is an
"affiliate" of the Company or the Guarantors within the meaning of Rule 405
under the Securities Act; (2) an initial purchaser or Holder of Old Notes who
acquired the Old Notes directly from the Company solely in order to resell
pursuant to Rule 144A of the Securities Act or any other available exemption
under the Securities Act; or (3) a broker-dealer who acquired the Old Notes as a
result of market making or other trading activities. Furthermore, such New Notes
may only be acquired in the ordinary course of such Holder's business and such
Holder may not be participating in and has no arrangement or understanding with
any person to participate in a distribution (within the meaning of the
Securities Act) of such New Notes. Each broker-dealer that receives New Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. We have agreed to make the Prospectus
available to any broker-dealer for use in connection with any such resale for up
to 120 days after the Expiration Date (as defined). See "Plan of Distribution."
We will not receive any proceeds from the Exchange Offer. We will pay
numerous expenses in connection with the Exchange Offer. Tenders of Old Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on February 1, 1999, (the "Expiration Date"). The
Registration Statement of which this Prospectus constitutes a part will remain
in effect until the consummation of the Exchange Offer, which will occur
promptly after the Expiration Date. If we terminate the Exchange Offer and do
not accept for exchange any Old Notes, we will promptly return the Old Notes to
the Holders thereof. See "The Exchange Offer."
i
<PAGE> 5
There is no existing trading market for the New Notes and we cannot assure
you that a market for the New Notes will develop in the future. Bear, Stearns &
Co. Inc., NationsBanc Montgomery Securities LLC, BT Alex. Brown and BancBoston
Robertson Stephens Inc. (collectively, the "Initial Purchasers") have advised us
that they currently intend to make a market in the New Notes. The Initial
Purchasers are not obligated to do so, however, and any market-making with
respect to the New Notes may be discontinued at any time without notice. To the
extent that a market for the New Notes does develop, the market value of the New
Notes will depend on market conditions (such as yields on alternative
investments), general economic conditions, our financial condition and other
conditions. Such conditions might cause the New Notes, to the extent that they
are actively traded, to trade at a significant discount from face value. See
"Risk Factors -- Trading Market for the Notes." We do not intend to apply for
listing or quotation of the New Notes on any securities exchange or stock market
or register or qualify the New Notes for offer and sale in any jurisdiction
(other than the registration of the New Notes under the Securities Act).
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-4
that we filed with the Commission under the Securities Act. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. For further information with respect to
our company and the New Notes offered by this Prospectus, please refer to the
Registration Statement. Any statements made in this Prospectus concerning the
provisions of certain documents are not necessarily complete and, in each
instance, we urge you to refer to the copy of such document filed as an exhibit
to the Registration Statement otherwise filed with the Commission. All of our
statements concerning such documents are qualified in their entirety by such
reference.
We comply with the informational requirements of the Exchange Act, and, in
accordance therewith, are required to file reports, proxy statements and other
information with the Commission. The Registration Statement, the exhibits
forming a part thereof and the reports and other information filed by us with
the Commission may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549; and at the following regional offices of the
Commission: 7 World Trade Center, New York, New York 10048; and 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, at prescribed rates. You may obtain
information on the Public Reference Section by calling the Commission at
1-800-SEC-0330. You may also inspect these materials at the offices of the NYSE,
20 Broad Street, New York, New York 10005 or on the Commission's site on the
World Wide Web at http://www.sec.gov.
We have agreed that, whether or not we are required to do so by the rules
and regulations of the Commission, for so long as any of the Notes remain
outstanding, we will furnish to the Holders and file with the Commission (unless
the Commission will not accept such a filing) (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K as if we were required to file such forms,
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information only, a
report thereon by our certified independent accountants, and (ii) all reports
that would be required to be filed with the Commission on Form 8-K if we were
required to file such reports in each case within the time periods set forth in
the Commission's rules and regulations.
We have not authorized any dealer, salesperson or other individual to give
any information or to make any representations other than those contained in
this Prospectus. You may not rely on any such information or representations
other than those set forth in this Prospectus.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THE NEW NOTES AND IT IS NOT
SOLICITING AN OFFER TO BUY THE NEW NOTES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS PROHIBITED. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
UNDER THE TERMS DESCRIBED HEREIN SHALL IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY DATE AFTER THE DATE HEREOF.
ii
<PAGE> 6
SUMMARY
The following summary contains basic information about this Offering. It
likely does not contain all the information that is important to you in making a
decision to invest in our Company. For a more complete understanding of this
Offering, we encourage you to read this entire document and other documents to
which we refer.
The term "Consolidated Financial Statements" means the consolidated
financial statements and accompanying notes contained in this Prospectus. The
term "Guarantees" means the agreements made by all of our existing and certain
of our future subsidiaries to make payments on the Notes when such payments are
due in the event that we cannot make such payments. The term "Guarantors" refers
to those subsidiaries providing the Guarantees. The term "Offering" means the
offering of the New Notes pursuant to this Prospectus. Unless the context
otherwise requires, all references to "NationsRent," the "Company," "we," "us"
or "our" include NationsRent, Inc. and its subsidiaries. Unless otherwise
indicated (1) the description of our business reflects all businesses which we
have acquired as of December 21, 1998 (collectively, the "Acquisitions") and (2)
all historical share information contained in this Prospectus has been adjusted
to reflect a 2,500 for 1 split of our common stock, par value $0.01 (the "Common
Stock"), which occurred on June 2, 1998 (the "Stock Split").
THE COMPANY
WHO WE ARE
NationsRent is one of the fastest growing equipment rental companies in the
United States. We have acquired a platform of equipment rental businesses
concentrated in selected markets and are building a network of nationally
branded locations. We have become a leading provider of rental equipment as a
result of our strategy to expand our fleet of rental equipment, acquire core
businesses and open or acquire additional locations concentrated around those
businesses. We believe that this "cluster" strategy enables us to increase
profitability in our acquired stores and achieve profitability in our newly
opened locations more quickly than our competitors. By implementing the cluster
strategy and expanding our fleet of rental equipment, we are able to provide a
full range of rental equipment to customers with a wide variety of equipment
rental needs.
WHAT WE DO
We offer a comprehensive line of equipment for rental primarily to a broad
range of construction and industrial customers, including heavy highway
contractors, general contractors, subcontractors, manufacturing plants and
distribution centers. We also sell used and new equipment, spare parts and
supplies, and provide maintenance and repair services. Our locations offer a
full range of high quality, well-maintained rental equipment, including the
following:
<TABLE>
<S> <C>
- - backhoes - aerial lifts and work platforms
- - bulldozers - compressors and generators
- - skid steer loaders - specialized hand tools
</TABLE>
HOW WE HAVE DONE
Since our formation in August 1997, we have acquired 32 equipment rental
businesses operating in 20 states and we currently operate 135 locations. For
the twelve months ended September 30, 1998, on a pro forma basis assuming
completion of the Acquisitions, we had approximate revenue of $441.4 million,
EBITDA of $153.5 million and an EBITDA margin of 34.8%.
INDUSTRY OVERVIEW
We are capitalizing on the current dynamics in the equipment rental
industry. According to industry sources, the United States equipment rental
industry grew from an estimated $614.0 million in revenue in
1
<PAGE> 7
1982 to an estimated $20.0 billion in 1997, which represents a compound annual
growth rate of more than 26%. Construction and industrial companies primarily
have driven this growth by increasingly outsourcing their equipment needs to
reduce investment in non-core assets and convert costs from fixed to variable.
According to industry sources, the United States equipment rental industry is
expected to grow to an estimated $40.0 billion in annual revenue over the next
five years due to the overall growth in the economy and a continuing trend to
rent rather than buy equipment. In addition, the United States equipment rental
industry is highly fragmented, with more than 20,000 companies. According to
industry sources, in 1997 the 100 largest equipment rental companies in the
United States had a combined market share of less than 20%, no single equipment
rental company in the United States had a market share greater than 3% and more
than 90% of equipment rental companies had ten or fewer locations. We believe
that recent consolidation has increased the market share of the ten largest
equipment rental companies in the United States and that the largest equipment
rental company in the United States currently has a market share of
approximately 6%. We are taking advantage of the fragmentation in the equipment
rental industry and the absence of an equipment rental company with significant
market share by creating an integrated network of nationally branded locations
offering broad product selection and superior customer service.
COMPETITIVE STRENGTHS
We believe we have several competitive strengths that will enable us to
continue to increase growth and profitability, including the following:
Strong Market Position. We have achieved a leading market position in
selected markets and expect to continue to increase revenue as a result of
our cluster strategy. We believe this strategy enables us to more
effectively serve our customers, broaden our customer base, pool rental
equipment inventory, offer a broader selection and greater availability of
equipment and maintain a high rental equipment utilization rate. By
offering a full range of rental equipment from each location, we believe
that customers who currently use multiple rental equipment providers will
prefer to fill their rental needs through the NationsRent network of
locations. In addition, we believe that we have other advantages relative
to smaller operators, including greater purchasing power and a lower cost
of capital.
Full Range of Rental Equipment. By offering a full range of rental
equipment, we can serve a diverse customer base and respond to customer
demand across each geographic region in which we operate. We offer a
comprehensive selection of light, medium and heavy rental equipment serving
the short-, medium- and long-term requirements of contractors, commercial
customers and industrial customers. Since January 1, 1998, we have added
approximately $147.0 million of new equipment to our rental equipment
inventory. As a result, in part, of the capital expenditures made at the 25
locations we have owned since January 1, 1998, our rental revenue on a pro
forma basis from these locations has increased more than 40% for the nine
month period ended September 30, 1998 as compared to the same period for
1997.
National Brand. We have entered selected markets with the goal of
establishing a nationally recognized brand throughout the United States.
Since our formation in August 1997, we have expanded into 20 states in the
regions set forth below:
<TABLE>
<CAPTION>
NUMBER OF
REGION STATES WITH NATIONSRENT LOCATIONS LOCATIONS
------ --------------------------------- ---------
<S> <C> <C>
Midwest........................ Indiana, Kentucky, Michigan, Ohio, West 45
Virginia
Southeast...................... Alabama, Florida, Georgia, Tennessee 35
Central........................ Louisiana, Texas 33
Northeast...................... Maine, Massachusetts, New Hampshire, New York, 17
Pennsylvania, Rhode Island, Vermont
West........................... California, Nevada 5
-----
TOTAL 135
=====
</TABLE>
2
<PAGE> 8
The expansion into these regions provides us with a substantial base from
which to roll out our branding strategy. This strategy includes expanding
our fleet of rental equipment, implementing standard operating procedures
and best practices and creating a distinctive store format and marketing
program. We believe that we are able to increase revenue by offering an
extensive inventory of rental equipment in a customer-oriented atmosphere
and a brand name known for consistent quality. We believe this branding
strategy enables us to expand our customer base and attract a broader range
of customers, including large customers with operations in a variety of
geographic markets.
Distinctive Operating Format. We have designed and are implementing a
format for our locations which we believe differentiates us from our
competitors. Distinguishing characteristics of this format include
drive-through lanes, clearly marked equipment aisles and attractive, well
organized and clean store facilities. Our larger locations are typically on
a six to 12 acre site in a heavily trafficked area with a 20,000 to 40,000
square foot facility housing a repair and maintenance center and a broad
selection and extensive inventory of equipment and supplies. Our smaller
locations are typically on a two to six acre site in a high-visibility
commercial area with a 7,500 to 11,000 square foot facility, with
maintenance and delivery capabilities and inventory and supplies targeted
to the customer base in that area.
Focus on Customer Service. We are differentiating ourself from our
competitors with innovations designed to increase customer satisfaction. We
generally offer more convenient access, faster check-in and check-out
procedures and shorter required lead time for rentals than our competitors.
We also offer on-time equipment delivery and pick-up, on-site repair
service, 24-hour customer assistance and written instruction materials for
equipment usage and safety. In addition, as part of our plan to provide
one-stop shopping to customers, each location sells parts and supplies to
complement equipment rentals and sales.
Customized Management Information System. We are installing a
customized management information system (the "System") capable of
monitoring operations at several thousand locations. The System is designed
to track customer purchasing patterns and demographics for use in gaining
market share in new and existing markets, consolidating equipment
purchases, maximizing utilization rates and reducing overhead expenditures.
The System will provide our management with real time revenue, inventory,
financial and customer information, facilitating rapid and well informed
decision making. In addition, the System will be designed to permit our
customers to reserve and rent equipment and access their account
information from their own computer terminals via our Internet website. To
develop our System, we assembled a team of management information
specialists who have previously developed systems for several Fortune 500
companies. The System has been developed to ensure that it is Year 2000
compliant.
Experienced Management Team. We believe that we have one of the most
experienced and growth-oriented executive management teams among
publicly-traded companies in the equipment rental industry. James L. Kirk,
our Chairman and Chief Executive Officer, founded OHM Corporation ("OHM"),
a New York Stock Exchange ("NYSE") listed company, in 1969 and served in
various senior executive positions with OHM, growing it into a leading
environmental construction company with an inventory of heavy and light
equipment having an original cost of over $100 million. Recently, Don R.
O'Neal joined us as President and Chief Operating Officer. Prior to joining
us, Mr. O'Neal served as President of Ray L. O'Neal, Inc. ("RLOI") and
Arenco, LLC ("ALLC" and operating with RLOI as "A-1 Rentals") in Fort
Worth, Texas, one of the largest independent equipment rental businesses in
the United States, substantially all the assets of which were acquired by
us in October 1998. Mr. O'Neal was a second-generation owner of A-1 Rentals
and has been in the equipment rental business for over 30 years. In
addition, we benefit from the experience of H. Wayne Huizenga, one of our
directors and principal investors, who serves as Chairman and Co-Chief
Executive Officer of Republic Industries, Inc. ("Republic") and who
co-founded and served in various senior executive positions with Waste
Management, Inc. ("Waste Management") and Blockbuster Entertainment
Corporation ("Blockbuster"), each of which is a leading consolidator in its
respective industry. The other members of our senior management team have
previously worked closely with Mr. Kirk in senior management positions at
OHM, and other key employees and consultants have worked with Mr. Huizenga
in various positions at Republic, Waste Management or Blockbuster. The
NationsRent management team is supported by
3
<PAGE> 9
operating, marketing and business development managers with an average of
more than 15 years of experience in the equipment rental industry.
GROWTH STRATEGY
Our objectives are to increase revenue, profitability, market share and
cash flow by building a nationally branded network of locations that offer a
comprehensive selection of high quality rental equipment in convenient and
accessible locations to customers in the construction and industrial markets.
Key elements of our growth strategy are as follows:
Enhance Operations. We enhance the operations at our locations by:
- increasing the breadth and depth of rental inventory and sharing
rental equipment among locations;
- implementing the NationsRent customer service approach;
- linking locations to the NationsRent management information System;
and
- branding locations and rental inventory with the NationsRent logo,
colors and distinctive store appearance.
Expand National Presence. We expect to continue to acquire leading
companies to implement our cluster strategy and position NationsRent to
achieve significant market share. We target businesses that have one or
more of the following characteristics:
- strong positions in their geographic market;
- experienced local management teams that will continue to work with
us following the acquisition;
- high quality equipment rental inventory; and
- physical and operating characteristics that are suited to
conversion to the NationsRent format.
Once we have entered a particular market, we seek to acquire additional
rental businesses in that market or adjacent markets with locations and
equipment selection that complement our existing operations, thus enabling
us to further penetrate that market.
Open New Rental Locations. Once we have established a presence in a
particular market, we seek to open new locations in that geographic area or
adjacent areas to enable us to offer a greater selection and availability
of equipment, maximize our equipment inventory utilization rates and
achieve economies of scale. We believe that this strategy allows our new
locations to achieve profitability at a faster rate than our competitors
because these locations (1) generate revenue more quickly as a result of
the pre-existing market presence, name recognition and referrals from
existing locations and (2) have lower overhead costs due to the sharing of
service, maintenance, administrative functions and personnel with our
already-established locations. Since August 1997, we have opened six new
locations.
Further Penetrate Industrial Rental Market. We believe that the
equipment needs of industrial customers are underserved by the existing
equipment rental market in the United States and that there are significant
opportunities to further penetrate this market segment. We also believe
that by offering a comprehensive selection and available supply of rental
equipment throughout an integrated nationally branded network of locations,
industrial customers will become increasingly aware of the advantages of
equipment rental relative to ownership. Such advantages include reduced
capital investment, reduced storage and maintenance expense and greater
access to the most modern equipment.
4
<PAGE> 10
RECENT DEVELOPMENTS
In October 1998, we acquired substantially all of the assets of A-1
Rentals, which has 13 locations serving the Dallas/Fort Worth and Austin, Texas
markets. In December 1998, we acquired Logan Equipment Corp. and substantially
all of the assets of certain of its affiliated companies ("Logan"), which have
16 locations throughout the Northeast. We also acquired in December 1998
substantially all of the assets of River City Rentals, Inc. ("River City"),
which has five locations in California and Nevada.
NationsRent was incorporated in the State of Delaware in August 1997. Our
principal executive offices are located at 450 East Las Olas Boulevard, Fort
Lauderdale, Florida 33301 and our telephone number is (954) 760-6550.
5
<PAGE> 11
THE INITIAL OFFERING
Pursuant to a Purchase Agreement dated as of December 8, 1998 (the
"Purchase Agreement"), we sold the Old Notes in an aggregate principal amount of
$175.0 million to the Initial Purchasers on December 11, 1998. The Initial
Purchasers subsequently resold the Old Notes to qualified institutional buyers
pursuant to Rule 144A under the Securities Act. The net proceeds from the
Private Debt Offering, of approximately $168.8 million after deducting discounts
to the Initial Purchasers and estimated offering expenses, were used to repay
certain subordinated acquisition debt and outstanding indebtedness under our
senior credit facilities.
The Old Notes were sold pursuant to exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. As a condition to their purchase of the Old Notes, the
Initial Purchasers requested that we agree to commence the Exchange Offer
following the Private Debt Offering.
THE EXCHANGE OFFER
NOTES OFFERED................... We are offering for exchange up to
$175,000,000 aggregate principal amount of
10 3/8% Senior Subordinated Notes due 2008,
which we have registered under the Securities
Act. The terms of the New Notes and the Old
Notes are substantially identical in all
material respects, except that:
- the New Notes have been registered
under the securities Act;
- the Old Notes have certain transfer
restrictions and registration rights;
and
- the New Notes will not contain certain
provisions relating to additional
interest to be paid to the Holders of
Old Notes under certain circumstances
relating to the timing of the Exchange
Offer.
EXCHANGE OFFER.................. We are offering to exchange the New Notes for
the Old Notes that are properly tendered and
accepted for exchange. We will issue the New
Notes promptly after the Expiration Date. If
you were not prohibited from participating in
the Exchange Offer and you did not tender
your Old Notes, you will have no further
exchange rights under the Registration Rights
Agreement with respect to such non-tendered
Old Notes once the Exchange Offer is
consummated. Accordingly, such Old Notes will
continue to be subject to the restrictions on
transfer contained in the legend thereon.
TENDERS, EXPIRATION DATE;
WITHDRAWAL; EXCHANGE DATE....... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on February 1, 1999, or
on a later extended date and time as we may
decide, provided that the Exchange Offer
shall not be extended beyond 30 calendar days
from the date of this Prospectus. You may
withdraw and retender any Old Notes tendered
pursuant to the Exchange Offer at any time
prior to the expiration date of the Exchange
Offer. We will return to you any of your
tendered Old Notes not accepted for exchange
for any reason without expense as promptly as
practicable after the expiration or
termination of the Exchange Offer. The date
of acceptance for exchange of all Old Notes
properly tendered and
6
<PAGE> 12
not withdrawn for New Notes (the "Exchange
Date") will be the first business day
following the expiration date of the Exchange
Offer or as soon as practicable thereafter.
SHELF REGISTRATION STATEMENT.... If you (other than by reason of being an
affiliate of the Company within the meaning
of Rule 405 under the Securities Act) are not
eligible under applicable securities laws to
participate in the Exchange Offer and you
have provided information regarding yourself
and the distribution of your Old Notes to us,
we have agreed to register the Old Notes with
a shelf registration statement and use our
best efforts to cause such registration
statement to be declared effective by the
Commission within certain time periods after
the consummation of the Exchange Offer. We
have agreed to maintain the effectiveness of
the shelf registration statement for, under
certain circumstances, a maximum of two years
to cover resales of the Old Notes held by
such holders.
ACCRUED INTEREST ON THE NEW
NOTES........................... Each New Note will bear interest from the
most recent date to which interest has been
paid on the Old Note or, if no such payment
has been made, from December 11, 1998.
Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance
of the New Notes.
PROCEDURES FOR TENDERING OLD
NOTES........................... If you want to accept the Exchange Offer, you
must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with either certificates
for the Old Notes or a book-entry
confirmation of such Old Notes into the
book-entry transfer facility, if such
procedure is available, and any other
required documentation, to The Bank of New
York, as Exchange Agent (the "Exchange
Agent"), at the address set forth herein and
in the Letter of Transmittal.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............... Any beneficial owner of Old Notes whose Old
Notes are registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and who wishes to tender such
Old Notes for exchange should contact the
registered Holder and instruct such
registered Holder to tender such Old Notes on
the beneficial owner's behalf. If such
beneficial owner wishes to tender its Old
Notes on such owner's own behalf, such owner
must, prior to completing and executing the
Letter of Transmittal and delivering its Old
Notes, either make appropriate arrangements
to register ownership of the Old Notes in
such owner's name or obtain a properly
completed bond power from the registered
Holder. The transfer of registered ownership
may take considerable time and may not be
able to be completed prior to the Expiration
Date.
GUARANTEED DELIVERY
PROCEDURES...................... If you want to tender your Old Notes for
exchange and your Old Notes are not
immediately available or you cannot deliver
the Old Notes or any other documents required
by the Letter of Transmittal to the Exchange
Agent, you must tender your Old
7
<PAGE> 13
Notes according to the delivery procedures
set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures"
section of this Prospectus.
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS................ The exchange pursuant to the Exchange Offer
will not result in the recognition of income,
gain or loss to you or our Company for
federal income tax purposes.
USE OF PROCEEDS................. We will not receive any proceeds from the
Exchange Offer.
EXCHANGE AGENT.................. The Bank of New York, the trustee under the
Indenture, is serving as Exchange Agent in
connection with the Exchange Offer.
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
If you do not exchange your Old Notes for New Notes pursuant to the
Exchange Offer, you will continue to be subject to the restrictions on transfer
of such Old Notes as set forth in the legend on such notes as a consequence of
the issuance of the Old Notes pursuant to exemptions from, or in transactions
not subject to, the registration requirements of the Securities Act and
applicable state securities laws. In general, you may not offer or sell your Old
Notes unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. We do not currently anticipate that we will
register the Old Notes under the Securities Act.
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are substantially identical in
all material respects, except for certain transfer restrictions and registration
rights relating to the Old Notes and except for certain provisions relating to
additional interest to be paid to the Holders of Old Notes under certain
circumstances relating to the timing of the Exchange Offer. The New Notes will
evidence the same debt as the Old Notes and will be entitled to the benefits of
the Indenture. See "Description of the Notes."
NOTES OFFERED................... We are offering for exchange up to
$175,000,000 aggregate principal amount of
our Company's 10 3/8% Senior Subordinated
Notes due 2008, which we have registered
under the Securities Act.
MATURITY DATE................... The New Notes will mature on December 15,
2008.
INTEREST........................ We will pay interest on the New Notes at an
annual rate of 10 3/8%. We will pay the
interest due on the New Notes every six
months on June 15 and December 15. We will
make the first payment on June 15, 1999.
GUARANTEES...................... If we cannot make payments on the New Notes
when they are due, our existing subsidiaries
have guaranteed the New Notes and must make
payments instead. Certain of our future
subsidiaries will also guarantee the New
Notes.
RANKING......................... The New Notes are unsecured senior
subordinated debt of the Company:
- The New Notes will rank behind all of
our existing and future debts that do
not expressly provide that they rank
equally with, or are subordinated to,
the Notes.
8
<PAGE> 14
- The New Notes will rank ahead of all of
our existing and future debts that
expressly provide that they are
subordinated to the Notes.
The Guarantees are unsecured senior
subordinated debts of the Guarantors:
- The Guarantees will rank behind all of
each Guarantor's existing and future
debts that do not expressly provide
that they rank equally with, or are
subordinated to, the Guarantees.
- The Guarantees will rank ahead of all
of each Guarantor's existing and future
debts that expressly provide that they
are subordinated to the Guarantees.
As of September 30, 1998, on a pro forma
basis after giving effect to the
Acquisitions, certain borrowings under our
senior credit facilities, certain senior
subordinated supplier debt, the conversion to
equity of certain subordinated acquisition
debt, the Private Debt Offering and the
application of the proceeds from such
offering, there would be approximately:
- $272.2 million of outstanding debt
ranking ahead of the New Notes;
- $96.0 million of outstanding debt
ranking ahead of the Guarantees;
- $26.5 million of outstanding debt
ranking equally with the New Notes;
and
- $85.2 million of outstanding debt
ranking behind the New Notes.
OPTIONAL REDEMPTION............. At any time on or after December 15, 2003, we
may redeem some or all of the New Notes at
the redemption prices described under
"Description of Notes" plus any interest that
is due and unpaid on the date we redeem the
New Notes.
At any time on or prior to December 15, 2001,
we may redeem up to 35% of the principal
amount of the New Notes and of any additional
notes issued under the indenture governing
the New Notes with the proceeds from certain
equity offerings by our Company at a
redemption price equal to 110 3/8% of the
face amount of the New Notes, plus any
interest that is due and unpaid on the date
we redeem the New Notes.
MANDATORY REPURCHASE............ Following certain asset sales or changes of
control, we must offer to repurchase the New
Notes at the prices set forth under
"Description of Notes."
CERTAIN COVENANTS............... We will issue the New Notes under an
indenture with The Bank of New York as
trustee. The indenture will, among other
things, restrict our ability and the ability
of the Guarantors to:
- borrow money;
- pay dividends on stock or make certain
other restricted payments;
- use assets as security in other
transactions;
- make investments; and
- sell certain assets or merge with other
companies.
9
<PAGE> 15
EXCHANGE OFFER; REGISTRATION
RIGHTS.......................... Holders of New Notes (other than as set forth
below) are not entitled to any registration
rights with respect to the New Notes.
Pursuant to the Registration Rights Agreement
among the Company, the Guarantors and the
Initial Purchasers, the Company agreed to
file an exchange offer registration statement
with respect to an offer to exchange the Old
Notes for the New Notes. The Registration
Statement of which this Prospectus is a part
constitutes such exchange offer registration
statement. Under certain circumstances,
certain Holders of Old Notes (including
Holders of Old Notes who may not participate
in the Exchange Offer) may in certain
circumstances require us to file, and cause
to become effective, a shelf registration
statement under the Securities Act which
would cover resales of Old Notes by such
Holders.
USE OF PROCEEDS................. We will receive no proceeds from the Exchange
Offer.
RISK FACTORS
You should carefully consider all the information in this Prospectus. In
particular, you should evaluate the specific risk factors set forth under "Risk
Factors," beginning on page 13, for a discussion of certain risks involved in
making an investment in the New Notes.
10
<PAGE> 16
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
HISTORICAL(1) PRO FORMA AS ADJUSTED
------------- HISTORICAL(1) -----------------------------------
AUGUST 14 PRO FORMA ------------- NINE
(INCEPTION) AS ADJUSTED NINE MONTHS MONTHS TWELVE MONTHS
THROUGH YEAR ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1997(2) 1998 1998(2) 1998(2)(3)
------------- ------------ ------------- ------------- ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue........................... $ 9,305 $400,974 $112,728 $336,767 $441,399
Gross profit(4)......................... 3,892 152,028 45,888 137,304 178,571
Operating income(4)..................... 2,527 71,502 20,670 68,697 87,050
Interest expense........................ 760 51,450 9,391 41,985 55,300
Income before provision for income
taxes................................. 1,767 21,222 11,817 27,342 32,127
Net income.............................. 1,001 12,309 6,854 15,859 18,634
OTHER DATA:
EBITDA(5)............................... $ 4,337 $135,564 $ 37,694 $119,718 $153,520
EBITDA Margin(6)........................ 46.6% 33.8% 33.4% 35.5% 34.8%
Ratio of EBITDA to interest expense..... 2.6x 2.8x
Rental equipment purchases(7)........... $ 2,461 $170,741 $ 76,816 $175,309 $220,211
Amortization of goodwill(4)............. 166 11,597 1,961 8,698 11,597
Depreciation and other amortization..... 1,644 51,295 14,525 41,693 54,496
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------ AS ADJUSTED
AS OF AS OF
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998(2)
------------------ ---------------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Rental equipment, net....................................... $316,824 $ 420,591
Goodwill, net............................................... 244,935 462,386
Total assets................................................ 662,850 1,036,065
Total debt.................................................. 389,841 654,917
Stockholders' equity........................................ 188,759 275,689
</TABLE>
- ---------------
(1)The Acquisitions have been accounted for as purchases and, accordingly, the
operations of the acquired businesses are included in the statement of
operations data and other data from the date of acquisition.
(2)The pro forma as adjusted statement of operations data for the year ended
December 31, 1997 and the nine and twelve months ended September 30, 1998 and
the pro forma as adjusted selected balance sheet data as of September 30,
1998 give effect to the Acquisitions, an additional equity contribution of
$17.4 million from the Company's founders (the "Founders' Additional
Contribution"), a $27.6 million private placement of shares of Common Stock
(the "Common Stock Private Placement"), the Company's $104.0 million initial
public offering of Common Stock (the "Initial Public Offering"), the
conversion to equity of certain subordinated acquisition debt in the original
principal amount of $50.0 million (the "Debt Conversion"), certain borrowings
under the Company's senior credit facilities (the "Senior Borrowings") and
certain senior subordinated supplier debt in the original principal amount of
$25.0 million (the "Equipment Debt", and together with the Debt Conversion
and the Senior Borrowings, "Changes in Outstanding Indebtedness"), the
Private Debt Offering, and the application of the net proceeds of the Private
Debt Offering as described in the "Pro Forma Consolidated Financial
Statements" as if such transactions had occurred on the first day of the
period presented, and in the case of the pro forma as adjusted balance sheet
data, as of September 30, 1998. See "Use of Proceeds," "Risk
Factors -- Substantial Debt," "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Certain
Relationships and Transactions" and the Company's pro forma and historical
financial statements and related notes.
(3)The unaudited pro forma as adjusted statement of operations data for the
twelve months ended September 30, 1998 includes the historical results of the
Company for the twelve months ended September 30, 1998 and the results of the
Acquisitions from the effective date of their acquisition by the Company, and
gives effect to the applicable 1997 Pro Forma Combined Acquisitions and the
applicable 1998 Pro Forma Combined Acquisitions described in "Unaudited Pro
Forma Consolidated Financial Statements," as if these transactions had
occurred on October 1, 1997. The results of the Acquisitions subsequent to
the dates of their acquisition are included in the historical results of the
Company.
In addition, the unaudited pro forma as adjusted consolidated statement of
operations data for the twelve months ended September 30, 1998 gives
additional effect to the following, as if such transactions had occurred on
October 1, 1997:
a. Adjustment to historical lease expense on rental equipment resulting from
the termination of certain leases which occurred in connection with the
Acquisitions (decrease of $2.9 million in cost of revenue).
b. Adjustment to the historical rental equipment depreciation recorded to
conform to the Company's accounting policies. Adjustment is based on the
estimated fair value of rental equipment acquired using estimated useful
lives ranging from two to ten years on the straight-line method with
salvage values ranging from zero to ten percent of cost (decrease of
$20.9 million in rental depreciation expense).
c. Adjustment to reduce historical compensation and benefits of certain
former owners and executives of the businesses acquired in the
Acquisitions to amounts consistent with employment agreements entered
into between the certain owners and executives and
11
<PAGE> 17
the Company, as well as the elimination of certain private company
business expenses that will not be incurred by the Company (decrease of
$11.8 million in selling, general and administration expenses).
d. Adjustment to historical facility lease expense to reflect the increase
in current lease payments in excess of historical amounts (increase of
$0.6 million in selling, general and administrative expenses).
e. Adjustment to historical property and equipment depreciation recorded to
conform to the Company's accounting policies. Adjustment is based on the
estimated fair value of property and equipment acquired using estimated
useful lives ranging from three to 39 years on the straight-line method
(decrease of $0.8 million in depreciation and amortization of non-rental
property and equipment).
f. Adjustment to recognize the amortization of goodwill and non-compete
agreements using an estimated useful life of 40 and five years,
respectively. Management believes that 40 years is a reasonable life for
goodwill in light of the characteristics of the equipment rental industry
such as the lack of dependence on technological change, the many years
that the industry has been in existence, the current trend towards the
outsourcing of equipment, the recent double digit annual growth rate and
the stable nature of the customer base. In addition, the Company has
focused on acquiring well-established businesses that have been in
existence for many years (increase of $9.3 million in non-rental property
and equipment, depreciation and amortization).
g. Adjustment to record interest on borrowings under the Company's senior
credit facilities (the "Credit Facilities") which consist of a revolving
line of credit and a term loan in an aggregate principal amount of up to
$435.0 million, with a minimum of $260.0 million under the revolving line
of credit, and notes issued to former owners of the acquired businesses,
net of interest related to debt not assumed or paid off at acquisition.
The interest rate on the Credit Facilities is determined using a base
rate plus a spread based on certain financial performance ratios. Based
on current market rates, an incremental borrowing rate of 8.1% was used
to determine interest expense. A change of one-eighth of a percent would
result in a $0.3 million reduction or increase in the pro forma
adjustment to annual interest expense (increase of $20.7 million in
interest expense).
h. To eliminate historical gains related to assets not acquired (increase of
$0.3 million in other (income)/expense).
i. To record a provision (benefit) for income taxes at an expected effective
rate of 42%.
j.To record interest expense and amortization of debt issuance cost related
to the Private Debt Offering (increase of $5.1 million in interest
expense).
These pro forma adjustments represent, in the opinion of management, all
adjustments necessary to present fairly the Company's pro forma results of
operations for the twelve months ended September 30, 1998, and are based
upon available information and certain assumptions considered reasonable
under the circumstances. The unaudited pro forma consolidated financial data
presented herein does not purport to present what the Company's results of
operations would actually have been had such events leading to the pro forma
adjustments in fact occurred at the beginning of the period indicated or to
project the Company's financial position or results of operations for any
future date or period.
(4)The amortization period for rental equipment depreciation ranges from two to
ten years. The amortization period for goodwill is 40 years.
(5)EBITDA represents earnings before interest expense, taxes, depreciation and
amortization. EBITDA is used by certain investors as an indicator of a
company's historical ability to service debt. However, EBITDA is not intended
to represent cash flows for the period, nor has it been presented as an
alternative to either (i) operating income (as determined by generally
accepted accounting principles ("GAAP")), as an indicator of operating
performance or (ii) cash flows from operating, investing and financing
activities (as determined by GAAP) and is thus susceptible to varying
calculations. EBITDA as presented may not be comparable to other similarly
titled measures of other companies.
(6)EBITDA margin represents EBITDA as a percentage of total revenue.
(7)Rental equipment purchases represent the purchase price of rental equipment
inventory acquired during the period.
12
<PAGE> 18
RISK FACTORS
An investment in the Notes involves a high degree of risk. You should
carefully consider the risk factors set forth below, as well as the other
information appearing elsewhere in this Prospectus, before making an investment
in the Notes.
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), including in particular the statements
about our plans, strategies and prospects under the headings "Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Although we believe that our plans, intentions and
expectations reflected in or suggested by such forward-looking statements are
reasonable, we cannot assure you that such plans, intentions or expectations
will be achieved. Important factors that could cause actual results to differ
materially from our forward-looking statements are set forth below and elsewhere
in this Prospectus. All forward-looking statements attributable to us or any
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements set forth below.
HOLDERS RESPONSIBLE FOR COMPLIANCE WITH EXCHANGE OFFER PROCEDURES; CONSEQUENCES
OF FAILURE TO EXCHANGE
We will issue the New Notes in exchange for the Old Notes pursuant to this
Exchange Offer only after we have received such Old Notes timely, along with a
properly completed and duly executed Letter of Transmittal and all other
required documents. Therefore, if you want to tender your Old Notes in exchange
for New Notes, you should allow sufficient time to ensure timely delivery.
Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to the tender of Old
Notes for exchange. The Exchange Offer will expire at 5:00 p.m. New York City
time on February 1, 1999, or on a later extended date and time as we may decide
(the "Expiration Date"). Old Notes that are not tendered or are tendered but not
accepted for exchange will, following the Expiration Date and the consummation
of this Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act or except pursuant to an exemption from or
in a transaction not subject to, the Securities Act. In addition, if you are
still holding an Old Note after the Expiration Date and the Exchange Offer has
been consummated, subject to certain exceptions, you will not be entitled to any
rights to have such Old Notes registered under the Securities Act or to any
similar rights under the Registration Rights Agreement (subject to limited
exceptions, if applicable). We do not currently anticipate that we will register
the Old Notes under the Securities Act.
The New Notes and any Old Notes which remain outstanding after consummation
of the Exchange Offer will vote together as a single class for purposes of
determining whether Holders of the requisite percentage thereof have taken
certain actions or exercised certain rights under the Indenture.
REQUIREMENTS FOR TRANSFER OF NEW NOTES
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, we believe that you may offer for
resale, resell and otherwise transfer the New Notes without compliance with the
registration and prospectus delivery provisions of the Securities Act, subject
to certain limitations. These limitations include that you are not an
"Affiliate" of ours within the meaning of Rule 405 under the Securities Act and,
provided that such New Notes are acquired in the ordinary course of your
business and that you have no arrangement with any person to participate in the
distribution of such New Notes. However, we have not submitted a no-action
letter to the Commission regarding this Exchange Offer and we cannot assure you
that the Commission would make a similar determination with respect to the
Exchange Offer as in such other circumstances. If you are an affiliate of the
Company, are engaged in or intend to engage in or have any arrangement or
understanding with respect to a distribution of the New Notes to be acquired
pursuant to the Exchange Offer, you (i) may not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus meeting the requirements under the Securities Act
in connection with any resale of such New Notes. The Letter of
13
<PAGE> 19
Transmittal states that by so acknowledging and delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes where the Old Notes exchanged for such New Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. We have agreed that, starting on the Expiration Date, and
ending on the close of business 120 days after the Expiration Date or, if
earlier, when all New Notes held by a participating broker-dealer have been
disposed of, it will make this Prospectus available to any participating
broker-dealer for use in connection with any such resale. See "Plan of
Distribution." However, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available.
SUBSTANTIAL DEBT
We have, and will continue to have after this Offering, a significant
amount of debt. After giving pro forma effect to the Debt Conversion, the Senior
Borrowings and the Equipment Debt (collectively, the "Changes in Outstanding
Indebtedness"), the Acquisitions, the Private Debt Offering and the application
of proceeds of such offering, we would have had total debt, stockholders' equity
and a ratio of earnings to fixed charges at the dates and for the periods set
forth in the table below:
<TABLE>
<CAPTION>
FOR THE TWELVE MONTH
PERIOD ENDED
------------------------------
AT SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1998 1997 1998
---------------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total debt..................................... $654,917 -- --
Stockholders' equity........................... 275,689 -- --
Ratio of earnings to fixed charges............. -- 1.4x 1.5x
</TABLE>
We and our subsidiaries will be permitted to incur substantial additional
debt in the future. See "Capitalization," "Selected Historical and Pro Forma
Financial Information and Operations Data" and "Description of Notes."
Our debt could have important consequences to you, including:
- making it more difficult for us to satisfy our obligations with
respect to the Notes;
- increasing our vulnerability to adverse general economic and
industry conditions;
- limiting our ability to obtain additional financing to fund future
working capital, capital expenditures, acquisitions and other general
corporate requirements;
- requiring us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing the availability of
our cash flow to fund working capital, capital expenditures, acquisitions
or other general corporate purposes;
- limiting our flexibility in planning for, or reacting to, changes in
our business and the industry in which we operate; and
- placing us at a competitive disadvantage compared to our less
leveraged competitors.
In addition, the financial and other restrictive covenants in our debt may
limit our ability to, among other things, borrow additional funds, and any
failure by us to comply with those covenants could result in an event of default
which, if not cured or waived, could have a material adverse effect on us. See
"Description of Notes -- Change of Control" and "Description of Certain
Indebtedness -- Credit Facilities."
ACQUISITION AND INTEGRATION RISKS
Generally. Since our inception in August 1997 and through December 21,
1998, we have acquired 32 equipment rental businesses with 132 operating
locations. We intend to continue this growth by making additional acquisitions,
opening new locations and converting acquired locations to the NationsRent
format.
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We cannot assure you that we will be able to identify suitable acquisition
candidates or suitable new locations or obtain financing for acquisitions or
internal expansion on satisfactory terms, or at all. If suitable acquisition
candidates are not identifiable or if acquisitions are prohibitively expensive,
we may be forced to alter our growth strategy. Our growth strategy presents
certain risks inherent in (1) assessing the value, strengths and weaknesses of
acquisition candidates, (2) evaluating the costs and uncertain returns of
expanding our operations, and (3) integrating acquisitions with existing
operations. We expect our growth strategy may affect short-term cash flow and
net income as we increase our indebtedness and incur expenses to open new
locations, make acquisitions and expand rental inventory. As a result, revenue
and operating results may fluctuate. We cannot assure you that we will
successfully expand, that any acquired businesses will be successfully
integrated into our operations or that any expansion will result in
profitability. The failure to successfully implement our growth strategy may
have a material adverse effect on our business, financial condition, results of
operations or prospects.
Demands on NationsRent's Resources Due to Growth. Our anticipated growth
may place significant demands on our management and our operational, financial
and marketing resources. In connection with acquisitions and the opening of new
locations, we anticipate expanding the number of our employees, the scope of our
operating and financial systems and the geographic area of our operations. We
believe this growth will increase the complexity of our operations and the level
of responsibility exercised by both existing and new management personnel. To
manage this expected growth, we intend to invest further in our operating and
financial systems and to continue to expand, train and manage our employee base.
We cannot assure you that we will be able to attract and retain qualified
management and employees. We also cannot assure you that our current operating
and financial systems and controls will continue to be adequate as we grow or
that any steps taken to improve such systems and controls will be sufficient.
Our failure to successfully integrate and manage our growth may have a material
adverse effect on our business, financial condition, results of operations or
prospects.
Liabilities Associated with Acquisitions. There may be liabilities that we
fail or are unable to discover in the course of performing due diligence
investigations on each company or business we have acquired or seek to acquire
in the future. Such liabilities could include those arising from employee
benefits contribution obligations of a prior owner or non-compliance with
applicable federal, state or local environmental requirements by prior owners
for which we, as a successor owner, may be responsible. We try to minimize these
risks by conducting such due diligence, including employee benefit and
environmental reviews, as we deem appropriate under the circumstances. However,
we cannot assure you that we have identified, or in the case of future
acquisitions, will identify, all existing or potential risks. We also generally
require each seller of acquired businesses or properties to indemnify us against
undisclosed liabilities. In some cases this indemnification obligation may be
supported by deferring payment of a portion of the purchase price or other
appropriate security. However, we cannot assure you that the indemnification,
even if obtained, will be enforceable, collectible or sufficient in amount,
scope or duration to fully offset the possible liabilities associated with the
business or property acquired. Any such liabilities, individually or in the
aggregate, could have a material adverse effect on our business, financial
condition, results of operations or prospects.
DEPENDENCE ON ADDITIONAL CAPITAL FOR FUTURE GROWTH
Our ability to remain competitive, sustain our growth and expand our
operations through new locations and acquisitions largely depends on our access
to capital. In addition, we must make ongoing capital expenditures to update and
maintain the condition of our rental equipment inventory in order to provide our
customers with high-quality equipment. To date, we have financed capital
expenditures and acquisitions primarily through private equity, bank financing,
financing from equipment suppliers, the proceeds of our $104.0 million initial
public offering of Common Stock (the "Initial Public Offering") and the issuance
of promissory notes. As of the date of this Prospectus, our senior credit
facilities (the "Credit Facilities") consist of a revolving line of credit (the
"Revolving Line of Credit") and a term loan (the "Term Loan") in an aggregate
principal amount of up to $435.0 million, with a minimum of $260.0 million under
our Revolving Line of Credit. See "Description of Certain Indebtedness -- Credit
Facilities." To assist our growth strategy and meet our capital needs, we plan
to issue additional equity securities and incur additional indebtedness in the
future and in particular may request increases to our Credit Facilities from
time to time. We cannot assure
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<PAGE> 21
you that any of these increases or any additional capital, if and when required,
will be available on terms acceptable to us, or at all. If we fail to obtain
sufficient additional capital in the future, we could be forced to curtail our
growth or delay capital expenditures, which could have a material adverse effect
on our business, financial condition, results of operations or prospects.
Our ability to finance future acquisitions, new locations and internal
growth is also limited by the covenants contained in the Credit Facilities and
will be limited by the covenants contained in the Indenture. As a result of
these covenants, our ability to respond to changing business and economic
conditions and to secure additional financing may be significantly restricted,
and we may be prevented from engaging in transactions, including acquisitions,
that might be considered important to our growth strategy or otherwise
beneficial to us. Any breach of these covenants could cause a default under
other debt and the Notes. As a result, a substantial portion of our debt then
may become immediately due and payable. We are not certain whether we would
have, or would be able to obtain, sufficient funds to be able to make these
accelerated payments, including payments on the Notes. Such covenants may also
limit our ability to finance future operations and capital needs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Business -- Growth Strategy"
and "Description of Certain Indebtedness."
COMPETITION
The equipment rental industry is highly competitive. Our competitors
include large national rental companies, equipment manufacturers, regional
corporations, smaller independent businesses and equipment vendors and dealers
who both sell and rent equipment to customers. Some of our competitors have
greater financial resources, are more geographically diverse and have greater
name recognition than we have. We may encounter increased competition from
existing competitors or new market entrants, such as equipment manufacturers,
that may be significantly larger and have greater financial and marketing
resources than we have. See "Business -- Competition."
LIMITED OPERATING HISTORY
We were formed in August 1997 and commenced operations in September 1997
with our acquisition of Sam's Equipment Rental, Inc. and Gabriel Trailer
Manufacturing Company, Inc. (collectively, "Sam's" or the "Predecessor
Company"). Accordingly, you can only evaluate us, our growth strategy and our
prospects based upon our limited operating history. You must evaluate the
Company's prospects in light of the risks, expenses and difficulties frequently
encountered by companies in the early stages of development. Although we have
recently experienced growth in revenue and net income, we cannot assure you that
this growth can or will be sustained or that our strategy of building a network
of nationally branded equipment rental locations will lead to continued growth
in revenue and net income.
SUBORDINATION OF NOTES AND GUARANTEES
The Notes and the Guarantees will be subordinated in right of payment to
all of our and the Guarantors' existing and future debt which does not expressly
provide that it ranks equal with, or is subordinated in right of payment to, the
Notes and the Guarantees. As a result of the subordination provisions in the
indenture with The Bank of New York, as Trustee, governing the Notes (the
"Indenture"), upon certain liquidation, dissolution or bankruptcy events, debt
that ranks ahead of the Notes and the Guarantees will be entitled to be paid in
full in cash before any payment may be made with respect to the Notes or that
Guarantor's Guarantee. In addition, the subordination provisions of the
Indenture will provide that payments with respect to the Notes and the
Guarantees will be prohibited in the event of a payment default on debt that
ranks ahead of the Notes or the Guarantees. Further, in the event of certain
non-payment defaults on debt that ranks ahead of the Notes or the Guarantees,
payments with respect to the Notes and the Guarantees will be prohibited for up
to 179 days from the date written notice of the default is received. Only one
such prohibition period with respect to a non-payment default can be commenced
within any 360 consecutive days. In the event of a bankruptcy, liquidation or
reorganization of the Company or any Guarantor, holders of the Notes will
participate ratably with all holders of subordinated debt of the Company and
such Guarantor that is deemed to be of the same class as the Notes or the
Guarantees, and potentially with all other general creditors of the Company and
such Guarantor, based upon the respective amounts owed to each holder or
creditor, in the Company's or such Guarantor's remaining assets. In any of the
foregoing events, we cannot assure you that we would have
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<PAGE> 22
sufficient assets to pay amounts due on the Notes. As a result, holders of Notes
may receive less, ratably, than the holders of senior debt of the Company and
the Guarantors.
As of September 30, 1998, on a pro forma basis after giving effect to the
Acquisitions, Changes in Outstanding Indebtedness, the Private Debt Offering and
the application of the proceeds of such offering, the aggregate amount of debt
that ranks ahead of the Notes and Guarantees (including borrowings under our
Credit Facilities) would have been approximately $368.2 million, and
approximately $169.6 million would have been available for additional borrowing
under our Revolving Line of Credit. The Indenture and the Credit Facilities will
permit us and the Guarantors to incur substantial additional debt, including
debt that ranks ahead of the Notes.
POTENTIAL INABILITY TO FUND A CHANGE OF CONTROL OFFER
Upon a change of control, we will be required to offer to repurchase all
outstanding Notes at 101% of the principal amount thereof plus accrued and
unpaid interest to the date of repurchase. However, we cannot assure you that we
will have sufficient funds at the time of any change of control to make any
required repurchase of the Notes or that restrictions in our Credit Facilities
will allow us to make such required repurchases.
ASSET ENCUMBRANCES
The Notes will not be secured by any of our assets. Our obligations under
the Credit Facilities, however, are secured by a first priority security
interest in substantially all of our assets. If we become insolvent or are
liquidated, or if payment under the Credit Facilities is accelerated, the
lenders under the Credit Facilities would be entitled to exercise the remedies
available to a secured lender. Accordingly, these lenders will have a claim on
substantially all of our assets that will have priority over any claim for
payment under the Notes or the Guarantees. In any such event, because the Notes
will not be secured by any of our assets, it is possible that there would be no
assets remaining from which claims of the holders of the Notes could be
satisfied or, if any assets remained, they might be insufficient to satisfy such
claims fully. See "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Description of Certain Indebtedness," "Description of Notes" and
the Consolidated Financial Statements and the Notes thereto included elsewhere
in this Prospectus.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture restricts, among other things, our ability to:
- borrow money;
- pay dividends on stock or make certain other restricted payments;
- use assets as security in other transactions;
- make investments;
- enter into certain transactions with our affiliates; and
- sell certain assets or merge with other companies.
If we fail to comply with these covenants, we would be in default under the
Indenture, and the principal and accrued interest on the Notes would become due
and payable. See "Description of Notes -- Certain Covenants."
In addition, the Credit Facilities contain many restrictive covenants
similar to the Indenture's covenants which, among other things, impose certain
limitations on us. The Credit Facilities contain restrictive covenants which are
generally more restrictive than those contained in the Indenture. The Credit
Facilities also require us to maintain specified consolidated financial ratios
and satisfy certain consolidated financial tests. Our ability to meet those
financial ratios and financial tests may be affected by events beyond our
control, and we cannot assure you that we will meet those tests. If we fail to
meet those tests or breach any of the covenants, the lenders under the Credit
Facilities could declare all amounts outstanding thereunder, together with
accrued interest, to be immediately due and payable. If we are unable to repay
those amounts, the lenders could proceed against the collateral granted to them
to secure that indebtedness. We cannot assure
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<PAGE> 23
you that our assets would be sufficient to repay in full such indebtedness or
any other indebtedness, including the Notes.
In addition, if we default under the Indenture, the Credit Facilities or
certain instruments governing our other indebtedness, that default could
constitute a cross-default under the Indenture, the Credit Facilities or the
instruments governing our other indebtedness, as applicable. See "Description of
Notes" and "Description of Certain Indebtedness."
FRAUDULENT CONVEYANCE
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, if, among other things, any Guarantor, at the time it
incurred the debt evidenced by its Guarantee of the Notes:
- (1) was insolvent or rendered insolvent by reason of such
incurrence, or (2) was engaged in a business or transaction for which that
Guarantor's remaining assets constituted unreasonably small capital, or (3)
intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature; and
- that Guarantor received less than reasonably equivalent value or
fair consideration for the incurrence of such debt;
then the Guarantee of that Guarantor could be voided, or claims by holders of
the Notes under that Guarantee could be subordinated to all other debts of that
Guarantor. In addition, any payment by that Guarantor pursuant to its Guarantee
could be required to be returned to that Guarantor, or to a fund for the benefit
of the creditors of that Guarantor.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, a Guarantor would be considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater
than the saleable value of all of its assets at a fair valuation; or
- the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each Guarantor, after giving effect to the
debt incurred by that Guarantor in connection with the Private Debt Offering,
will not be insolvent, will not have unreasonably small capital for the business
in which it is engaged and will not have incurred debts beyond its ability to
pay such debts as they mature. However, we cannot assure you as to what standard
a court would apply in making such determinations or that a court would agree
with our conclusions in this regard.
HOLDING COMPANY STRUCTURE
The Company is a holding company with no significant assets other than its
investments in its subsidiaries. Accordingly, the Company must rely entirely
upon distributions from its subsidiaries to generate the funds necessary to meet
its obligations, including the payment of principal and interest on the Notes.
The ability of the subsidiaries of the Company to pay dividends or to make other
payments or advances to the Company will depend upon their operating results and
will be subject to applicable laws and contractual restrictions contained in the
instruments governing any indebtedness of such subsidiaries (including the
Credit Facilities). Although the Indenture limits the ability of such
subsidiaries to enter into consensual restrictions on their ability to pay
dividends and make other payments to the Company, such limitations are subject
to a number of significant qualifications. See "Description of Notes -- Certain
Covenants -- Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries."
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<PAGE> 24
SEASONALITY AND OTHER FLUCTUATIONS IN REVENUE AND OPERATING RESULTS
Our revenue and operating results have varied throughout the year and are
expected to continue to fluctuate in the future due to a number of factors,
including (1) adverse weather conditions, (2) general economic conditions in the
markets where we operate, including changes in national, regional or local
construction or industrial activity or increases in prevailing interest rates,
(3) timing of acquisitions and new location openings and related costs, (4) the
effectiveness of integrating acquired businesses and new locations, (5) rental
patterns of our customers and (6) price changes in response to competitive
factors. In addition, we incur various costs in integrating newly acquired or
opening locations, and the profitability of a new location is generally expected
to be lower in the initial months of operation.
LIABILITY AND INSURANCE
Our business exposes us to possible claims for personal injury or death
resulting from the use of the equipment we rent or sell and from injuries caused
in motor vehicle accidents in which our delivery and service personnel are
involved. We carry comprehensive insurance, subject to deductibles, at levels we
believe are sufficient to cover existing and future claims. Although we have not
experienced any material losses that were not covered by insurance, we cannot
assure you that existing or future claims will not exceed the level of our
insurance or that such insurance will continue to be available on economically
reasonable terms, or at all.
ENVIRONMENTAL AND SAFETY REGULATION
Our equipment, facilities and operations are subject to certain federal,
state and local laws and regulations relating to environmental protection and
occupational health and safety. These include, among other things, laws and
regulations governing wastewater discharges, the use, treatment, storage and
disposal of solid and hazardous wastes and materials, air quality and the
remediation of contamination associated with the release of hazardous
substances. Some of our existing and former locations use and have used,
substances, and currently generate or have generated or disposed of wastes,
which are or may be considered hazardous or otherwise are subject to applicable
environmental requirements.
In particular, we store and dispense, or have in the past stored and
dispensed, petroleum products from above-ground storage tanks and, in certain
cases, underground storage tanks at our locations. We also use hazardous
materials, including solvents, to clean and maintain equipment, and generate and
dispose of solid and hazardous wastes, including batteries, used motor oil,
radiator fluid and solvents. In connection with such activities, we have
incurred minimal capital expenditures and other compliance costs which are
expensed on a current basis and which, to date, have not been material to our
financial condition. Based on currently available information, we believe that
it is unlikely that we will have to incur material capital expenditures or other
material compliance or remediation costs for environmental and safety matters in
the foreseeable future. However, we cannot assure you that environmental and
safety requirements will not become more stringent or be interpreted and applied
more stringently in the future, or that we will not identify adverse
environmental conditions that are not currently known to us. Such future changes
or interpretations, or the identification of such adverse environmental
conditions, could result in additional environmental compliance or remediation
costs not currently anticipated by us, which could have a material adverse
effect on our business, financial condition, results of operations or prospects.
See "Business -- Environmental and Safety Regulation."
DEPENDENCE ON EXECUTIVE OFFICERS AND DIRECTORS
Our future success depends to a significant extent on retaining the
services of certain executive officers and directors. We do not maintain key man
insurance. The loss of the services of key employees or directors (whether such
loss is through resignation or other causes) or the inability to attract
additional qualified personnel could have a material adverse effect on our
business, financial condition, results of operations or prospects.
SIGNIFICANT STOCKHOLDERS
As of December 21, 1998, our executive officers and directors, including H.
Wayne Huizenga, beneficially owned approximately 36.5% of our Common Stock. In
addition, H. Family Investments, Inc., a Florida corporation controlled by H.
Wayne Huizenga, Jr., Mr. Huizenga's son, owned approximately 21.5%
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<PAGE> 25
of our outstanding Common Stock. As a result, our executive officers and
directors are, together with H. Family Investments, Inc., able to exercise
controlling influence over the outcome of matters submitted to our stockholders
for approval, including the election of directors.
EFFECTS OF YEAR 2000 ISSUE
Our management information System is being developed to ensure that it is
Year 2000 compliant. Although we do not anticipate any material adverse effects
from the Year 2000 issue, we cannot assure you that we, or any business we
acquire, or any of our customers or vendors will not experience interruptions of
operations because of Year 2000 problems. We expect to convert all of the
information systems of the businesses we acquire to our System as soon as
practicable after each acquisition is completed. However, we cannot assure you
that all such systems will be converted prior to December 31, 1999. Although we
do not expect to incur significant expense to address the Year 2000 issue beyond
our capital investment in the System, Year 2000 problems might require us to
incur unanticipated expenses and such expenses could have a material adverse
effect on our business, financial condition, results of operations or prospects.
TRADING MARKET FOR THE NOTES
Prior to this Offering, there has been no trading market for the Notes. We
have been advised by the Initial Purchasers that they currently intend to make a
market in the Notes; however, the Initial Purchasers are not obligated to do so.
Any market-making may be discontinued at any time, and we cannot assure you that
an active trading market for the Notes will develop or, if a trading market
develops, that it will continue. Further, the liquidity of, and trading market
for the Notes may be adversely affected by declines and volatility in the market
for high yield securities generally. The liquidity of and trading market for the
Notes also may be adversely affected by any changes in our financial performance
or prospects or in the prospects for the companies in our industry. We expect
that the Notes will be eligible for trading in the PORTAL market. We do not
intend to list the Notes or the Exchange Notes on any national securities
exchange or to seek the admission thereof to trading in the National Association
of Securities Dealers Automated Quotation System.
THE EXCHANGE OFFER
THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), we will accept for exchange Old Notes which are properly
tendered on or prior to the Expiration Date and not withdrawn as permitted
below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City
time, on February 1, 1999; provided, however, that if the Company, in its sole
discretion, has extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended.
As of the date of this Prospectus, $175.0 million aggregate principal
amount at maturity of the Old Notes is outstanding. This Prospectus, together
with the Letter of Transmittal, is first being sent on or about December 31,
1998, to all Holders of Old Notes known to the Company. Our obligation to accept
Old Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions set forth under "-- Conditions of the Exchange Offer" below.
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the Exchange Offer is open, and thereby delay
acceptance for exchange of any Old Notes, by giving oral or written notice of
such extension to the Holders thereof as described below. During any such
extension, all Old Notes previously tendered will remain subject to the Exchange
Offer and may be accepted for exchange by the Company. Any Old Notes not
accepted for exchange for any reason will be returned without expense to the
tendering Holder as promptly as practicable after the expiration or termination
of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount at maturity of $1,000 and any integral multiple thereof.
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<PAGE> 26
We expressly reserve the right to amend or terminate the Exchange Offer,
and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "-- Conditions of the Exchange Offer." The Company will
give written or oral notice of any extension, amendment, non-acceptance or
termination to the Holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
RESALE OF NEW NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, including "Shearman & Sterling"
(available July 2, 1993), "K-III Communications Corporation" (available May 14,
1993), "Morgan Stanley & Co. Incorporated" (available June 5, 1991), "Mary Kay
Cosmetics, Inc." (available June 5, 1991), "Warnaco, Inc." (available October
11, 1991) and "Exxon Capital Holdings Corporation" (available May 13, 1988), the
Company believes that, except as described below, the New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any Holder of such Notes (other than any
such Holder which is a broker-dealer or an "affiliate" of the Company or the
Guarantors within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that, (i) such New Notes are acquired in the ordinary
course of such Holder's business, (ii) such Holder has no arrangement or
understanding with any person to participate in the distribution of such New
Notes, and (iii) such Holder is not engaged in, and does not intend to engage
in, a distribution of such New Notes. The Company does not intend to request the
Commission to consider, and the Commission has not considered, the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer as it has in such other circumstances. By tendering Notes for
New Notes, each Holder will represent to the Company, that (i) the New Notes
acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving such New Notes, whether or not such
person is the Holder, (ii) neither the Holder nor any such other person is
engaging in or intends to engage in a distribution of such New Notes and if such
Holder is not a broker-dealer, neither the Holder nor any such other person has
an arrangement or understanding with any person to participate in the
distribution of such New Notes within the meaning of the Securities Act and
(iii) neither the Holder nor any such person is an affiliate of the Company or
the Guarantors as defined in Rule 405 under the Securities Act. In the event
that any Holder of Old Notes cannot make the requisite representations to the
Company, such Holder cannot rely on such interpretation by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Unless an exemption from registration is otherwise available, any
such resale transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K under the Securities Act. This Prospectus may be used for an
offer to resell, resale or other transfer of New Notes only as specifically set
forth herein.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes, and that it has not entered into any arrangements or understanding with
the Company or any affiliate of the Company to distribute New Notes in
connection with any resale of such New Notes. See "Plan of Distribution." The
Letter of Transmittal states that by so acknowledging and delivering such a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
INTEREST ON THE NEW NOTES
The New Notes will bear interest at 10 3/8% per annum. Interest on the New
Notes will be payable semi-annually, in arrears, on June 15 and December 15 of
each year, commencing on June 15, 1999. Holders of New Notes will receive
interest on June 15, 1999 from the date of initial issuance of the New Notes,
plus an amount equal to the accrued interest on the Old Notes from the most
recent date to which interest has been
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paid to the date of exchange thereof for New Notes. Interest on the Old Notes
accepted for exchange will cease to accrue upon issuance of the New Notes.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal or (in the case of a book-entry transfer)
an Agent's Message (as defined) in lieu of such letter of Transmittal, to The
Bank of New York (the "Exchange Agent") at the address set forth below under
"Exchange Agent" on or prior to the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at the Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date with the Letter of Transmittal or an Agent's Message in lieu of
such Letter of Transmittal, or (iii) the Holder must comply with the guaranteed
delivery procedures described below. "Agent's Message" means a message,
transmitted by the Book-Entry Transfer Facility to and received by the Exchange
Agent and forming a part of a Book-Entry Confirmation, which states that the
Book-Entry Transfer Facility has received an express from the tendering
participant, which acknowledgment states that such participant has received and
agrees to be bound by the Letter of Transmittal and that the Company may enforce
such Letter of Transmittal against such participant. THE METHOD OF DELIVERY OF
OLD NOTES, LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED
THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO
LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined). In the event that signatures on a Letter
of Transmittal or a notice of withdrawal as the case may be, are required to be
guaranteed, such guarantees must be by a firm which is a member of the National
Association of Securities Dealers, Inc., by a commercial bank or trust company
having an office or correspondent in the United States or by an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). If Old Notes are registered in the name
of a person other than a signer of the Letter of Transmittal, the Old Notes
surrendered for exchange must be endorsed by, or accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered Holder with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Note not properly tendered or not accept any particular
Old Note which acceptance might, in the judgment of the Company or its counsel,
be unlawful. The Company also reserves the absolute right to waive any defects
or irregularities or conditions of the Exchange Offer as to any particular Old
Note either before or after the Expiration Date (including the right to waive
the ineligibility of any Holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer as
to any particular Old Note either before or after the Expiration Date (including
the Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or
22
<PAGE> 28
irregularities in connection with the tenders of Old Notes for exchange must be
cured within such reasonable period of time as the Company shall determine.
Neither the Company nor the Exchange Agent nor any other person shall be under
any duty to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered Holder or Holders of Old Notes, such Old Notes must be endorsed
or accompanied by powers of attorney, in either case signed by the registered
Holder or Holders exactly as the name or names of the registered Holder or
Holders appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted with the Letter of Transmittal.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "-- Conditions of the Exchange Offer" below. For purposes of the
Exchange Offer, the Company shall be deemed to have accepted properly tendered
Old Notes for exchange when, as and if the Company has given oral or written
notice thereof to the Exchange Agent, with written confirmation of any oral
notice to be given promptly thereafter.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility, (ii) a properly completed and duly executed
Letter of Transmittal or an Agent's Message in lieu thereof and (iii) all other
required documents. If any tendered Old Notes are not accepted for any reason
set forth in the terms and conditions of the Exchange Offer or if Old Notes are
submitted for a greater principal amount than the Holder wishes to exchange,
such unaccepted or non-exchange Old Notes will be returned without expense to
the tendering Holder thereof (or, in the case of Old Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry procedures described below, such
non-exchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer promptly after the date of this Prospectus. Any financial
institution that is a participant in the Book-Entry Transfer Facility's systems
may make book-entry delivery of Old Notes by causing the Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. Such participant using the Book-Entry
Transfer Facility's procedures for transfer should transmit its acceptance to
the Book-Entry Transfer Facility on or prior to the Expiration Date or comply
with the guaranteed delivery procedures described below. The Book-Entry Transfer
Facility will verify such acceptance, execute a book-entry transfer of the
tendered Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility and then send to the Exchange Agent confirmation of such book-entry
transfer, including the Agent's Message confirming that the Book-Entry Transfer
Facility has received an express acknowledgment from such participant that such
participant has received and agrees to be bound by the Letter of Transmittal and
that the Company may enforce the Letter of Transmittal against such participant.
However, although delivery of Old Notes may be effected through book-entry
transfer at the
23
<PAGE> 29
Book-Entry Transfer facility, an Agent's Message and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address set forth below under "-- Exchange Agent" on or prior to
the Expiration Date or there must be compliance with the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a Holder of Old Notes desires to tender such Old Notes and the Old Notes
are not immediately available, or time will not permit such Holder's Old Notes
or other required documents to reach the Exchange Agent before the Expiration
Date, or the procedure for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if (i) the tender is made through an Eligible
Institution, (ii) prior to the Expiration Date, the Exchange Agent received from
such Eligible Institution a Notice of Guaranteed Delivery, substantially in the
form provided by the Company (by telegram, telex, facsimile transmission, mail
or hand delivery), setting forth the name and address of the Holder of the Old
Notes and the amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that within three New York Stock Exchange ("NYSE")
trading days after the date of the execution of the Notice of Guaranteed
Delivery, the certificates for all physically tendered Old Notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, together with a
properly completed and duly executed appropriate Letter of Transmittal (or
facsimile thereof or Agent's Message in lieu thereof) with any required
signature guarantees and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent, and (iii) the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be,
together with a properly completed and duly executed Letter of Transmittal (or
facsimile thereof or Agent's Message in lieu thereof) with any required
signature guarantees and all other documents required by the Letter of
Transmittal, are received by the Exchange Agent within three NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under "-- Exchange
Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having tendered the
Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the certificate number or numbers and principal amount at
maturity of such Old Notes), (iii) contain a statement that such Holder is
withdrawing his election to have such Old Notes exchanged, (iv) be signed by the
Holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer to have the trustee with
respect to the Old Notes register the transfer of such Old Notes in the name of
the person withdrawing the tender and (v) specify the name in which such Old
Notes are registered, if different from that of the Depositor. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer described above,
any notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer and no New Notes will
be issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Any Old Notes that have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such Holder (or, in the case of Old Notes tendered by book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Old Notes will be credited
to an account maintained with the Book-Entry Transfer Facility for the Old
Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may retendered
by following the
24
<PAGE> 30
procedures described under "-- Procedures for Tendering Old Notes" above at any
time on or prior to 5:00 p.m., New York City time, on the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount at
maturity of the Old Notes being tendered for exchange. However, notwithstanding
any other provisions of the Exchange Offer, the Company will not be required to
accept for exchange, or exchange any New Notes for, any Old Notes, and may
terminate the Exchange Offer as provided herein before the acceptance of any Old
Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer which, in
the Company's sole judgment, might materially impair the ability of the Company
to proceed with the Exchange Offer;
(b) any law, statute, rule or regulation is proposed, adopted or enacted,
or any existing law, statue, rule or regulation is interpreted by the staff of
the Commission, which, in the Company's sole judgment, might materially impair
the ability of the Company to proceed with the Exchange Offer; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation of
the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of Holders who tendered such Old
Notes to withdraw their tendered Old Notes, or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver or any such
right, and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended.
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
BY MAIL: BY HAND OR OVERNIGHT COURIER:
The Bank of New York The Bank of New York
Corporate Trust Corporate Trust Services Window
101 Barclay Street -- 7E 101 Barclay Street
New York, New York 10286 New York, New York 10286
Attention: Theresa Gass Attention: Theresa Gass
Reorganization Section Reorganization Section
FACSIMILE TRANSMISSION: CONFIRMED BY TELEPHONE:
212-815-4699 212-815-5942
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS
25
<PAGE> 31
SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses of the Company to be incurred in connection with the
Company's performance and completion of the Exchange Offer will be paid by the
Company. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered Holder of the Old Notes
tendered hereby, or if tendered Old Notes are registered in the name of any
person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or on any other persons) will be
payable by the tendering Holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. Accordingly, such Old Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii)
pursuant to an effective registration statement under the Securities Act, (iii)
so long as the old Notes are eligible for resale pursuant to Rule 144A, to a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, or (iv)
pursuant to another available exemption from the registration requirements of
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States. The Company does not currently
anticipate that it will register under the Securities Act the resale of any Old
Notes that remain outstanding after consummation of the Exchange Offer (subject
to limited exceptions, if applicable).
Holders of the Old and New Notes which remain outstanding after
consummation of the Exchange Offer will vote together as a single class for
purposes of determining whether Holders of the requisite percentage thereof have
taken certain actions or exercised certain rights under the Indenture.
Upon consummation of the Exchange Offer, Holders of Old Notes will not be
entitled to any further registration rights under the Registration Rights
Agreement, except under limited circumstances. See "Exchange Offer; Registration
Rights."
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company.
26
<PAGE> 32
USE OF PROCEEDS
The net proceeds from the sale of the Old Notes in the Private Debt
Offering were approximately $168.8 million (after deducting discounts to the
Initial Purchasers and estimated Private Debt Offering expenses). The Company
will not receive any proceeds from the Exchange Offer. The net proceeds from the
sale of the Old Notes in the Private Debt Offering was used to repay certain
acquisition related subordinated debt and repay certain outstanding indebtedness
under the Credit Facilities. See "Description of Certain Indebtedness -- Credit
Facilities."
27
<PAGE> 33
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of September 30, 1998 (i) on a historical basis, (ii) pro forma for the
Acquisitions and Changes in Outstanding Indebtedness and (iii) pro forma for the
Acquisitions, Changes in Outstanding Indebtedness and as adjusted for the
Private Debt Offering and the application of the net proceeds of such offering.
This table should be read in conjunction with the Pro Forma Consolidated
Financial Statements and the Company's Consolidated Financial Statements
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Notes payable to financial institutions................... $262,500 $406,058 $265,408
Senior equipment obligations and other notes.............. 69,346 129,346 129,346
Subordinated promissory notes............................. 2,955 34,055 5,955
Subordinated convertible notes............................ 55,040 79,208 79,208
Notes offered hereby...................................... -- -- 175,000
-------- -------- --------
Total debt........................................ 389,841 648,667 654,917
-------- -------- --------
Stockholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding........... -- -- --
Common Stock, $0.01 par value, 250,000,000 shares
authorized; 44,360,334 shares issued and outstanding,
55,628,239 shares issued and outstanding pro
forma(1)............................................... 444 556 556
Additional paid-in capital................................ 180,460 267,278 267,278
Retained earnings......................................... 7,855 7,855 7,855
-------- -------- --------
Total stockholders' equity........................ 188,759 275,689 275,689
-------- -------- --------
Total capitalization........................................ $578,600 $924,356 $930,606
======== ======== ========
</TABLE>
- ---------------
(1) Does not include (i) 1,045,380 shares issuable upon the exercise of
outstanding options with exercise prices ranging from $2.96 to $6.69 per
share and a weighted average exercise price of $5.27, (ii) 5,000,000 shares
reserved for issuance in connection with options that may be granted under
the 1998 Stock Option Plan, (iii) 9,099,480 shares issuable upon conversion
of certain convertible promissory notes, and (iv) 100,000 shares issuable
upon the exercise of outstanding warrants. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Management -- Stock Option Plan," "Certain Relationships and Transactions,"
and "Description of Certain Indebtedness -- Promissory Notes."
28
<PAGE> 34
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION AND OPERATIONS DATA
The following selected consolidated financial information summarizes (i)
the statement of operations data and balance sheet data for the Predecessor
Company as of and for the fiscal years ended March 31, 1994 and 1995, and the
selected balance sheet data as of March 31, 1996, which have been derived from
the unaudited consolidated financial statements of the Predecessor Company not
included herein, (ii) the statement of operations data for the Predecessor
Company for the fiscal years ended March 31, 1996 and 1997 and the five months
ended August 31, 1997 and the selected balance sheet data as of March 31, 1997
and August 31, 1997, which have been derived from the audited consolidated
financial statements of the Predecessor Company included elsewhere in this
Prospectus, (iii) the statement of operations data of the Company for the period
from August 14, 1997 (inception) through December 31, 1997, and selected balance
sheet data as of December 31, 1997, which have been derived from the audited
consolidated financial statements of the Company appearing elsewhere in this
Prospectus, (iv) the consolidated statement of operations data of the Company
for the nine months ended September 30, 1998 and the selected balance sheet data
as of September 30, 1998, which have been derived from the unaudited
consolidated financial statements of the Company included elsewhere in this
Prospectus which, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the Company's results of operations and financial position at such date and for
such period, and (v) the pro forma consolidated statement of operations data for
the twelve months ended December 31, 1997 and the nine months ended September
30, 1998 and selected pro forma balance sheet data as of September 30, 1998,
which has been derived from the unaudited pro forma consolidated financial
statements included elsewhere in this Prospectus. The other data has been
derived from the consolidated financial statements referred to above for the
applicable periods. The selected consolidated historical and pro forma financial
information and operating data presented below should be read in conjunction
with the Company's Consolidated Financial Statements, the unaudited pro forma
consolidated financial statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus.
29
<PAGE> 35
<TABLE>
<CAPTION>
PREDECESSOR COMPANY THE COMPANY(1)
------------------------------------------------ ---------------------------
AUGUST 14 PRO FORMA
APRIL 1 (INCEPTION) AS ADJUSTED
FISCAL YEAR ENDED MARCH 31, THROUGH THROUGH YEAR ENDED
----------------------------------- AUGUST 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996 1997 1997 1997 1997(2)
------ ------ ------- ------- ---------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Equipment rentals............. $5,376 $7,237 $11,871 $15,328 $ 8,515 $ 7,410 $242,759
Sales of equipment, parts and
supplies.................... 1,768 2,367 4,302 4,177 1,205 1,895 158,215
------ ------ ------- ------- ------- ------- --------
Total revenue........... 7,144 9,604 16,173 19,505 9,720 9,305 400,974
Cost of revenue:
Cost of equipment rentals,
excluding depreciation...... 2,549 3,442 4,380 6,029 2,193 2,196 89,055
Rental equipment
depreciation(4)............. 598 1,842 2,053 3,465 1,848 1,526 47,984
Cost of sales of equipment,
parts and supplies.......... 1,919 1,156 4,491 2,791 984 1,691 111,907
------ ------ ------- ------- ------- ------- --------
Total cost of revenue... 5,066 6,440 10,924 12,285 5,025 5,413 248,946
------ ------ ------- ------- ------- ------- --------
Gross profit................... 2,078 3,164 5,249 7,220 4,695 3,892 152,028
Selling, general and
administrative expenses....... 865 1,634 2,972 3,564 1,683 1,081 65,618
Non-rental equipment
depreciation and
amortization(4)............... 53 162 180 238 115 284 14,908
------ ------ ------- ------- ------- ------- --------
Operating income............... 1,160 1,368 2,097 3,418 2,897 2,527 71,502
------ ------ ------- ------- ------- ------- --------
Other (income)/expense:
Interest expense.............. 162 239 583 866 580 760 51,450
Other (income)/expense, net... (96) (353) (196) (203) 62 -- (1,170)
------ ------ ------- ------- ------- ------- --------
66 (114) 387 663 642 760 50,280
------ ------ ------- ------- ------- ------- --------
Income before provision for
income taxes.................. 1,094 1,482 1,710 2,755 2,255 1,767 21,222
Provision for income taxes.... 438 593 732 1,128 939 766 8,913
------ ------ ------- ------- ------- ------- --------
Net income..................... $ 656 $ 889 $ 978 $ 1,627 $ 1,316 $ 1,001 $ 12,309
====== ====== ======= ======= ======= ======= ========
Basic and diluted earnings per
share(5)...................... $ 0.04 $ 0.22
======= ========
OTHER DATA:
EBITDA(6)..................... $1,907 $3,725 $ 4,526 $ 7,324 $ 4,798 $ 4,337 $135,564
EBITDA Margin(7).............. 26.7% 38.8% 28.0% 37.5% 49.4% 46.6% 33.8%
Ratio of EBITDA to interest
expense..................... 2.6x
Ratio of earnings to fixed
charges(8).................. 6.5x 5.6x 3.0x 3.2x 4.1x 3.0x 1.4x
Rental equipment
purchases(9)................ $ -- $ -- $ 8,799 $ 8,101 $ 1,775 $ 2,461 $170,741
Amortization of goodwill(4)... -- -- -- -- -- 166 11,597
Depreciation and other
amortization................ 651 2,004 2,233 3,703 1,963 1,644 51,295
<CAPTION>
THE COMPANY(1)
-----------------------------------------------
PRO FORMA AS ADJUSTED
------------------------------
TWELVE
NINE MONTHS NINE MONTHS MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1998(2) 1998(2)(3)
------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Equipment rentals............. $ 73,644 $218,904 $282,634
Sales of equipment, parts and
supplies.................... 39,084 117,863 158,765
-------- -------- --------
Total revenue........... 112,728 336,767 441,399
Cost of revenue:
Cost of equipment rentals,
excluding depreciation...... 25,195 79,237 99,921
Rental equipment
depreciation(4)............. 13,555 38,905 50,825
Cost of sales of equipment,
parts and supplies.......... 28,090 81,321 112,082
-------- -------- --------
Total cost of revenue... 66,840 199,463 262,828
-------- -------- --------
Gross profit................... 45,888 137,304 178,571
Selling, general and
administrative expenses....... 22,287 57,121 76,250
Non-rental equipment
depreciation and
amortization(4)............... 2,931 11,486 15,271
-------- -------- --------
Operating income............... 20,670 68,697 87,050
-------- -------- --------
Other (income)/expense:
Interest expense.............. 9,391 41,985 55,300
Other (income)/expense, net... (538) (630) (377)
-------- -------- --------
8,853 41,355 54,923
-------- -------- --------
Income before provision for
income taxes.................. 11,817 27,342 32,127
Provision for income taxes.... 4,963 11,483 13,493
-------- -------- --------
Net income..................... $ 6,854 $ 15,859 $ 18,634
======== ======== ========
Basic and diluted earnings per
share(5)...................... $ 0.23 $ 0.28 $ 0.33
======== ======== ========
OTHER DATA:
EBITDA(6)..................... $ 37,694 $119,718 $153,520
EBITDA Margin(7).............. 33.4% 35.5% 34.8%
Ratio of EBITDA to interest
expense..................... 2.8x
Ratio of earnings to fixed
charges(8).................. 2.0x 1.6x 1.5x
Rental equipment
purchases(9)................ $ 76,816 $175,309 $220,211
Amortization of goodwill(4)... 1,961 8,698 11,597
Depreciation and other
amortization................ 14,525 41,693 54,496
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY THE COMPANY
------------------------------------------------- --------------------------------------------
PRO FORMA
AS ADJUSTED
AS OF MARCH 31, AS OF AS OF AS OF AS OF
------------------------------------ AUGUST 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1997 1997 1997 1998 1998(2)
------ ------- ------- ------- ---------- ------------ ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Rental equipment, net......... $3,244 $ 8,907 $14,722 $21,789 $21,886 $30,619 $316,824 $ 420,591
Goodwill, net................. -- -- -- -- -- 36,686 244,935 462,386
Total assets.................. 5,888 10,948 17,423 27,614 29,088 79,157 662,850 1,036,065
Total debt.................... 3,595 5,871 9,944 16,100 16,559 42,928 389,841 654,917
Stockholders' equity.......... 1,206 1,862 2,840 4,467 5,768 26,001 188,759 275,689
</TABLE>
- ---------------
(1)The Acquisitions have been accounted for as purchases and, accordingly, the
operations of the acquired businesses are included in the statement of
operations data and other data from the date of acquisition.
(2)The pro forma as adjusted statement of operations data for the year ended
December 31, 1997 and the nine and twelve months ended September 30, 1998 and
the pro forma as adjusted selected balance sheet data as of September 30,
1998 give effect to the Acquisitions, the Founders' Additional Contribution,
the Common Stock Private Placement, the Initial Public Offering, the Changes
in Outstanding Indebtedness, the Private Debt Offering, and the application
of the net proceeds of such offering as described in the "Pro Forma
Consolidated Financial Statements" as if such transactions had occurred on
the first day of the period presented, and in the case of the pro forma as
adjusted balance sheet data, as of September 30, 1998. See "Use of Proceeds,"
"Risk Factors -- Substantial Debt," "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Certain Relationship and Transactions" and the Company's pro forma and
historical financial statements and related notes.
(3)The unaudited pro forma as adjusted statement of operations data for the
twelve months ended September 30, 1998 includes the historical results of the
Company for the twelve months ended September 30, 1998 and the results of the
Acquisitions from the effective date of their acquisition by the
30
<PAGE> 36
Company, and gives effect to the applicable 1997 Pro Forma Combined
Acquisitions and the applicable 1998 Pro Forma Combined Acquisitions
described in "Unaudited Pro Forma Consolidated Financial Statements," as if
these transactions had occurred on October 1, 1997. The results of the
Acquisitions subsequent to the dates of their acquisition are included in the
historical results of the Company.
In addition, the unaudited pro forma as adjusted consolidated statement of
operations data for the twelve months ended September 30, 1998 gives
additional effect to the following, as if such transactions had occurred on
October 1, 1997:
a. Adjustment to historical lease expense on rental equipment resulting from
the termination of certain leases which occurred in connection with the
Acquisitions (decrease of $2.9 million in cost of revenue).
b. Adjustment to the historical rental equipment depreciation recorded to
conform to the Company's accounting policies. Adjustment is based on the
estimated fair value of rental equipment acquired using estimated useful
lives ranging from two to ten years on the straight-line method with
salvage values ranging from zero to ten percent of cost (decrease of
$20.9 million in rental depreciation expense).
c. Adjustment to reduce historical compensation and benefits of certain
former owners and executives of the acquired businesses to amounts
consistent with employment agreements entered into between the certain
owners and executives and the Company, as well as the elimination of
certain private company business expenses that will not be incurred by
the Company (decrease of $11.8 million in selling, general and
administration expenses).
d. Adjustment to historical facility lease expense to reflect the increase
in current lease payments in excess of historical amounts (increase of
$0.6 million in selling, general and administrative expenses).
e. Adjustment to historical property and equipment depreciation recorded to
conform to the Company's accounting policies. Adjustment is based on the
estimated fair value of property and equipment acquired using estimated
useful lives ranging from three to 39 years on the straight-line method
(decrease of $0.8 million in depreciation and amortization of non-rental
property and equipment).
f. Adjustment to recognize the amortization of goodwill and non-compete
agreements using an estimated useful life of 40 and five years,
respectively. Management believes that 40 years is a reasonable life for
goodwill in light of the characteristics of the equipment rental industry
such as the lack of dependence on technological change, the many years
that the industry has been in existence, the current trend towards the
outsourcing of equipment, the recent double digit annual growth rate and
the stable nature of the customer base. In addition, the Company has
focused on acquiring well-established companies that have been in
existence for many years (increase of $9.3 million in non-rental property
and equipment, depreciation and amortization).
g. Adjustment to record interest on borrowings under the Credit Facilities
and notes issued to former owners of the acquired businesses, net of
interest related to debt not assumed or paid off at acquisition. The
interest rate on the Credit Facilities is determined using a base rate
plus a spread based on certain financial performance ratios. Based on
current market rates, an incremental borrowing rate of 8.1% was used to
determine interest expense. A change of one-eighth of a percent would
result in a $0.3 million reduction or increase in the pro forma
adjustment to annual interest expense (increase of $20.7 million in
interest expense).
h. To eliminate historical gains related to assets not acquired (increase of
$0.3 million in other (income)/expense).
i. To record a provision (benefit) for income taxes at an expected effective
rate of 42%.
j.To record interest expense and amortization of debt issuance cost related
to the Private Debt Offering (increase of $5.1 million in interest
expense).
These pro forma adjustments represent, in the opinion of management, all
adjustments necessary to present fairly the Company's pro forma results of
operations for the twelve months ended September 30, 1998, and are based
upon available information and certain assumptions considered reasonable
under the circumstances. The unaudited pro forma consolidated financial data
presented herein does not purport to present what the Company's results of
operations would actually have been had such events leading to the pro forma
adjustments in fact occurred at the beginning of the period indicated or to
project the Company's financial position or results of operations for any
future date or period.
(4) The amortization period for rental equipment depreciation ranges from two to
ten years. The amortization period for goodwill is 40 years.
(5)Earnings per share data is not included for the Predecessor Company on a
historical basis as such information would not be representative of the
capital structure of the Company after this Offering.
(6)EBITDA represents earnings before interest expense, taxes, depreciation and
amortization. EBITDA is used by certain investors as an indicator of a
company's historical ability to service debt. However, EBITDA is not intended
to represent cash flows for the period, nor has it been presented as an
alternative to either (i) operating income (as determined by GAAP), as an
indicator of operating performance or (ii) cash flows from operating,
investing and financing activities (as determined by GAAP) and is thus
susceptible to varying calculations. EBITDA as presented may not be
comparable to other similarly titled measures of other companies.
(7)EBITDA margin represents EBITDA as a percentage of total revenue.
(8) For purposes of determining the ratio of earnings to fixed charges, (i)
earnings consist of income before income taxes plus fixed charges and (ii)
fixed charges consists of interest expense, amortization of debt issuance
costs, and the estimated portion of rental expense.
(9)Rental equipment purchases represent the purchase price of rental equipment
inventory acquired during the period.
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<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's consolidated results
of operations and financial condition should be read in conjunction with the
Consolidated Financial Statements, and the unaudited Pro Forma Consolidated
Financial Information and the "Selected Consolidated Historical and Pro Forma
Consolidated Financial Information and Operating Data" included elsewhere in
this Prospectus.
GENERAL
NationsRent is one of the fastest growing equipment rental companies in the
United States. The Company is taking advantage of the fragmentation in the
equipment rental industry and the absence of an equipment rental company with
significant market share to achieve a leading market position by creating an
integrated network of nationally branded locations offering broad product
selection and superior customer service. NationsRent has become a leading
provider of rental equipment in selected markets as a result of its strategy to
acquire core businesses and open or acquire new locations concentrated around
those businesses. The Company believes that this "cluster" strategy enables it
to (i) increase profitability in its acquired stores and (ii) achieve
profitability in its newly opened locations more quickly than its competitors.
By implementing the cluster strategy and branding the equipment fleet offered at
the Company's locations, NationsRent is able to provide a full range of rental
equipment to customers with a wide variety of equipment rental needs.
NationsRent seeks to acquire businesses that have (i) strong positions in
their geographic market, (ii) experienced local management teams that will
continue to work with the Company following the acquisition, (iii) high quality
rental equipment inventory and (iv) physical and operating characteristics that
are suited to conversion to the NationsRent format. Since its formation in
August 1997, NationsRent consummated the acquisition of 32 equipment rental
businesses with 132 locations in Alabama, Florida, Georgia, Indiana, Kentucky,
Louisiana, Michigan, Ohio, Pennsylvania, Tennessee, Texas and West Virginia. The
aggregate consideration paid by the Company in these 32 acquisitions was
approximately $586.2 million and consisted of approximately (i) $365.9 million
in cash, (ii) $5.9 million of future non-contingent contractual cash payments
(iii) $38.6 million of subordinated promissory notes, (iv) $129.6 million of
convertible subordinated promissory notes, (v) 5,553,023 shares of Common Stock
and (vi) warrants to purchase 100,000 shares of Common Stock at the initial
public offering price. In addition, the Company repaid or assumed certain
outstanding indebtedness of the acquired businesses. The cash portion of the
consideration paid has been funded with equity contributions and borrowings
under the Credit Facilities.
After making an acquisition, the Company converts acquired locations to the
NationsRent format. The cost of converting an acquired location to the
NationsRent format varies depending on the physical properties of the acquired
location and the condition, breadth and depth of rental equipment inventory at
such location, which are factors considered in the selection and pricing of
acquisition candidates. Once NationsRent has established a presence in a
particular market, it may open new locations in that geographic area or adjacent
areas. Since August 1997, the Company has opened six new locations. The Company
does not plan to open any additional new locations in 1998. However, the Company
continues to evaluate the need for new locations as it acquires equipment rental
companies in new markets. The cost of opening the Company's six new locations
has varied depending on whether the Company has leased or purchased the
underlying real property, the size of the location and the breadth and depth of
inventory at each location. See "-- Liquidity and Capital Resources." The
average cost incurred by the Company through September 30, 1998 to open new
locations was approximately $2.6 million per location. The Company's new
locations have on average achieved profitability within approximately five
months of their opening.
The Company derives its revenue from (i) equipment rental (65% of total
revenue for the nine months ended September 30, 1998), (ii) sale of used
equipment (12%), (iii) sale of new equipment (12%) and (iv) sale of spare parts
and supplies, maintenance and repair services (11% in the aggregate, no single
item of which accounts for more than 10% of total revenue). The growth of rental
revenue 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. Revenue generated from the sale of used equipment is
affected by
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<PAGE> 38
price, general economic conditions and the condition of the equipment. Revenue
from the sale of new equipment is affected by price and general economic
conditions. Revenue from the sale of spare parts and supplies, maintenance and
repair services is primarily affected by equipment rental and sales volume.
The principal components of the Company's cost of revenue include
depreciation of rental equipment, costs of new and used equipment sold,
personnel costs, occupancy costs, repair and maintenance costs and vehicle
operations. Rental equipment depreciation is calculated using the straight-line
method over the estimated useful life of such equipment. The range of useful
lives estimated by management for rental equipment is two to eight years and is
depreciated to a salvage value of zero to ten percent of original cost. Certain
lift equipment is depreciated over a ten-year period.
Selling, general and administrative expense includes management salaries,
advertising and marketing, travel, administrative and clerical salaries and data
processing.
Non-rental equipment depreciation and amortization includes the
depreciation of fixed assets that are not offered for rent, amortization of
leasehold improvements and amortization of intangible assets related to the
acquired businesses.
The acquisitions completed in 1997 have resulted in a significantly altered
cost structure of the Predecessor Company primarily due to changes to owners'
compensation, depreciation methodologies, interest expense and real estate
costs. The Company believes that the pre-acquisition historical results of the
acquired businesses are not indicative of future results. In addition, since the
Company was only in operation for approximately one month during 1997,
meaningful comparison to prior year can not be made. As such, the following
discussion of the historical and pro forma results of operations does not set
forth any prior year comparisons.
The following table sets forth, for the periods indicated, information
derived from the historical and pro forma consolidated statements of operations
of the Company expressed as a percentage of total revenue.
<TABLE>
<CAPTION>
HISTORICAL
AUGUST 14 PRO FORMA NINE MONTHS ENDED
(INCEPTION) YEAR SEPTEMBER 30, 1998
TO ENDED -------------------
DECEMBER 31, DECEMBER 31, PRO
1997 1997 HISTORICAL FORMA
------------ ------------ ---------- -----
<S> <C> <C> <C> <C>
Revenue:
Equipment rentals............................ 79.6% 60.5% 65.3% 65.0%
Sales of equipment, parts and supplies....... 20.4 39.5 34.7 35.0
------ ------ ------ -----
Total revenue........................ 100.0 100.0 100.0 100.0
Cost of revenue:
Cost of equipment rentals, excluding
depreciation.............................. 23.6 22.2 22.4 23.5
Rental equipment depreciation................ 16.4 12.0 12.0 11.6
Cost of sales of equipment, parts and
supplies.................................. 18.2 27.9 24.9 24.1
------ ------ ------ -----
Total cost of revenue................ 58.2 62.1 59.3 59.2
------ ------ ------ -----
Gross profit................................... 41.8 37.9 40.7 40.8
Selling, general and administrative expenses... 11.6 16.4 19.8 17.0
Non-rental equipment depreciation and
amortization................................. 3.0 3.7 2.6 3.4
------ ------ ------ -----
Operating income............................... 27.2% 17.8% 18.3% 20.4%
====== ====== ====== =====
</TABLE>
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<PAGE> 39
HISTORICAL RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998
Revenue. The following table sets forth the Company's revenue by type for
the nine months ended September 30, 1998 (in thousands, except percentages):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
-------------------
<S> <C> <C>
Equipment rentals........................................... $ 73,644 65%
Sales of equipment, parts, and supplies..................... 39,084 35
-------- ---
$112,728 100%
======== ===
</TABLE>
Equipment rental revenue as a percentage of total revenue was 65% for the
nine months ended September 30, 1998. The Company continues to expand its rental
equipment inventory at its current locations and has targeted equipment rental
revenue as a percentage of total revenue to be greater than 60%. Equipment
revenue as a percentage of total revenue exceeded 60% for the nine months ended
September 30, 1998, due to expansion of the rental fleet as well as the deferral
of used equipment sales scheduled for the end of the third quarter to the fourth
quarter of 1998.
Gross Profit. Gross profit for the nine months ended September 30, 1998
was $45.9 million or 40.7% of revenue.
Operating Expenses. Selling, general and administrative expenses for the
nine months ended September 30, 1998 were $22.3 million or 19.8% of revenue.
Non-rental equipment depreciation and amortization for the nine months ended
September 30, 1998 was $2.9 million or 2.6% of revenue.
Other Income and Expense. Interest expense for the nine months ended
September 30, 1998 was $9.4 million or 8.3% of revenue. Interest expense is
primarily attributable to the Company's Credit Facilities and subordinated notes
issued for acquisitions.
Income Taxes. The Company's effective income tax rate for the nine months
ended September 30, 1998 was 42%. The amount above statutory income tax rates is
attributable to non-deductible goodwill amortization for federal income tax
purposes.
PRO FORMA RESULTS OF OPERATIONS
Pro Forma Nine Months Ended September 30, 1998
Revenue. Total revenue for the nine months ended September 30, 1998 was
$336.8 million.
Gross Profit. Gross profit for the nine months ended September 30, 1998
was $137.3 million, or 40.8% of total revenue.
Total Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1998 was $57.1
million, or a 17.0% of total revenue.
Operating Income. Operating income for the nine months ended September 30,
1998 was $68.7 million, or 20.4% of total revenue.
Pro Forma Year Ended December 31, 1997
Revenue. Total revenue for the year ended December 31, 1997 was $401.0
million.
Gross Profit. Gross profit for the year ended December 31, 1997 was $152.0
million, or 37.9% of total revenue.
Total Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1997 were $65.6 million,
or 16.4% of total revenue.
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<PAGE> 40
Operating Income. Operating income for the year ended December 31, 1997
was $71.5 million, or 17.8% of total revenue.
HISTORICAL RESULTS OF OPERATIONS -- PREDECESSOR COMPANY
Fiscal Year Ended March 31, 1997 ("Fiscal 1997") as Compared to
Fiscal Year Ended March 31, 1996 ("Fiscal 1996")
Revenue. Total revenue for Fiscal 1997 increased 20.6% to $19.5 million
from $16.2 million in Fiscal 1996. This increase was primarily attributable to a
29.1% increase in equipment rental revenue. Equipment rental revenue increased
as a result of the increased selection and availability of rental equipment and
from the opening of two new locations during Fiscal 1997.
Gross Profit. Gross profit for Fiscal 1997 increased 37.6% to $7.2 million
from $5.2 million in Fiscal 1996. Gross margin increased from 32.5% in Fiscal
1996 to 37.0% in Fiscal 1997. This improvement primarily resulted from increased
margins on the sale of used equipment.
Total Selling, General and Administrative Expenses. Selling, general and
administrative expenses for Fiscal 1997 increased 20.6% to $3.8 million from
$3.2 million in Fiscal 1996. As a percentage of total revenue, these costs were
19.5% in Fiscal 1996 compared with 19.5% in Fiscal 1997. The increase in
selling, general and administrative expenses was primarily attributable to
additional administrative staff hired and growth in business volume during
Fiscal 1997. In addition, the Company incurred additional non-rental
depreciation expense attributable to an increase in property, plant and
equipment as a result of the two locations opened during Fiscal 1997.
Operating Income. As a result of the foregoing, operating income increased
63.0% from $2.1 million for Fiscal 1996 to $3.4 million in Fiscal 1997.
Operating income margin increased from 13.0% in Fiscal 1996 to 17.5% in Fiscal
1997.
Other Expense. Other expense for Fiscal 1997 increased to $0.7 million
from $0.4 million in Fiscal 1996. This increase was primarily attributable to an
increase in debt and related interest expense which resulted from the Company's
increased financing of rental equipment asset purchases.
Income Tax Expense. Income tax expense was $1.1 million for Fiscal 1997,
compared to $0.7 million in Fiscal 1996. The Company's effective tax rate was
40.9% for Fiscal 1997, compared to 42.8% for the same period in Fiscal 1996.
Net Income. Net income for Fiscal 1997 increased 66.4% to $1.6 million
from $1.0 million for Fiscal 1996 for the aforementioned reasons. Net income as
a percentage of revenue was 8.3% for Fiscal 1997 compared with 6.1% for Fiscal
1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash have been the funding of acquisitions
and capital expenditures. To date, the Company has funded its cash requirements
with (i) borrowings under the Credit Facilities, (ii) $48.4 million of equity
contributions from the founders of the Company, (iii) $27.6 million of proceeds
from a private placement of Common Stock, (iv) $95.7 million (after deducting
underwriting discounts and commissions and offering expenses) from its Initial
Public Offering of 13,000,000 shares of Common Stock at $8.00 per share, and (v)
the use of equipment leases.
The Company's net cash provided by operations was $39.3 million for the
nine months ended September 30, 1998. Net cash used in investing activities was
$278.0 million for the nine months ended September 30, 1998. Cash used in
investing activities in the first nine months of 1998 was primarily a result of
cash consideration of $208.0 million for the acquisition of businesses, net of
cash acquired and $76.8 million for purchases of rental equipment. Cash provided
by financing activities during this period was $246.4 million for the nine
months ended September 30, 1998. Cash provided by financing activities was
primarily a result of (i) $23.4 million of additional equity contributions from
the Company's founders, (ii) $27.6 million in proceeds from a private placement
of Common Stock, (iii) $95.7 million (after deducting underwriting
35
<PAGE> 41
discounts and commissions and offering expenses) from its Initial Public
Offering of 13,000,000 shares of Common Stock at $8.00 per share, and (iv)
borrowings under the Company's Credit Facilities.
In September 1998, the Company amended its Credit Facilities to increase
the facilities to include the $175.0 million Term Loan in addition to its
existing $260.0 million Revolving Line of Credit. Recently, the Credit
Facilities were amended further to allow the administrative agent to reallocate
the aggregate dollar amounts of the bank commitments between the Revolving Line
of Credit and the Term Loan, provided that the aggregate commitment may not be
more than $435.0 million and the aggregate commitment under the Revolving Line
of Credit may not be less than $260.0 million. The Revolving Line of Credit has
a three-year term scheduled to expire in June 2001 and the Term Loan has a
six-year term scheduled to expire in September 2004. The Credit Facilities can
be used to complete permitted acquisitions, make capital expenditures, enter
into standby letters of credit, or for working capital and other general
corporate purposes. Borrowings under the Revolving Line of Credit bear interest
at either the BankBoston, N.A. base rate plus a percentage ranging from 0.00% to
0.50% or, at the Company's option, the Eurodollar market rate plus a percentage
ranging from 2.00% to 2.75%. The Term Loan bears interest ranging from 3.00% to
3.25% over the Eurodollar market rate. The percentage over the BankBoston, N.A.
base rate or the Eurodollar market rate is based on the Company's financial
performance as measured by the total funded debt ratio. The Credit Facilities
are secured by a security interest in substantially all of the assets of the
Company. The Credit Facilities also impose, among other covenants, a tangible
assets to senior debt covenant, a restriction on all of the Company's retained
earnings including the declaration and payment of cash dividends, consent
requirements on certain acquisitions and a restriction on the ratio of total
funded debt to earnings before interest, income taxes, depreciation and
amortization. On September 30, 1998, $87.5 million and $175.0 million of cash
borrowings were outstanding under the Revolving Line of Credit and Term Loan,
respectively.
In December 1998, the Company completed its Private Debt Offering in which
it raised net proceeds of approximately $168.8 million (after the Initial
Purchasers' discounts and commissions and paying other estimated expenses)
through the sale of the Old Notes. The Company used the net proceeds from the
Private Debt Offering to repay certain subordinated acquisition debt and certain
outstanding indebtedness under its Credit Facilities.
The Company's short-term cash requirements for its existing operations
consist of (i) capital expenditures to maintain, modernize and expand its rental
equipment inventory, (ii) working capital requirements, and (iii) operating
activities such as repair and maintenance of rental equipment, purchase of
merchandise inventory and other operating activities. The Company estimates that
equipment expenditures for its existing locations, locations under agreements to
be acquired and for new store openings will be in the range of $150.0 million to
$200.0 million (approximately one-third of which is to replace existing rental
equipment), net of proceeds from used equipment sales, over the next 12 months.
In addition, the Company believes that it will be required to make equipment
expenditures in connection with new acquisitions. The Company believes that it
will be able to finance its short-term cash needs through borrowings under the
Credit Facilities, the use of equipment leases and cash generated from
operations. The Company estimates that such sources will be sufficient to fund
the cash required for the Company's existing operations for at least 12 months.
During the nine months ended September 30, 1998, the Company opened six new
locations within identified "clusters." The Company estimates that the aggregate
capital costs associated with each such new location will be in the range of
$2.0 million to $4.5 million. The Company believes that cash generated from
operations and borrowings under the Credit Facilities will be sufficient to fund
these costs without additional debt or equity financings.
The Company has customized a management information system that became
operational at certain locations in the fourth quarter of 1998. The Company
estimates the total cost of installation of the System at the Company's existing
locations will range between $5.0 million and $7.0 million and believes cash
generated from operations and borrowings under the Credit Facilities will be
sufficient to fund these costs. The Company expects that the incremental costs
of installation of the System at additional locations will not be significant on
a per location basis.
The Company plans to continue its acquisition strategy and expects to
finance future acquisitions using cash, capital stock, notes and/or assumption
of indebtedness. To fully implement its growth strategy and meet
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<PAGE> 42
the resulting capital requirements, the Company will be required to increase
amounts available under the Credit Facilities, issue future debt instruments or
raise additional capital through equity financings. There can be no assurance
that any such increase to the Credit Facilities will be available or, if
available, will be on terms satisfactory to the Company, or that the Company
will be able to successfully complete any future debt or equity financings.
SEASONALITY AND FLUCTUATIONS IN OPERATING RESULTS
The Company's revenue and income are dependent upon activity in the
construction industry in the markets served by the Company. Construction
activity is dependent upon weather and other seasonal factors affecting
construction in the geographic areas where the Company has operations. Because
of this variability in demand, the Company's quarterly revenue may fluctuate,
and revenue for the first quarter of each year can be expected to be lower than
the remaining quarters. Although the Company believes that the historical trend
in quarterly revenue for the second, third and fourth quarters of each year is
generally higher than the first quarter, there can be no assurance that this
will occur in future periods. Accordingly, quarterly or other interim results
should not be considered indicative of results to be expected for any other
quarter or for a full year.
Operating results may fluctuate due to other factors including, but not
limited to (i) changes in general economic conditions including changes in
national, regional or local construction or industrial activities, (ii) the
timing of acquisitions and opening of new locations, (iii) the timing of
expenditures for new rental equipment and the disposition of used equipment,
(iv) competitive pricing pressures and (v) changes in interest rates.
The Company will incur significant expenses in opening new locations, such
as employee training, marketing and facility set-up costs. Initially, new
locations may generate lower operating margins than established locations and
may operate at a loss. In addition, when the Company purchases new rental
equipment, the depreciation related to such equipment may contribute to
near-term margin decline, because such equipment may not initially generate
revenue at a rate that is sufficient to match such increased depreciation
expense. As such, the opening of new rental locations and the purchase of new
equipment to expand the Company's current rental equipment inventory may reduce
the Company's operating margins during a start-up period.
INFLATION
The Company does not believe that inflation has been a significant factor
to the cost of its operations or the operations of the Predecessor Company.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company adopted SFAS No. 130 during the
quarter ended June 30, 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in a full set
of financial statements. The objective of SFAS No. 130 is to report a measure
(comprehensive income) of all changes in equity of an enterprise that result
from transactions and other economic events in a period other than transactions
with owners. The adoption of SFAS 130 did not have a material impact on the
Company's consolidated financial statements, as comprehensive income was equal
to net income for all periods presented. The Company is currently evaluating the
reporting formats recommended under this Statement. SFAS No. 131 establishes a
new method by which companies will report operating segment information. This
method requires disclosure of information which is based on the manner in which
management organizes the segments within a company for making operating
decisions and assessing performance. The Company continues to evaluate the
provisions of SFAS No. 131 and, upon adoption, the Company may report operating
segments.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 establishes criteria for determining which costs of
developing or obtaining internal-use computer software should be charged to
expense and which should be capitalized. SOP 98-1 is effective for all
transactions entered into in fiscal years beginning after December 15, 1998. The
Company does not believe that the adoption of SOP 98-1 will have a material
effect on the Company's financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5. SOP 98-5 requires that all
non-governmental entities expense costs of start-up activities, including
pre-operating, pre-opening and organization activities, as those costs are
incurred. In the opinion of
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<PAGE> 43
management, the adoption of this Statement will not have a material effect on
the Company's financial position or results of operations.
YEAR 2000
Since many computer systems and other equipment with embedded chips or
processors use only two digits to represent the year, these systems may be
unable to process accurately certain data before, during or after the year 2000.
As a result, business and governmental entities are at risk for possible
miscalculations or systems failures causing disruptions in their business
operations. This is commonly known as the "Year 2000" issue.
The Company began developing its own management information System during
the second quarter of 1998. The Company's System has been developed to ensure
that it is Year 2000 compliant. In October 1998, the Company began converting
its operations to the new System and has converted eight of its locations. The
Company expects to have all of its current operations converted to the new
System by the end of the second quarter of 1999.
Although the Company does not believe it will suffer any material effects
from the Year 2000 issue in its current operations, there can be no assurance
that the Company will be able to convert the systems of future acquisitions in a
timely manner to avoid any Year 2000 issues. The Company intends to convert all
of the systems of the businesses it acquires to the Company's System as soon as
practicable after each acquisition is completed. There can be no assurance,
however, that all such systems will be converted prior to December 31, 1999.
The Company relies on third-party suppliers for operating supplies,
merchandise for resale, utilities, transportation, equipment for rent and retail
sales and other key services. Interruption of any such third-party's operations
due to Year 2000 issues could have a material adverse effect on the Company's
operations. The Company has begun efforts to evaluate the progress of the
Company's critical third-party suppliers relative to their Year 2000 issues.
This evaluation process is scheduled for completion by the end of the second
quarter in 1999.
The Company is also dependent upon its customers for revenue and cash flow.
Year 2000 interruptions in the Company's customers' operations could result in
reduced revenue, decreased utilization of rental equipment, increased inventory
levels of merchandise, increased accounts receivable levels and cash flow
reductions. The Company has a very broad customer base which should minimize the
impact of isolated failures of its customers' systems. The Company has begun
efforts to evaluate the progress of its critical customers' relative to their
Year 2000 issues. This evaluation process is scheduled for completion by the end
of the second quarter in 1999.
Contingency plans for Year 2000-related interruptions are being developed
and will include, but not be limited to, the development of emergency backup and
recovery procedures for lost data, development of plans as a result the
Company's assessment of customer Year 2000 issues, identification of alternate
suppliers, acceleration of the time it takes to convert newly acquired locations
from their systems to the Company's System and increasing inventory levels of
critical supplies and rental equipment. All plans are expected to be completed
by the end of the second quarter in 1999. These activities are intended to
provide a means of managing risk, but cannot eliminate the potential for
disruption due to third-party failure.
Although the Company does not expect to incur significant expense to
address the Year 2000 issue beyond its capital investment in its System, Year
2000 problems might require the Company to incur unanticipated expenses which
could have a material adverse effect on the Company's business, financial
condition, results of operations or prospects.
The Company's Year 2000 efforts are ongoing and its overall plan, as well
as the consideration of contingency plans, will continue to evolve as new
information becomes available. While the Company anticipates no material
interruption of its business activities, the failure to correct a material Year
2000 problem could result in an interruption in, or a failure of, certain normal
business activities or operations. Such failures could materially and adversely
affect the Company's results of operations, liquidity and financial condition.
Due to the general uncertainty inherent in the Year 2000 problem, resulting in
part from the uncertainty of the Year 2000 readiness of third-party suppliers
and customers, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition.
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<PAGE> 44
BUSINESS
GENERAL
NationsRent is one of the fastest growing equipment rental companies in the
United States. We have acquired a platform of equipment rental businesses
concentrated in selected markets and are building a network of nationally
branded locations. We have become a leading provider of rental equipment as a
result of our strategy to expand our rental fleet, acquire core businesses and
open or acquire additional locations concentrated around those businesses. We
believe that this "cluster" strategy enables us to increase profitability in our
acquired stores and achieve profitability in our newly opened locations more
quickly than our competitors. By implementing the cluster strategy and expanding
our fleet of rental equipment, we are able to provide a full range of rental
equipment to customers with a wide variety of equipment rental needs.
We offer a comprehensive line of equipment for rental primarily to a broad
range of construction and industrial customers, including heavy highway
contractors, general contractors, subcontractors, manufacturing plants and
distribution centers. We also sell used and new equipment, spare parts and
supplies, and provide maintenance and repair services. Our locations offer a
full range of high quality, well-maintained rental equipment, including the
following:
<TABLE>
<S> <C>
- - backhoes - aerial lifts and work platforms
- - bulldozers - compressors and generators
- - skid steer loaders - specialized hand tools
</TABLE>
We currently serve over 140,000 active accounts primarily in the
construction and industrial segments of the equipment rental industry.
Construction customers include heavy highway contractors, general contractors,
speciality contractors, subcontractors, excavating contractors and trade
contractors (such as electricians and plumbers). Construction customers rent
equipment for all manner of construction activities, typically on a daily,
weekly or monthly basis, with relatively little lead time due to their need to
react quickly to changes in project scheduling. Industrial customers include
operators of manufacturing plants, petrochemical plants, distribution centers
and transportation facilities. Industrial customers typically rent equipment for
maintenance-oriented purposes on a weekly or monthly basis and are more likely
to place orders for rental equipment in advance of their regularly scheduled
maintenance requirements. In addition to construction and industrial customers,
we rent equipment to homeowners and other general rental customers.
Since our formation in August 1997, we have acquired 32 equipment rental
businesses operating in 20 states, and we currently operate 135 locations. For
the twelve months ended September 30, 1998 on a pro forma basis, assuming
completion of the Acquisitions, we had approximate revenue of $441.4 million,
EBITDA of $153.5 million and an EBITDA margin of 34.8%.
INDUSTRY OVERVIEW
According to industry sources, the United States equipment rental industry
grew from an estimated $614.0 million in revenue in 1982 to an estimated $20.0
billion in 1997, which represents a compound annual growth rate of more than
26%. Construction and industrial companies primarily have driven this growth by
increasingly outsourcing their equipment needs to reduce investment in non-core
assets and convert costs from fixed to variable. According to industry sources,
the United States equipment rental industry is expected to grow to an estimated
$40.0 billion in annual revenue over the next five years due to the overall
growth in the economy and a continuing trend to rent rather than buy equipment.
We believe that this trend toward rental will accelerate as a result of the many
advantages of equipment rental relative to ownership including reduced capital
investment, reduced storage and maintenance expense, increased flexibility to
accept projects due to wide selection of available equipment, greater access to
the most modern equipment without the need to make large capital expenditures,
and improved productivity by having access to equipment that suits a particular
job.
The United States equipment rental industry is highly fragmented, with more
than 20,000 companies. According to industry sources, in 1997 the 100 largest
equipment rental companies in the United States had a combined market share of
less than 20%, no single equipment rental company in the United States had a
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<PAGE> 45
market share greater than 3% and more than 90% of equipment rental companies had
ten or fewer locations. We believe that recent consolidation has increased the
market share of the ten largest equipment rental companies in the United States
and that the largest equipment rental company in the United States currently has
a market share of approximately 6%.
We believe the recent trend toward rapid consolidation in the equipment
rental industry should continue as a result of (i) increasing competitive
pressure on small, independent operators from the growing number of regional and
national companies with greater access to, and a lower cost of, capital and
other related operating efficiencies, (ii) increasing demand by customers for a
broader selection and greater availability of rental equipment and (iii) limited
alternative exit strategies for many of the owners and principals of smaller
independent companies. We believe that this consolidation trend, the fragmented
nature of the industry and the absence of an equipment rental company with a
significant market share present substantial opportunities for NationsRent to
achieve a leading market position by creating an integrated network of
nationally branded locations offering broad product selection and superior
customer service.
COMPETITIVE STRENGTHS
We believe we have several competitive strengths that will enable us to
continue to increase growth and profitability, including the following:
Strong Market Position. We have achieved a leading market position in
selected markets and expect to continue to increase revenue as a result of
our cluster strategy. We believe this strategy enables us to more
effectively serve our customers, broaden our customer base, pool rental
equipment inventory, offer a broader selection and greater availability of
equipment and maintain a high rental equipment utilization rate. By
offering a full range of rental equipment from each location, we believe
that customers who currently use multiple rental equipment providers will
prefer to fill their rental needs through the NationsRent network of
locations. In addition, we believe that we have other advantages relative
to smaller operators, including greater purchasing power and a lower cost
of capital.
Full Range of Rental Equipment. By offering a full range of rental
equipment, we can serve a diverse customer base and respond to customer
demand across each geographic region in which we operate. We offer a
comprehensive selection of light, medium and heavy rental equipment serving
the short-, medium- and long-term requirements of contractors, commercial
customers and industrial customers. Since January 1, 1998, we have added
approximately $147.0 million of new equipment to our rental equipment
inventory. As a result, in part, of the capital expenditures made at the 25
locations we have owned since January 1, 1998, our rental revenue from
these locations has increased more than 40% for the nine month period ended
September 30, 1998 on a pro forma basis as compared to the same period for
1997.
National Brand. We have entered selected markets with the goal of
establishing a nationally recognized brand throughout the United States.
Since our formation in August 1997, we have expanded into 20 states in the
regions set forth below:
<TABLE>
<CAPTION>
NUMBER OF
REGION STATES WITH NATIONSRENT LOCATIONS LOCATIONS
------ --------------------------------- ---------
<S> <C> <C>
Midwest........................ Indiana, Kentucky, Michigan, Ohio, West 45
Virginia
Southeast...................... Alabama, Florida, Georgia, Tennessee 35
Central........................ Louisiana, Texas 33
Northeast...................... Maine, Massachusetts, New Hampshire, New York, 17
Pennsylvania, Rhode Island, Vermont
West........................... California, Nevada 5
-----
TOTAL 135
=====
</TABLE>
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<PAGE> 46
The expansion into these regions provides us with a substantial base from
which to roll out our branding strategy. This strategy includes expanding
our fleet of rental equipment, implementing standard operating procedures
and best practices and creating a distinctive store format and marketing
program. We believe that we are able to increase revenue by offering an
extensive inventory of rental equipment in a customer-oriented atmosphere
and a brand name known for consistent quality. We believe this branding
strategy enables us to expand our customer base and attract a broader range
of customers, including large customers with operations in a variety of
geographic markets.
Distinctive Operating Format. We have designed and are implementing a
format for our locations which we believe differentiates us from our
competitors. Distinguishing characteristics of this format include
drive-through lanes, clearly marked equipment aisles and attractive,
well-organized and clean store facilities. Our larger locations are
typically on a six to 12 acre site in a heavily trafficked area with a
20,000 to 40,000 square foot facility housing a repair and maintenance
center and a broad selection and extensive inventory of equipment and
supplies. Our smaller locations are typically on a two to six acre site in
a high-visibility commercial area with a 7,500 to 11,000 square foot
facility, with maintenance and delivery capabilities and inventory and
supplies targeted to the customer base in that area.
Focus on Customer Service. We are differentiating ourself from our
competitors with innovations designed to increase customer satisfaction. We
generally offer more convenient access, faster check-in and check-out
procedures and shorter required lead time for rentals than our competitors.
We also offer on-time equipment delivery and pick-up, on-site repair
service, 24-hour customer assistance and written instruction materials for
equipment usage and safety. In addition, as part of our plan to provide
one-stop shopping to customers, each location sells parts and supplies to
complement equipment rentals and sales.
Customized Management Information System. We are installing our
customized management information System capable of monitoring operations
at several thousand locations. The System is designed to track customer
purchasing patterns and demographics for use in gaining market share in new
and existing markets, consolidating equipment purchases, maximizing
utilization rates and reducing overhead expenditures. The System will
provide our management with real time revenue, inventory, financial and
customer information, facilitating rapid and well-informed decision making.
In addition, the System will be designed to permit our customers to reserve
and rent equipment and access their account information from their own
computer terminals via our Internet website. To develop our System, we
assembled a team of management information specialists who have previously
developed systems for several Fortune 500 companies. The System has been
developed to ensure that it is Year 2000 compliant.
Experienced Management Team. We believe that we have one of the most
experienced and growth-oriented executive management teams among
publicly-traded companies in the equipment rental industry. James L. Kirk,
our Chairman and Chief Executive Officer, founded OHM, a NYSE-listed
Company, in 1969 and served in various senior executive positions with OHM,
growing it into a leading environmental construction company with an
inventory of heavy and light equipment having an original cost of over $100
million. Recently, Don R. O'Neal joined us as President and Chief Operating
Officer. Prior to joining us, Mr. O'Neal served as President of A-1 Rentals
in Fort Worth, Texas, one of the largest independent equipment rental
businesses in the United States, substantially all the assets of which were
acquired by us in October 1998. Mr. O'Neal was a second-generation owner of
A-1 Rentals and has been in the equipment rental business for over 30
years. In addition, we benefit from the experience of H. Wayne Huizenga,
one of our directors and principal investors, who serves as Chairman and
Co-Chief Executive Officer of Republic and who co-founded and served in
various senior executive positions with Waste Management and Blockbuster,
each of which is a leading consolidator in its respective industry. The
other members of our senior management team have previously worked closely
with Mr. Kirk in senior management positions at OHM, and other key
employees and consultants have worked with Mr. Huizenga in various
positions at Republic, Waste Management or Blockbuster. The NationsRent
management team is supported by operating, marketing and business
development managers with an average of more than 15 years of experience in
the equipment rental industry.
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<PAGE> 47
GROWTH STRATEGY
Our objectives are to increase revenue, profitability, market share and
cash flow by building a nationally branded network of locations that offer a
comprehensive selection of high quality rental equipment in convenient and
accessible locations to customers in the construction and industrial markets.
Key elements of our growth strategy are as follows:
Enhance Operations. We enhance the operations at our locations by:
- increasing the breadth and depth of rental inventory and sharing
rental equipment among locations;
- implementing the NationsRent customer service approach;
- linking locations to the NationsRent management information System;
and
- branding locations and rental inventory with the NationsRent logo,
colors and distinctive store appearance.
Expand National Presence. We expect to continue to acquire leading
companies to implement our cluster strategy and position NationsRent to
achieve significant market share. We target businesses that have one or
more of the following characteristics:
- strong positions in their geographic market;
- experienced local management teams that will continue to work with
us following the acquisition;
- high quality equipment rental inventory; and
- physical and operating characteristics that are suited to
conversion to the NationsRent format.
Once we have entered a particular market, we seek to acquire additional
rental businesses in that market or adjacent markets with locations and
equipment selection that complement our existing operations, thus enabling
us to further penetrate that market.
Open New Rental Locations. Once we have established a presence in a
particular market, we seek to open new locations in that geographic area or
adjacent areas to enable us to offer a greater selection and availability
of equipment, maximize our equipment inventory utilization rates and
achieve economies of scale. We believe that this strategy allows our new
locations to achieve profitability at a faster rate than our competitors
because these locations (1) generate revenue more quickly as a result of
the pre-existing market presence, name recognition and referrals from
existing locations and (2) have lower overhead costs due to the sharing of
service, maintenance, administrative functions and personnel with our
already-established locations. Since August 1997, we have opened six new
locations.
Further Penetrate Industrial Rental Market. We believe that the
equipment needs of industrial customers are underserved by the existing
equipment rental market in the United States and that there are significant
opportunities to further penetrate this market segment. We also believe
that by offering a comprehensive selection and available supply of rental
equipment throughout an integrated nationally branded network of locations,
industrial customers will become increasingly aware of the advantages of
equipment rental relative to ownership. Such advantages include reduced
capital investment, reduced storage and maintenance expense and greater
access to the most modern equipment.
ACQUISITIONS
In furtherance of our growth strategy, since our formation and through
December 21, 1998, we have acquired 32 equipment rental businesses with 132
locations. These locations are concentrated in the following five geographic
regions: Midwest Region, the Southeast Region, the Central Region, the Northeast
Region, and the West Region. We believe that each of the equipment rental
businesses which we have acquired or contracted to acquire meets our acquisition
criteria and promotes our cluster strategy. Furthermore, each of these acquired
businesses allows us to better meet the needs of the broad range of construction
and industrial
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<PAGE> 48
customers to whom we primarily market our products and services. To this end,
many of the businesses we have acquired have been doing business in their
respective markets for more than 35 years.
In October 1998, we acquired substantially all of the assets of A-1
Rentals. A-1 Rentals has 13 locations serving the Dallas/Fort Worth and Austin,
Texas markets and, as one of the largest independent equipment rental companies
in the United States, has operated in these markets for approximately 35 years.
Don R. O'Neal, President and Chief Operating Officer of the Company, previously
served as President of A-1 Rentals. See "Certain Relationships and
Transactions." In December 1998, we acquired Logan, which has 16 locations
throughout the Northeast. In December 1998, we also acquired substantially all
of the assets of River City, which has five locations in California and Nevada.
OPERATIONS
NationsRent is one of the fastest growing equipment rental companies in the
United States, currently operating 135 locations. Our operations primarily
consist of (1) renting a full range of equipment to construction and industrial
customers, (2) selling our used equipment inventory, (3) selling new equipment
as a distributor or dealer on behalf of several nationally known equipment
manufacturers and (4) selling parts, supplies and merchandise and providing
repair and maintenance services to complement our equipment rentals and sales.
Equipment Rentals. We rent on a daily, weekly and monthly basis a broad
variety of light, medium and heavy equipment serving the long-term requirements
of contractors, the short and medium-term requirements of commercial customers,
and short through long-term requirements of industrial customers. Our rental
inventory includes such equipment as aerial lifts and work platforms, air
compressors, backhoes, boom lifts, bulldozers, ditching equipment, forklifts,
generators, high reach equipment, pumps and scissor lifts. The mix of equipment
offered from each of our locations varies based on the needs of the local
market.
We are implementing a program to make ongoing capital investments in new
equipment, engage in periodic sales of used equipment and conduct preventive
maintenance. This program is designed to increase equipment utilization, enhance
resale values and extend the useful life of equipment. As of September 30, 1998,
on a pro forma basis for the Acquisitions, our equipment rental inventory had an
original cost of over $540.0 million and an average age of approximately 26
months.
We have developed operating initiatives that we are in the process of
introducing at all of our locations to offer our rental customers more
convenient access, faster check-in and check-out procedures, reduced equipment
downtime and shorter lead times for rentals than its competitors. For example,
all of our new locations are being designed with drive-through lanes to speed up
equipment loading and unloading. In addition, our rental equipment is being
outfitted with universal trailer hitches designed to accept a broad range of
towing mechanisms to ease customer transport of equipment. To reduce the
downtime associated with flat tires, we fill the tires of equipment used in
areas prone to flats with foam instead of air. Our rental locations also offer
equipment delivery and pick-up, on-site repair service within two hours of
customer request, 24-hour customer assistance, and a library of audio, video and
written instructional materials for equipment usage and safety.
Used Equipment Sales. We periodically sell used equipment to adjust the
size and composition of our rental equipment inventory in response to changing
market conditions and to maintain the quality and low average age of our rental
equipment. We attempt to balance the revenue obtainable from used equipment
sales with the revenue obtainable from continued equipment rentals. We are
generally able to achieve favorable resale prices for our used equipment due to
a preventive maintenance program and practice of selling used equipment before
it becomes obsolete or irreparable. We believe that the proactive management of
new equipment purchases and used equipment sales allows us to maximize
utilization rates and respond to changing economic conditions.
New Equipment Sales. We are a distributor of new equipment on behalf of
several nationally known equipment manufacturers. We have dealership
arrangements in certain geographic areas with various equipment manufacturers as
a result of the Acquisitions. Typically, dealership agreements do not have a
specific term and may be terminated by either party upon specific events and/or
written notice. In the future
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<PAGE> 49
we may continue, amend or terminate dealership arrangements, if any, of
businesses we acquire or we may enter into new dealership agreements or
arrangements, depending on market conditions in the area and other factors.
Parts, Supplies and Service. We sell a full complement of parts, supplies
and merchandise to our customers in conjunction with our equipment rental and
sales business. We provide repair service to rental customers and, as part of
our focus on customer service, we generally respond to rental equipment service
requests within two hours. We also offer maintenance service to customers who
own equipment and generate revenue from damage waiver charges, delivery charges
and warranty income. The Company believes that revenue from parts and service is
more stable than equipment sales revenue because of the recurring nature of the
parts and service business. We also believe that during economic downturns the
parts and service business may increase as customers postpone new equipment
purchases and instead attempt to maintain their existing equipment.
MANAGEMENT INFORMATION SYSTEM
We are installing a customized management information system capable of
monitoring operations at several thousand locations. Our System is designed to
track customer purchasing patterns and demographics for use in gaining market
share in new and existing markets, consolidating equipment purchases, maximizing
utilization rates and reducing overhead expenditures. The System will provide
our management with real time revenue, inventory, financial and customer
information, facilitating rapid and well-informed decision making. In addition,
the System will be designed to permit customers to reserve and rent equipment
and access their account information from their own computer terminals via our
Internet website. To develop our System, we assembled a team of management
information specialists who have previously developed systems for several
Fortune 500 companies. The System has been developed to ensure that it is Year
2000 compliant.
CUSTOMERS
We currently serve over 140,000 active accounts primarily in the
construction and industrial segments of the equipment rental industry. On a pro
forma basis after giving effect to the Acquisitions, our top ten customers
represented approximately 3% of our 1997 revenue and no single customer
accounted for more than 1% of the Company's 1997 revenue. Our customers vary in
size from large Fortune 500 companies to small construction contractors,
subcontractors, machine operators and homeowners.
We do not provide purchase financing to customers. We rent equipment, sell
parts and provide repair services on account to customers who are screened
through a credit application process. Customers can arrange financing of
purchases of large equipment through a variety of creditors including
manufacturers, banks, finance companies and other financial institutions.
SALES AND MARKETING
We maintain a strong marketing and sales orientation throughout our
organization in order to better understand and serve our customers and increase
our customer base. We undertake sales and marketing initiatives designed to
increase revenue and market share and build brand awareness. We prepare
marketing analyses which address key business issues such as market/industry
history, opportunities, company philosophy, sales trends, consumer behavior
trends, distribution channels, pricing issues, target markets, advertising and
media analysis, competitive situations and selling strategies. Based on the
results of our analyses, we develop marketing and sales strategies. To assist us
in implementing our marketing and sales strategies, we have retained a store
design and merchandising firm and a national advertising agency.
Our regional managers are responsible for training, supervising and
directing the selling activities of the NationsRent salesforce in their markets.
In addition, regional managers are also responsible for overseeing the mix of
equipment at their locations, keeping abreast of local construction and
industrial activity and monitoring competitors in their respective markets.
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We employ approximately 200 equipment rental salespeople who utilize
targeted local marketing strategies to address specific customer needs and
respond to competitive pressures. To remain informed of local market activity,
salespeople track construction projects and new equipment sales in their area
through Equipment Data Reports, F.W. Dodge Reports and PEC Reports (Planning,
Engineering and Construction), follow up on referrals and visit construction
sites and potential equipment users who are new to the area.
TRADEMARKS
The Company has applied to the United States Patent and Trademark Office to
register the service mark "NationsRent."
STORE LAYOUT AND DESIGN
Many of our locations are situated in high-visibility commercial areas and
are designed to offer easy and convenient access to customers. Our larger
locations are typically on a six to 12 acre site in a heavily-trafficked area
with a 20,000 to 40,000 square foot facility housing a repair and maintenance
center and a broad selection and extensive inventory of equipment and supplies.
Our smaller locations are typically on a two to six acre lot in a
high-visibility commercial area with a 7,500 to 11,000 square foot facility with
maintenance and delivery capabilities and inventory and supplies that are
targeted to the customer base in that area. Depending on the type of equipment
rented at a particular location and the needs of the local market, our locations
may include (1) sales and administrative offices, (2) a customer showroom
displaying equipment and parts, (3) an equipment service area and (4) outdoor
and indoor equipment storage facilities.
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<PAGE> 51
PURCHASING
We acquire equipment from vendors with reputations for product quality and
reliability. Our size and the quantity of equipment we acquire enable us to
purchase most equipment directly from manufacturers pursuant to national
purchasing agreements at lower prices and on more favorable terms than many
smaller competitors. We maintain close relationships with our vendors to ensure
the timely delivery of new equipment. We believe that we have sufficient
alternative sources of supply for the equipment we purchase in each of our
principal product categories. We acquire our rental equipment inventory through
a combination of purchase and lease arrangements.
We select the type and quantity of rental equipment to be purchased for
each of our locations based on the expected needs of the local market. We
determine rental rates for each type of equipment based on the cost and expected
utilization of the equipment, and adjust rental rates at each location for
demand, length of rental, volume of equipment rented and other competitive
considerations. The following table summarizes the primary suppliers of certain
of our rental equipment:
<TABLE>
<CAPTION>
PRODUCT CATEGORY PRIMARY SUPPLIERS
---------------- -----------------
<S> <C>
HEAVY
Articulated Trucks Volvo/Moxy/Caterpillar
Bulldozers Komatsu/John Deere/Caterpillar
Excavators Komatsu/John Deere/Caterpillar
Scrapers John Deere/Caterpillar
Track Loaders John Deere/Caterpillar
MEDIUM
Aerial Work Platforms JLG/Genie/Snorkel
Backhoes New Holland/Caterpillar/Case/John Deere
Compaction Equipment Ingersoll Rand/BOMAG
Forklifts JCB/Ingersoll Rand/Lull
Knuckle Boom Lifts JLG/Genie/Snorkel
Semi-Pneumatic Forklifts Komatsu/Mitsubishi
Wheel Loaders Volvo/Komatsu/Caterpillar
LIGHT
Air Compressors Ingersoll Rand/Multiquip
Concrete Buggies Miller/Whiteman
Concrete Mixers Whiteman/Essick
Concrete Saws Pardener/Stihl/Olympic
Electric Hammers Bosch/Harper
Light Towers Ingersoll Rand/Coleman/Specialty
Plate Compactors Multiquip/BOMAG
Power Generators MQ Power/Ingersoll Rand
Skid-Steer Loaders New Holland/Bobcat/Case
Submersible Pumps Surumi/Multiquip
Trenchers Vermeer/Ditch Witch
Welders Lincoln/Miller
</TABLE>
COMPETITION
The equipment rental industry is highly fragmented and competitive. We
compete with independent third parties in all of the markets in which we
operate. Most of our competitors in the rental business tend to operate in
specific, limited geographic areas, although some larger competitors compete on
a national basis. We also compete with equipment manufacturers which sell and
rent equipment directly to customers. Some of the Company's competitors have
greater financial resources and name recognition than the Company.
ENVIRONMENTAL AND SAFETY REGULATION
Our equipment, facilities and operations are subject to certain federal,
state and local laws and regulations relating to environmental protection and
occupational health and safety, including those governing wastewater discharges,
the use, treatment, storage and disposal of solid and hazardous wastes and
materials, air quality and the remediation of contamination associated with the
release of hazardous substances. For example, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, provides for,
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<PAGE> 52
among other things, the remediation of sites from which there is a release or
threatened release of a hazardous substance into the environment and may impose
liability for the costs of cleanup and for damages to natural resources upon
past and current owners and operators of such sites. In addition, the Federal
Water Pollution Control Act of 1972 regulates the discharge of pollutants into
streams, rivers and other waters and may require the issuance of discharge
permits to us. The Occupational Safety and Health Act of 1970 authorizes the
promulgation of occupational safety and health standards which apply to the
Company's facilities and operations. In addition to federal environmental and
safety regulations, the states and certain localities in which we operate have
their own laws and regulations governing solid waste disposal, water pollution
and, in most cases, releases and cleanup of hazardous substances as well as
liability for such matters, which may be applicable to our facilities and
operations. Certain of our existing and former locations use and have used
substances, and currently generate or have generated or disposed of wastes,
which are or may be considered hazardous or otherwise are subject to applicable
environmental requirements.
In particular, we store and dispense, or in the past we have stored or
dispensed or the facilities at which we operated in the past stored or
dispensed, petroleum products from above-ground storage tanks and, in certain
cases, underground storage tanks. We also operate locations which in the past
used hazardous materials, including solvents, to clean and maintain equipment,
and generate and dispose of solid and hazardous wastes, including batteries,
used motor oil, radiator fluid and solvents. In connection with such activities,
we have incurred certain capital expenditures and other compliance costs which
are expensed on a current basis and which, to date, have not been material to
the Company's financial condition.
Additionally, in connection with acquisitions of equipment rental
businesses, we undertake environmental assessments of substantially all
locations that we will continue to operate following the acquisitions and expect
to continue to do so before acquiring any additional sites. We do not currently
maintain comprehensive insurance covering environmental liabilities at our
sites. However, the sellers of each of the equipment rental businesses which we
have acquired have indemnified us with respect to environmental liabilities
associated with such businesses. Based on currently available information, we
believe that it is unlikely that we will have to incur material capital
expenditures or other material compliance or remediation costs for environmental
and safety matters in the foreseeable future. We cannot assure you, however,
that federal, state or local environmental and safety requirements will not
become more stringent or be interpreted and applied more stringently in the
future, or that we will identify adverse environmental conditions that are not
currently known to us. Such future changes or interpretations, or the
identification of such adverse environmental conditions, could result in
additional environmental compliance or remediation costs which we do not
currently anticipate, which could be material to the Company's financial
condition or results of operations. See "Risk Factors -- Environmental and
Safety Regulation."
EMPLOYEES
As of September 30, 1998, NationsRent employed approximately 2,250 persons,
approximately 35 of which are covered by a collective bargaining agreement. We
believe our relations with our employees are good.
PROPERTIES
Our corporate headquarters are located in Ft. Lauderdale, Florida in leased
premises. Certain of our property and equipment are subject to liens securing
payment of portions of our indebtedness. We lease the real estate for all but
two of our locations and also lease certain of our equipment. We believe that
all of our facilities are sufficient for our current needs.
LEGAL PROCEEDINGS
We are party to pending legal proceedings arising in the ordinary course of
business. While the results of such proceedings cannot be predicted with
certainty, we do not believe that any of these matters are material to our
financial condition or results of operations.
47
<PAGE> 53
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth the names and ages of the executive officers and
directors of the Company as well as the positions and offices held by such
persons.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James L. Kirk............................. 49 Chairman of the Board and Chief Executive Officer
Don R. O'Neal............................. 51 President and Chief Operating Officer
Gene J. Ostrow............................ 44 Executive Vice President and Chief Financial
Officer
Philip V. Petrocelli...................... 39 Executive Vice President
Kris E. Hansel............................ 41 Vice President and Controller
Pamela K.M. Beall......................... 42 Vice President, Treasurer and Assistant Secretary
Joseph H. Izhakoff........................ 32 Vice President, General Counsel and Secretary
H. Wayne Huizenga......................... 60 Director
Harris W. Hudson.......................... 56 Director
Gary L. Gabriel........................... 55 Director
Thomas H. Bruinooge....................... 54 Director
</TABLE>
JAMES L. KIRK is a co-founder of the Company, together with H. Family
Investments, Inc. and Mr. Ostrow, and has served as the Chairman of the Board of
the Company since August 1997 and as Chief Executive Officer of the Company
since April 1998. Mr. Kirk also served as President of the Company from April
1998 though September 1998. From 1985 to February 1998, Mr. Kirk was Chairman of
the Board, President and Chief Executive Officer of OHM, a NYSE listed company.
DON R. O'NEAL joined the Company as President and Chief Operating Officer
in October 1998. From 1985 to October 1998, Mr. O'Neal served as President of
A-1 Rentals, which was acquired by the Company in October 1998. Mr. O'Neal has
served on the Board of Directors of the American Rental Association and has
served as President of the Texas Rental Association. Mr. O'Neal has been in the
equipment rental business for over 30 years.
GENE J. OSTROW is a co-founder of the Company, together with H. Family
Investments, Inc. and Mr. Kirk, and has served as its Executive Vice President
and Chief Financial Officer since August 1997. From August 1997 to April 1998,
Mr. Ostrow served as Secretary and Treasurer of the Company. From March 1997 to
October 1997, Mr. Ostrow was Vice President of Corporate Development of OHM.
From November 1994 to March 1997, Mr. Ostrow was a Senior Vice President,
Corporate Finance with Raymond James and Associates and from July 1996 to March
1997, Mr. Ostrow was co-head of that firm's mergers and acquisitions practice.
From October 1993 to November 1994, Mr. Ostrow was Vice President and Chief
Financial Officer of Ecoscience Corporation. Mr. Ostrow was employed by OHM and
its affiliates from February 1986 to October 1993 in various positions,
including Vice President and Chief Financial Officer of OHM from February 1986
through September 1991, and as Executive Vice President and Chief Financial
Officer of NSC Corporation (an affiliate of OHM) from July 1988 through October
1993. Mr. Ostrow is also a Certified Public Accountant.
PHILIP V. PETROCELLI joined the Company as Executive Vice President in
February 1998. From August 1993 to February 1998, Mr. Petrocelli was Vice
President -- Western Region of OHM. Before joining OHM, Mr. Petrocelli was a
Regional Director and acting Vice President-Analytical Labs with IT Corporation,
a provider of engineering services, since September 1988.
KRIS E. HANSEL joined the Company as Vice President and Controller in March
1998. Prior to joining the Company, Mr. Hansel served in various positions of
increasing responsibility at OHM since 1988, most recently as Vice President and
Controller. Prior to joining OHM, Mr. Hansel was General Accounting Manager of
WearEver-Proctor Silex, Inc.
48
<PAGE> 54
PAMELA K.M. BEALL joined the Company as Vice President and Treasurer in
April 1998. Ms. Beall also served as Secretary from April to October 1998 and
currently serves as Assistant Secretary. From June 1985 to April 1998, Ms. Beall
served as Treasurer of OHM and in various positions of increasing responsibility
at OHM, most recently as Vice President and Assistant Secretary. Before joining
OHM, Ms. Beall was General Manager, Treasury Services for USX Corporation, and
previous to that she was with Marathon Oil Company. From November 1996 to
February 1998, Ms. Beall served as a director of NSC Corporation, an affiliate
of OHM. Since May 1996, Ms. Beall has served as a director of System One
Services, Inc.
JOSEPH H. IZHAKOFF joined the Company as Vice President and General Counsel
in September 1998. Commencing October 1998, Mr. Izhakoff also began serving as
Secretary. Prior to joining the Company, Mr. Izhakoff was an attorney at
Akerman, Senterfitt & Eidson, P.A. since August 1995, most recently as a
shareholder, where his practice focused on corporate and securities matters and
mergers and acquisitions. From September 1990 to July 1993, Mr. Izhakoff was an
attorney at Paul, Weiss, Rifkind, Wharton & Garrison and from September 1993 to
July 1995, Mr. Izhakoff was an attorney at Thomson Muraro Razook & Hart, P.A.
H. WAYNE HUIZENGA joined the Company as a director in June 1998. Since July
1998, Mr. Huizenga has served as a director of theglobe.com, an on-line
interactive communication business. Since May 1998, Mr. Huizenga has served as
Chairman of the Board and Chief Executive Officer of Republic Services, Inc.
("Republic Services"), a leading provider of non-hazardous solid waste
collection and disposal services. Since August 1995, Mr. Huizenga has served as
Chairman of the Board of Republic, which owns the nation's largest chain of
franchised automotive dealerships, is building a chain of used vehicle
megastores and owns National Car Rental and Alamo Rent-A-Car. Since October
1996, Mr. Huizenga has served as Co-Chief Executive Officer of Republic and from
August 1995 until October 1996, Mr. Huizenga served as Chief Executive Officer
of Republic. Since September 1996, Mr. Huizenga has served as the Chairman of
the Board of Florida Panthers Holdings, Inc. ("Panthers Holdings"), a leisure,
recreation and entertainment company which owns and operates certain luxury
resort hotels and the Florida Panthers professional sports franchise. Since
January 1995, Mr. Huizenga also has served as the Chairman of the Board of
Extended Stay America, Inc. ("Extended Stay"), an operator of extended stay
lodging facilities. From September 1994 until October 1995, Mr. Huizenga served
as the Vice Chairman of Viacom Inc. ("Viacom"), a diversified entertainment and
communications company. During the same period, Mr. Huizenga also served as the
Chairman of the Board of Blockbuster Entertainment Group, a division of Viacom.
From April 1987 through September 1995, Mr. Huizenga served as the Chairman of
the Board and Chief Executive Officer of Blockbuster, during which time he
helped build Blockbuster from a 19-store chain into the world's largest video
rental company. In September 1994, Blockbuster merged into Viacom. In 1971, Mr.
Huizenga co-founded Waste Management, which he helped build into the world's
largest integrated solid waste services company, and he served in various
capacities, including President, Chief Operating Officer and a director from its
inception until 1984. Mr. Huizenga is the brother-in-law of Mr. Hudson.
HARRIS W. HUDSON joined the Company as a director in June 1998. Since May
1998, Mr. Hudson has served as Vice Chairman and a director of Republic
Services. Mr. Hudson has served as a director of Republic since August 1995 and
as Vice Chairman of Republic and Chairman of Republic's Solid Waste Group since
October 1996. From August 1995 until October 1996, Mr. Hudson served as
President of Republic. From May 1995 until August 1995, Mr. Hudson served as a
consultant to Republic. From 1983 until August 1995, Mr. Hudson founded and
served as Chairman of the Board, Chief Executive Officer and President of Hudson
Management Corporation, a solid waste collection company, which was acquired by
Republic in August 1995. From 1964 to 1982, Mr. Hudson served as Vice President
of Waste Management of Florida, Inc., a subsidiary of Waste Management and its
predecessor. Mr. Hudson also serves as a director of Panthers Holdings. Mr.
Hudson is the brother-in-law of Mr. Huizenga.
GARY L. GABRIEL joined the Company as a director in June 1998. Since
September 1997, Mr. Gabriel has provided consulting services to the Company on
operational and business development matters. From January 1978 to September
1997, Mr. Gabriel served as President of Sam's, which was acquired by the
Company in September 1997. In 1961, Mr. Gabriel co-founded a predecessor company
of Sam's.
49
<PAGE> 55
THOMAS H. BRUINOOGE joined the Company as a director in June 1998. Mr.
Bruinooge is an attorney who has been in private practice since 1968 and has
practiced with the firm of Bruinooge & Associates since 1987.
The executive officers of the Company are selected by and serve at the
discretion of the Board. The directors of the Company hold office until the next
annual meeting of stockholders and until their successors have been duly elected
and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established an Executive Committee which has the same
powers and authority as the Board of Directors of the Company (the "Board"),
subject to the limitations of the Delaware General Corporation Law (the "DGCL")
and the Company's Certificate of Incorporation, as amended (the "Certificate"),
and Bylaws, as amended (the "Bylaws"). Messrs. Kirk and Huizenga are the members
of the Executive Committee.
The Company has established an Audit Committee and a Compensation
Committee, each composed of two independent directors. The Audit Committee,
comprised of Gary L. Gabriel and Thomas H. Bruinooge, recommends the annual
appointment of the Company's auditors, with whom the Audit Committee reviews the
scope of audit and non-audit assignments and related fees, accounting principles
used by the Company in financial reporting, internal auditing procedures and the
adequacy of the Company's internal control procedures. The Compensation
Committee, comprised of Harris W. Hudson and Thomas H. Bruinooge, administers
the 1998 Stock Option Plan and makes recommendations to the Board regarding
compensation for the Company's executive officers.
COMPENSATION OF DIRECTORS
The 1998 Stock Option Plan provides for an automatic grant of options to
purchase 50,000 shares of Common Stock to each member of the Board who joins the
Board as a non-employee director. In addition, the 1998 Stock Option Plan
provides for an additional automatic grant of options to purchase 10,000 shares
of Common Stock at the beginning of each fiscal year to each non-employee
director continuing to serve on the Board at such time. The 1998 Stock Option
Plan also provided for the automatic grant of options to purchase 50,000 shares
of Common Stock to each member of the Board who was a non-employee director at
the time of the Initial Public Offering. All options granted automatically to a
non-employee director will be fully vested and immediately exercisable. In
addition, each automatic grant of options to a non-employee director will remain
exercisable for a term of ten years from the date of grant so long as such
person remains a member of the Board. Each automatic grant of options to a
non-employee director serving on the Board at the time of the Initial Public
Offering has an exercise price per share equal to the Initial Public Offering
price of $8.00, and each automatic grant thereafter is exercisable at a price
per share equal to the closing price of a share of Common Stock on the NYSE, on
the date immediately prior to the automatic grant date. In addition to such
automatic option grant, the Company expects to reimburse directors for their
reasonable expenses incurred in connection with their attendance at Board and
Committee meetings.
In September 1997, in connection with the acquisition of Sam's, the Company
entered into an agreement with Gary L. Gabriel pursuant to which Mr. Gabriel
provides certain consulting services to the Company. See "Certain Relationships
and Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year ended December 31, 1997, the Company had no Compensation
Committee or other committee of the Board performing similar functions.
Decisions concerning compensation of executive officers were made by certain
executive officers of the Company. Since the Initial Public Offering the Board
established a Compensation Committee consisting of non-employee directors. See
"-- Committees of the Board of Directors."
50
<PAGE> 56
EXECUTIVE COMPENSATION
The Company was formed in August 1997 and did not pay any compensation to
its Chief Executive Officer and did not pay salary and bonus in excess of
$100,000 to any of its executive officers for the period from August 14, 1997
(inception) to December 31, 1997. The following table sets forth the annual base
salaries that the Company expects to pay for the year ending December 31, 1998
to the named executive officers below (the "Named Officers") and certain options
to purchase Common Stock which the Company has granted to the Named Officers:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK
UNDERLYING
NAME ANNUAL BASE SALARY OPTIONS
- ---- ------------------ ------------
<S> <C> <C>
James L. Kirk................................ $ 250,000 250,000(1)
Don R. O'Neal................................ 250,000 100,000(2)
Gene J. Ostrow............................... 200,000 100,000(1)
Philip V. Petrocelli......................... 200,000 346,472(3)
Joseph H. Izhakoff........................... 185,000 150,000(4)
</TABLE>
- ---------------
(1) These options have an exercise price of $8.00 per share and vest over a
four-year period at the rate of 25% per year commencing August 6, 1999.
These options become immediately exercisable upon a change of control of the
Company (as defined in the 1998 Stock Option Plan).
(2) These options have an exercise price of $5.50 per share and vest over a
four-year period at a rate of 25% per year commencing October 23, 1999.
These options become immediately exercisable upon a change of control of the
Company (as defined in the 1998 Stock Option Plan).
(3) These options have an exercise price of $5.77 per share and vest over a
four-year period at the rate of 25% per year commencing on February 24,
1999. These options become immediately exercisable upon a change of control
of the Company (as defined in the option agreement related to such options).
(4) These options have an exercise price of $7.00 per share and vest over a
four-year period at a rate of 25% per year commencing September 1, 1999.
These options become immediately exercisable upon a change of control of the
Company (as defined in the 1998 Stock Option Plan).
The executive officers of the Company receive health benefits which do not
exceed 10% of their respective salaries. These benefits are also provided to
other employees of the Company. The Company may pay bonuses and issue additional
stock options to the Named Officers during 1998. See "-- Stock Option Plan." In
October 1998, in connection with the acquisition by the Company of A-1 Rentals,
Don R. O'Neal entered into an employment agreement to serve as President and
Chief Operating Officer of the Company. See "Certain Relationships and
Transactions."
STOCK OPTION PLAN
The Company's Board of Directors and stockholders adopted the 1998 Stock
Option Plan (the "Plan"), effective August 6, 1998. Pursuant to the Plan,
options to acquire a maximum of 5,000,000 shares of Common Stock may be granted
to employees, directors (including employee and non-employee directors) and
certain independent contractors and consultants of the Company or any Subsidiary
(as defined in the Plan). As of September 30, 1998, there were outstanding
options to purchase 2,188,795 shares at exercise prices ranging from $6.25 per
share to $8.00 per share granted under the Plan, 200,000 of which are
immediately exercisable.
The Compensation Committee administers the Plan. The Compensation Committee
determines which persons will receive options and the number of options to be
granted to such persons. The Plan also provides for annual mandatory grants of
options to non-employee directors. See " -- Compensation of Directors." The
Board of Directors or the Compensation Committee, as the case may be, will make
all determinations that it may deem necessary or advisable for the
administration of the Plan.
Pursuant to the Plan, the Company may grant Incentive Stock Options
("ISOs") as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and Non-Qualified Stock
51
<PAGE> 57
Options ("NQSOs"), not intended to qualify under Section 422 of the Code. The
price at which the Company's Common Stock may be purchased upon the exercise of
options granted under the Plan will be required to be not less than the per
share fair market value of the Common Stock on the date the particular options
are granted. Options granted under the Plan may have maximum terms of not more
than ten years and are not transferable, except by will or the laws of descent
and distribution. None of the ISOs under the Plan may be granted to an
individual owning more than 10% of the total combined voting power of all
classes of stock issued by the Company unless the purchase price of the Common
Stock under such option is at least 110% of the fair market value of the shares
issuable on exercise of the option determined as of the date the option is
granted, and such option is not exercisable more than five years after the grant
date.
Generally, options granted under the Plan terminate upon the date the
person to whom such options were granted is no longer employed or retained by
the Company or serving on the Company's Board of Directors other than by reason
of permanent and total disability as that term is defined in the Plan.
Pursuant to the Plan, except with respect to non-employee directors subject
to the termination of employment, death or disability provisions of the Plan and
unless otherwise determined by the Board of Directors, one-fourth of the options
granted to an optionee are exercisable on the first anniversary of such grant
and an additional one-fourth of such options are exercisable on each of the next
three succeeding anniversaries of the initial vesting date. However, options
granted under the Plan shall become immediately exercisable if the holder of
such options is terminated by the Company or is no longer a director of the
Company, as the case may be, subsequent to certain events which are deemed to be
a "change in control"' of the Company. A "change in control" of the Company
generally is deemed to occur when, subject to certain conditions, any person
becomes the beneficial owner of or acquires voting control with respect to more
than 50% of the Common Stock.
ISOs granted under the Plan are subject to the restriction that the
aggregate fair market value (determined as of the date of grant) of options
which first become exercisable in any calendar year cannot exceed $100,000.
The Plan provides for appropriate adjustments in the number and type of
shares covered by the Plan and options granted thereunder in the event of any
reorganization, dissolution, liquidation, recapitalization or certain other
transactions involving the Company.
401(K) PLAN
The Company has adopted a 401(k) Retirement Savings Plan (the "401(k)
Plan") to provide retirement and other benefits to employees of the Company and
to permit employees a means to save for their retirement. The 401(k) Plan is
intended to be a tax-qualified plan under Section 401(a) of the Internal Revenue
Code of 1986, as amended.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of the directors' fiduciary duty of care. The Certificate
limits the liability of directors of the Company to the Company or its
stockholders to the fullest extent permitted by Delaware law. Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (1)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, (3) under Section 174 of
the DGCL or (4) for any transaction from which the director derived an improper
personal benefit. The inclusion of this provision in the Certificate may have
the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefited the Company and its
stockholders. This provision has no effect on any non-monetary remedies that may
be available to the Company or its stockholders, nor does it relieve the Company
or its directors from compliance with federal or state securities laws.
52
<PAGE> 58
The Bylaws provide that the Company shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit (each, a "Proceeding") by reason of the fact that he is
or was a director or officer of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another entity,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with such Proceeding. In addition, the Company has
obtained director and officer liability insurance that insures the Company's
directors and officers against certain liabilities.
53
<PAGE> 59
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of December 21, 1998, information with
respect to the beneficial ownership of the Common Stock by (1) each person or
entity known to the Company to beneficially own more than 5% of the outstanding
shares of Common Stock, (2) each director of the Company and each Named Officer,
and (3) all directors and executive officers of the Company as a group. Unless
otherwise indicated, each such stockholder has sole voting and investment power
with respect to the shares beneficially owned by such stockholder. Percentages
of shares beneficially owned are based upon 55,618,024 shares of Common Stock
outstanding as of the date first set forth above in this paragraph, plus for
each person named below any shares of Common Stock that may be acquired by such
person within 60 days of such date upon exercise of outstanding options or other
rights.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT OF
NAME BENEFICIALLY OWNED COMMON STOCK
---- ------------------ ------------
<S> <C> <C>
H. Family Investments, Inc.(1).............................. 12,000,000 21.5%
450 East Las Olas Blvd.
Ft. Lauderdale, Florida 33301
James L. Kirk............................................... 12,000,100(2) 21.5
Don R. O'Neal............................................... 4,024,302(3) 7.2
Gene J. Ostrow.............................................. 1,000,000 1.8
Philip V. Petrocelli........................................ 123,776 *
Joseph H. Izhakoff.......................................... -- --
H. Wayne Huizenga........................................... 1,682,047(4)(5) 3.0
Harris W. Hudson............................................ 1,013,650(5)(6) 1.8
Gary L. Gabriel............................................. 461,250(5)(7) *
Thomas H. Bruinooge......................................... 87,092(5) *
All executive officers and directors as a group (11
persons).................................................. 20,522,039(3)(7)(8) 36.8
</TABLE>
- ---------------
* Less than 1%
(1) H. Family Investments, Inc. is a Florida corporation controlled by H. Wayne
Huizenga, Jr., the son of Mr. Huizenga.
(2) These shares are held by Kirk Holdings Limited Partnership, a Nevada limited
partnership controlled by Mr. Kirk.
(3) Includes 621,392 shares of Common Stock owned by Mr. O'Neal's spouse, as to
which Mr. O'Neal disclaims beneficial ownership. Also includes 1,966,000
shares of Common Stock in the name of the 1997 Ray L. O'Neal and Ellen M.
O'Neal irrevocable trust for Don R. O'Neal of which Don R. O'Neal is a
trustee.
(4) These shares are held by Huizenga Investments Limited Partnership, a Nevada
limited partnership controlled by Mr. Huizenga ("HILP"). The number of
shares of Common Stock beneficially owned by Mr. Huizenga does not include
the 12,000,000 shares of Common Stock held by H. Family Investments, Inc.
because Mr. Huizenga does not share voting or dispositive control of such
shares and disclaims beneficial ownership of such shares.
(5) Includes 50,000 shares of Common Stock issuable upon exercise of options,
which are immediately exercisable at a price of $8.00 per share of Common
Stock.
(6) Includes 250,000 shares of Common Stock owned by Mr. Hudson's spouse, as to
which Mr. Hudson disclaims beneficial ownership.
(7) Includes 411,250 shares of Common Stock issuable upon conversion of
convertible promissory notes in an aggregate principal amount of $3.29
million, which are convertible at a price of $8.00 per share of Common
Stock. See "Description of Certain Indebtedness -- Promissory Notes."
(8) Includes an aggregate of 200,000 shares of Common Stock issuable upon
exercise of options held by Messrs. Huizenga, Hudson, Gabriel and Bruinooge,
which are immediately exercisable at a price of $8.00 per share of Common
Stock.
54
<PAGE> 60
CERTAIN RELATIONSHIPS AND TRANSACTIONS
In August 1997, the Company was founded by H. Family Investments, Inc. and
Messrs. Kirk and Ostrow (collectively, the "Founders"). H. Family Investments,
Inc. is a Florida corporation controlled by H. Wayne Huizenga, Jr., the son of
Mr. Huizenga. The Founders committed an aggregate of $48.4 million in equity
capital to the Company which was funded at various times from September 1997
through June 2, 1998 as required to complete acquisitions. The Founders have
entered into certain lock-up agreements with the underwriters of the Initial
Public Offering (the "Founders' Lock-up Agreements") pursuant to which they have
agreed not to offer, sell or otherwise dispose of any shares of Common Stock or
any security, convertible into, exercisable for or exchangeable for shares of
Common Stock for a period of 180 days commencing August 7, 1998 without the
prior written consent of Bear, Stearns & Co. Inc., with the exception of certain
specified transfers. In August 1998, the Company registered with the SEC for
resale, subject to the Founders' Lock-up Agreements, under the Securities Act
and applicable state securities laws the shares of Common Stock held by the
Founders. The Company paid registration expenses incidental to such
registration, excluding underwriters' commissions and deductions.
In September 1997, the Company acquired Sam's for $23.4 million from Gary
L. Gabriel, Troy L. Gabriel and certain trusts controlled by them. A portion of
the purchase price was paid by the Company to Gary L. Gabriel and certain trusts
controlled by him in the form of (1) unsecured promissory notes in the aggregate
principal amount of approximately $2.6 million which bear interest at the rate
of 8.5% per annum, (2) an unsecured convertible promissory note, as amended, in
the principal amount of approximately $0.7 million which bears interest at the
rate of 8.0% per annum, and (3) unsecured contingent convertible promissory
notes, as amended, in the aggregate principal amount of $3.0 million which bear
interest at the rate of 8.0% per annum. As of September 30, 1998, the aggregate
principal amount remaining outstanding under such notes was $3.29 million. For a
description of certain of the terms of these promissory notes, see "Description
of Certain Indebtedness -- Promissory Notes." As part of the Sam's acquisition,
the Company entered into certain leases, as amended, on four properties used in
its operations from TTG Properties, an Ohio general partnership ("TTG"), of
which Gary L. Gabriel and Troy L. Gabriel are general partners. Each of the four
leases to which the Company and TTG are a party commenced on October 1, 1997,
provides for an initial term of 10 years, with three automatic five-year
extensions. Under the leases, the Company has the option to purchase the leased
premises at any time within the last five years of the initial lease term at a
fixed price. The aggregate monthly rental payment to TTG under the leases on the
four properties is $57,000. Also, in connection with the Sam's acquisition,
Sam's entered into an agreement with Gary L. Gabriel pursuant to which Mr.
Gabriel provides certain consulting services to the Company. This agreement has
a three year term which automatically renews for an additional one year term.
This agreement provides for an annual salary of $100,000, and use of a leased
vehicle and up to $30,000 of rental equipment per year. The agreement provides
that if Mr. Gabriel's services are terminated at any time without cause, he will
be entitled to receive one year's annual salary as severance. In addition, the
Company has entered into ten year leases for certain facilities in Findlay and
Mansfield, Ohio, from TTG.
In May 1998, the Company received an unsecured subordinated loan in the
amount of $17.4 million from HILP. This loan represented bridge financing to
complete certain acquisitions until the Founders could fund the final portion of
their original capital commitments. The principal amount of the loan was repaid
on June 3, 1998 from an additional equity contribution of $17.4 million from the
Company's founders. Interest in the amount of approximately $124,000 accrued on
this loan and was paid by the Company on June 3, 1998.
On June 2, 1998, the Company sold an aggregate of 5,118,694 shares of
Common Stock in a private placement for aggregate proceeds of $27.6 million. The
table below sets forth the officers and directors of the
55
<PAGE> 61
Company who participated in such private placement and the number of shares of
Common Stock acquired in such transaction:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NAME COMMON STOCK
- ---- ------------
<S> <C>
H. Wayne Huizenga........................................... 1,632,047(1)
Harris W. Hudson............................................ 463,650
Philip V. Petrocelli........................................ 111,276
Pamela K.M. Beall........................................... 92,730
Kris E. Hansel.............................................. 37,092
Thomas H. Bruinooge......................................... 37,092
</TABLE>
--------------------
(1) These shares are held by HILP.
The holders of the shares of Common Stock issued in the June 1998 private
placement entered into certain lock-up agreements with underwriters of the
Initial Public Offering similar to the Founders' Lock-up Agreements, described
above. The Company registered with the SEC for resale, subject to the lock-up
agreements, under the Securities Act and applicable state securities laws the
shares of Common Stock issued in the June 1998 private placement. The Company
paid the registration expenses incidental to such registration, excluding
underwriters' commissions and discounts.
In October 1998, the Company acquired substantially all of the assets of
A-1 Rentals for approximately $178.8 million, $100.7 million of which was paid
in cash and $78.1 million which was paid in the form of unsecured subordinated
convertible and non-convertible promissory notes. In December 1998, the Company
converted the entire $50.0 million of the unsecured subordinated convertible
promissory notes held by Mr. O'Neal, certain trusts controlled by him, members
of Mr. O'Neal's family and certain trusts controlled by them into an aggregate
of 6,956,517 shares of Common Stock, at a price of $7 3/16 per share. Each of
these convertible promissory notes had a six-year term and bore interest at
6.00% per year. Approximately $28.1 million of the proceeds of the Private Debt
Offering was used to repay the entire outstanding principal amount of the
non-convertible promissory notes. Each of the non-convertible promissory notes
had a four-year term and bore interest at 8.00% per year. Upon the satisfaction
of certain earnings targets, the Company may pay to A-1 Rentals additional
consideration of $10.0 million in cash and $10.0 million in shares of Common
Stock.
In connection with the acquisition of A-1 Rentals, Mr. O'Neal entered into
a two-year employment agreement to serve as President and Chief Operating
Officer of the Company for a minimum annual salary of approximately $250,000.
Also, in connection with the acquisition of A-1 Rentals, the Company entered
into leases with entities affiliated with Mr. O'Neal for 15 properties used in
connection with the business of A-1 Rentals. The lease agreements, which have
initial terms ranging from one to five years, require aggregate monthly rental
payments of approximately $120,000.
The Company has entered into certain contracts for building construction
with Alvada Construction, Inc., an entity controlled by Mr. Kirk's brother. As
of September 30, 1998, the aggregate amount payable under these contracts was
approximately $1.2 million.
The Company currently leases the office space and parking for its corporate
headquarters from Panthers Holdings. The monthly lease amount payable by the
Company is approximately $44,000, which amount includes a share of the operating
expenses for this location based upon estimated usage. In addition, the Company
licenses from Panthers Holdings the use of an executive suite at the Broward
County Arena, which is operated by Panthers Holdings, for a fee of $95,000 per
annum for a term of seven years. The Company may also enter into a sponsorship
agreement with Panthers Holdings for certain sponsorship, marketing and
advertising services. Mr. Huizenga is Chairman of the Board of Panthers Holdings
and controls a majority of the voting interests of Panthers Holdings. Mr. Hudson
is also a director of Panthers Holdings.
In addition, the Company has entered into a license agreement with South
Florida Stadium Corporation at Pro Player Stadium, a professional sports stadium
in South Florida which is owned by Mr. Huizenga, for
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the use of an executive suite at Pro Player Stadium for a fee of approximately
$166,000 per year for a term of seven years.
With respect to transactions discussed in this section, no independent
determination has been made as to the fairness or reasonableness of the terms
thereof. The Company believes, however, based on its prior experience, that the
terms of each transaction were as favorable to the Company as it could have
obtained from an unaffiliated party.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary description of the Credit Facilities, certain
promissory notes and related registration rights is qualified in its entirety by
reference to the Credit Facilities, the promissory notes and the registration
rights agreements, copies of which may be obtained from the Company upon written
request.
CREDIT FACILITIES
The Company has recently amended and restated its credit facilities with a
syndicate of lenders and BankBoston, N.A., as administrative agent. Under the
new Credit Facilities, the Company may borrow up to $260.0 million under the
Revolving Line of Credit and has borrowed $175.0 million under the Term Loan.
Recently, the Credit Facilities were amended further to allow the administrative
agent to reallocate the aggregate dollar amounts of the bank commitments between
the Revolving Line of Credit and the Term Loan, provided that the aggregate
commitment may not be more than $435.0 million and the aggregate commitment
under the Revolving Line of Credit may not be less than $260.0 million.
Borrowings under the Credit Facilities can be used to complete permitted
acquisitions, make capital expenditures, enter into stand-by letters of credit
and for working capital and other general corporate purposes. Borrowings under
the Credit Facilities may be in the form of base rate loans or at the option of
the Company, Eurodollar loans. Borrowings under the Credit Facilities bear
interest at either the BankBoston base rate plus a percentage ranging from 0.00%
to 0.50% or, at the Company's option, the Eurodollar market rate plus a
percentage ranging from 2.00% to 2.75%, with respect to the Revolving Line of
Credit, or 3.00% to 3.25%, with respect to the Term Loan. The percentage over
the BankBoston base rate or the Eurodollar market rate is based on the Company's
financial performance as measured by the total funded debt ratio (the "Pricing
Ratio"). Interest on the BankBoston base rate loans is payable quarterly in
arrears. Interest on the Eurodollar loans is payable on the last day of the
applicable interest period which may be a one, two, three or six month period at
the option of the Company, or quarterly in arrears, whichever is earlier. The
Credit Facilities are secured by a first priority security interest in
substantially all of assets of the Company. Borrowings under the Revolving Line
of Credit and the Term Loan mature and must be repaid, in full, in June 2001 and
September 2004, respectively.
PROMISSORY NOTES
In connection with certain of the Acquisitions, the Company has issued
unsecured subordinated promissory notes in an aggregate principal amount of
approximately $168.2 million. An aggregate principal amount of approximately
$129.6 million of such promissory notes are convertible (the "Convertible
Notes") into shares of Common Stock at conversion prices ranging from $7.76 to
$9.43 per share of Common Stock and bear interest at rates ranging between 6.00%
and 8.50%. Certain of these convertible promissory notes are pre-payable by the
Company based on the achievement of certain target trading prices of the Common
Stock over specified periods. Effective December 1998, the Company converted the
entire $50.0 million of the unsecured subordinated convertible promissory notes
into an aggregate of 6,956,517 shares of Common Stock, at a price of $7 3/16 per
share.
In connection with certain of the Convertible Notes issued prior to the
consummation of the Initial Public Offering, the Company granted certain
registration rights for the Common Stock into which the Convertible Notes are
convertible and registered such Common Stock with the SEC under the Securities
Act contemporaneously with the Initial Public Offering in August 1998 in
accordance with such registration rights. In connection with certain of the
Convertible Notes granted after the Initial Public Offering, the Company has
agreed to register the Common Stock into which the Convertible Notes are
convertible with the SEC under the Securities Act within 90 days of the issuance
of such Notes.
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The holders of all Convertible Notes issued prior to the Initial Public
Offering have entered into lock-up agreements with the underwriters of such
offering pursuant to which stockholders have agreed not to offer, sell, agree to
sell, or otherwise dispose of, directly or indirectly, any shares of Common
Stock into which such notes are convertible for a period of 180 days following
August 7, 1998 without the prior written consent of the underwriters with the
exception of certain specified transfers. The holders of certain of the
Convertible Notes issued after the Initial Public Offering have entered into
certain lock-up agreements with the Company pursuant to which such noteholders
have agreed not to offer, sell or otherwise dispose of any shares of Common
Stock or any security convertible into, exercisable for or exchangeable for
shares of Common Stock for a period of generally 12 months following the date of
issuance without the Company's prior written consent, with the exception of
certain specified transfers.
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DESCRIPTION OF NOTES
You can find the definitions of certain capitalized terms used in this
section under the subheading "Certain Definitions." For purposes of this
section, references to the "Company" include only the Company and not its
Subsidiaries. The Company will issue the New Notes and the Old Notes under an
Indenture among itself, the Guarantors and The Bank of New York, as Trustee (the
"Trustee").
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "TIA"). A copy of the Indenture may be obtained from the Company or
the Initial Purchasers. The terms of the New Notes are substantially identical
to the terms of the Old Notes in all material respects (including interest rate
and maturity), except that the New Notes will not be subject to (1) the
restrictions on transfer (other than with respect to holders that are
broker-dealers, persons who participated in the distribution of the Old Notes or
affiliates) and (2) the Registration Rights Agreement covenants regarding
exchange and the related Additional Interest.
The following description is a summary of the material provisions of the
Indenture. It does not restate the Indenture in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights as
a holder of the Notes ("Holder").
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
The Notes
The Notes are:
- general unsecured obligations of the Company;
- subordinated in right of payment to all existing and future Senior Debt;
- ranked equally with all existing and future senior subordinated debt of
the Company;
- senior in right of payment to all other existing and future subordinated
debt of the Company; and
- unconditionally guaranteed by the Guarantors.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Any Notes that remain
outstanding after the completion of the Exchange Offer, together with the New
Notes issued in connection with the Exchange Offer, will be treated as a single
class of securities for all purposes under the Indenture, including, without
limitation, waivers, amendments, redemptions, Change of Control Offers and Net
Proceeds Offers. All references in this section to "Notes" shall be deemed to
refer collectively to the Notes and any New Notes, unless the context otherwise
requires. Any reference to "Exchange Notes" shall be deemed to refer to New
Notes.
The Guarantees
The Notes are guaranteed by the Guarantors, which currently constitute all
of the Company's direct and indirect subsidiaries. The Guarantees of the Notes
are:
- general unsecured obligations of each Guarantor;
- subordinated in right of payment to all existing and future Guarantor
Senior Debt;
- ranked equally with any existing and future senior subordinated debt of
the Guarantor; and
- senior in right of payment to all other existing and future subordinated
obligations of such Guarantor.
After applying the proceeds from the Private Debt Offering as intended, as
of September 30, 1998, on a pro forma basis after giving effect to the
Acquisitions and the Changes in Outstanding Indebtedness, there would have been
$272.2 million of outstanding debt ranking ahead of the Notes, $96.0 million of
outstanding debt ranking ahead of the Guarantees, $26.5 million of outstanding
debt ranking equally with the Notes and $85.2 million of outstanding debt
ranking behind the Notes. As indicated above and as discussed in detail
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below under the subheading "Subordination," payments on the Notes and under the
Guarantees are subordinated to the payment of Senior Debt. The Indenture permits
us and the Guarantors to incur additional Indebtedness, including Senior Debt.
As of the date of the Indenture, all of our Subsidiaries were "Wholly-Owned
Restricted Subsidiaries." However, under certain circumstances are permitted to
designate certain of our subsidiaries as "Unrestricted Subsidiaries."
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants in the Indenture. Unrestricted Subsidiaries will not guarantee the
Notes.
The Company may in the future conduct operations through one or more
Foreign Restricted Subsidiaries. Accordingly, the Company's ability to meet its
cash obligations may in part depend upon the ability of such Foreign Restricted
Subsidiaries to make cash distributions to the Company. Any right of the Company
to receive the assets of any such Foreign Restricted Subsidiary upon such
Foreign Restricted Subsidiary's liquidation or reorganization (and the
consequent right of the Holders to participate in the distribution of the
proceeds of those assets) effectively will be subordinated by operation of law
to the claims of such Foreign Subsidiary's creditors (including trade creditors)
and holders of its preferred stock and Senior Debt, except to the extent that
the Company is itself recognized as a creditor or preferred stockholder of such
Foreign Restricted Subsidiary, in which case the claims of the Company would
still be subordinate to any indebtedness or preferred stock of such Foreign
Restricted Subsidiary which is senior in right of payment to that held by the
Company. Although future Foreign Restricted Subsidiaries will not guarantee the
Notes, the Company will be required to pledge 65% of the outstanding Capital
Stock and any warrants, rights or options to purchase or acquire shares of any
class of such Capital Stock of each such Foreign Restricted Subsidiary to secure
the Company's obligations under the Notes. If the Company is prohibited from
pledging the Capital Stock of any of its foreign Subsidiaries by the Credit
Agreement or otherwise, then such foreign Subsidiaries shall not be permitted to
be a Foreign Restricted Subsidiary. Under the existing Credit Agreement, the
Company is required to pledge the stock of foreign Subsidiaries to secure its
Obligations thereunder.
PRINCIPAL, MATURITY AND INTEREST
The Notes (and Exchange Notes) are limited to a maximum aggregate principal
amount of $225.0 million, of which $175.0 million was outstanding as of the date
of this Prospectus and will mature on December 15, 2008. Additional amounts may
be issued in one or more series from time to time, subject to certain
limitations described under "Certain Covenants -- Limitation on Incurrence of
Additional Indebtedness" and restrictions contained in the Credit Agreement.
Interest on the Notes accrues at the rate of 10 3/8% per annum and is payable
semiannually in cash on each June 15 and December 15, commencing on June 15,
1999, to the persons who are registered Holders at the close of business on June
1 and December 1 immediately preceding the applicable interest payment date.
Interest on the Notes accrues from the most recent date to which interest
has been paid or, if no interest has been paid, from and including the Issue
Date. Interest is computed on the basis of a 360-day year comprised of twelve
30-day months. The Notes are not entitled to the benefit of any mandatory
sinking fund.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
The Company will make all principal, premium and interest payments on the
Notes at the office or agency of the Paying Agent and Registrar within the City
and State of New York unless the Company elects to make interest payments by
check mailed to the Holders at their addresses set forth in the register of
Holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee will initially act as Paying Agent and Registrar. Neither the
Company nor any of its Subsidiaries may act as Paying Agent or Registrar.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder is treated as the owner of a Note for all purposes.
SUBSIDIARY GUARANTEES
Each Guarantor jointly and severally guarantees the Company's obligations
under the Notes. Each Guarantee is subordinated to the prior payment in full in
cash or Cash Equivalents of all Guarantor Senior Debt of that Guarantor (other
than under the Credit Agreement, which must be paid in full in cash) on the same
basis as the Notes are subordinated to Senior Debt. The Guarantors' obligations
under the Credit Agreement are secured by substantially all of the assets of the
Guarantors. The obligations of each Guarantor under its Guarantee are limited as
necessary to prevent such Guarantee from constituting a fraudulent conveyance or
fraudulent transfer under applicable law. See "Risk Factors -- Fraudulent
Conveyance." Each Guarantor that makes a payment or distribution under a
Guarantee shall be entitled to a pro rata contribution from each other Guarantor
based on the net assets of each other Guarantor.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor that is a Restricted Subsidiary of the Company, or
with other Persons upon the terms and conditions set forth in the Indenture. A
Guarantor may not sell or otherwise dispose of all or substantially all of its
assets, or consolidate with or merge with or into another Person (whether or not
such Guarantor is the surviving Person) unless certain conditions are met. See
"Certain Covenants -- Merger, Consolidation and Sale of Assets."
If a Guarantor is released from its obligations under the Credit Agreement,
the Guarantee of a Guarantor will be deemed automatically discharged and
released in accordance with the terms of the Indenture:
(1) in connection with any direct or indirect sale or other
disposition of all of the capital stock or all or substantially all of the
assets of that Guarantor (including by way of merger or consolidation or
foreclosure pursuant to the Credit Agreement), if such sale or disposition
is made in compliance with the applicable provisions of the Indenture (See
"-- Certain Covenants -- Limitation on Asset Sales"); or
(2) if a Guarantor is dissolved or liquidated in accordance with the
provisions of the Indenture; or
(3) if the Company designates any such Guarantor as an Unrestricted
Subsidiary.
Separate financial statements of all of the Guarantors are not included
herein because such Guarantors are jointly and severally liable with respect to
the Company's obligations pursuant to the Notes, and the aggregate net assets,
earnings and equity of the Guarantors are substantially equivalent to the net
assets, earnings and equity of the Company on a consolidated basis.
SUBORDINATION
The payment of all Obligations on the Notes are subordinated to the prior
payment in full in cash or Cash Equivalents of all Obligations in respect of
Senior Debt (other than under the Credit Agreement, which must be paid in full
in cash) whether outstanding on the Issue Date or thereafter incurred,
including, without limitation, the Company's obligations under the Credit
Agreement, before the Holders are entitled to receive any payment with respect
to the Notes in the event of any distribution to creditors of the Company:
(1) in a total or partial liquidation, dissolution or reorganization;
(2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property;
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(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of the Company's assets and liabilities.
Neither the Company nor any other Person on its behalf shall (x) make any
payment of any kind or character with respect to any Obligations on the Notes or
(y) acquire any of the Notes for cash or property or otherwise if:
(1) any default occurs and is continuing in the payment when due,
whether at maturity, upon any redemption, by declaration or otherwise, of
any principal of, interest on, unpaid drawings for letters of credit issued
in respect of, or regularly accruing fees with respect to, any Senior Debt,
or
(2) any other event of default occurs and is continuing with respect
to any Designated Senior Debt permitting the holders of such Designated
Senior Debt then outstanding to accelerate its maturity and if the
Representative for the respective issue of Designated Senior Debt gives
written notice of the event of default to the Trustee (a "Default Notice").
Payment on the Notes may and shall be resumed:
(1) in the case of a payment default, on the date on which all events
of default have been cured or waived or cease to exist; or
(2) in the case of a non-payment default, the earlier of the date on
which such default is cured or waived or 179 days after the date on which
the applicable Default Notice is received (such 179-day period, the
"Blockage Period").
A Blockage Period may not extend beyond 179 days from the date the payment
on the Note was due. Only one Blockage Period may be commenced within any 360
consecutive days.
No non-payment default which existed or was continuing on the date of the
commencement of any Blockage Period with respect to the Designated Senior Debt
shall be, or be made, the basis for commencement of a second Blockage Period by
the Representative of such Designated Senior Debt whether or not within a period
of 360 consecutive days, unless such event of default shall have been cured or
waived for a period of not less than 90 consecutive days.
As a result of the subordination provisions described above, in the event
of a bankruptcy, insolvency or reorganization of the Company, the Holders of the
Notes may recover less, ratably, than holders of Senior Debt and funds which
would otherwise be payable to the Holders will be paid to the holders of Senior
Debt to the extent necessary to pay the Senior Debt in full. See "Risk
Factors -- Subordination."
Assuming we had completed the Offering and applied the proceeds as
intended, as of September 30, 1998, on a pro forma basis after giving effect to
the Acquisitions, the Changes in Outstanding Indebtedness, the Private Debt
Offering and the application of the proceeds from such offering, there would
have been $272.2 million of outstanding debt ranking ahead of the Notes, $96.0
million of outstanding debt ranking ahead of the Guarantees, $26.5 million of
outstanding debt ranking equally with the Notes and $85.2 million of outstanding
debt ranking behind the Notes. The Indenture permits us and the Guarantors to
incur additional Indebtedness.
OPTIONAL REDEMPTION
Optional Redemption Upon Equity Offerings. At any time on or prior to
December 15, 2001, the Company may, on any one or more occasions, redeem up to
35% of the sum of (i) the initial aggregate principal amount of the Notes issued
in the Offering and (ii) the respective initial aggregate principal amount of
the Notes issued under the Indenture after the Issue Date, at a redemption price
of 110 3/8% of the principal amount thereof plus accrued and unpaid interest and
Additional Interest, if any, to the date of redemption with the net cash
proceeds of one or more Public Equity Offerings or Private Equity Offerings;
provided that
(1) at least 65% of the sum of (i) the initial aggregate principal
amount of the Notes issued in the Offering and (ii) the respective initial
aggregate principal amount of Notes issued under the Indenture
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after the Issue Date remains outstanding immediately after any such
redemption (excluding Notes held by the Company and its Subsidiaries); and
(2) the redemption shall be made not more than 90 days after the
closing of such Public Equity Offering or Private Equity Offering, as the
case may be.
Except pursuant to the preceding paragraph, the Notes are not redeemable
before December 15, 2003.
General Optional Redemption. At any time on or after December 15, 2003,
the Company may redeem all or part of the Notes upon not less than 30 nor more
than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount) if redeemed during the twelve-month period
commencing on December 15 of the year set forth below, plus accrued and unpaid
interest and Additional Interest, if any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 105.188%
2004........................................................ 103.458%
2005........................................................ 101.729%
2006 and thereafter......................................... 100.000%
</TABLE>
SELECTION AND NOTICE OF REDEMPTION
If less than all of the Notes are to be redeemed at any time, the Trustee
will select Notes for redemption as follows:
(1) if the Notes are listed, in compliance with the requirements of
the principal national securities exchange on which such Notes are listed;
or
(2) if the Notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate.
No Notes of $1,000 or less shall be redeemed in part. If a partial
redemption is made, selection of the Notes or portions thereof for redemption
shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata
basis as is practicable (subject to DTC procedures), unless such method is
otherwise prohibited. Notices of redemption shall be mailed by first-class mail
at least 30 but not more than 60 days before the redemption date to each Holder
of Notes to be redeemed at its registered address. Notices of redemption may not
be conditional.
If any Note is to be redeemed in part only, the notice of redemption that
relates to such Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in a principal amount equal to the unredeemed portion of
the original Note will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest will cease
to accrue on Notes or portions thereof called for redemption.
CHANGE OF CONTROL
If a Change of Control occurs, the Company will be required to make an
offer to purchase all or a portion of a Holder's Notes (in multiples of $1,000)
pursuant to the offer described below (the "Change of Control Offer"), at a
purchase price equal to 101% of the principal amount thereof plus accrued and
unpaid interest and Additional Interest, if any (the "Change of Control Purchase
Price"), to the date of purchase (the "Change of Control Payment Date"). The
Company will not be required to make a Change of Control Offer if a third party
makes a Change of Control Offer that would be in compliance with the provisions
described in the Indenture if it were made by the Company, and such third party
purchases (for the consideration referred to in the immediate preceding
sentence) the Notes validly tendered and not withdrawn.
Prior to the mailing of the notice referred to below, but in any event
within 30 days following any Change of Control, the Company will either (i)
repay in full and terminate all commitments under Indebtedness under the Credit
Agreement and all other Senior Debt, the terms of which require repayment upon a
Change
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of Control, or offer to repay in full and terminate all commitments under all
Indebtedness under the Credit Agreement and all such other Senior Debt and repay
the Indebtedness owed to each lender which has accepted such offer or (ii)
obtain the requisite consents under the Credit Agreement and all such other
Senior Debt to permit the repurchase of the Notes as provided below. The
Company's failure to comply with the covenant described in the immediately
preceding sentence will constitute an Event of Default under the Indenture.
Within 30 days following any Change of Control, the Company must mail a
notice to each Holder, with a copy to the Trustee, describing the Change of
Control and the terms of the Change of Control Offer and stating, among other
things: the Change of Control Payment Date, which shall be fixed by the Company
on a business day no earlier than 30 days nor later than 60 days from the date
such notice is mailed, or such later date as is necessary to comply with
requirements under the Exchange Act; that any Note not tendered will continue to
accrue interest; that, unless the Company defaults in the payment of the Change
of Control Purchase Price, any Notes accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest after the Change of Control
Payment Date; and certain other procedures that a Holder must follow to accept a
Change of Control Offer or to withdraw such acceptance. Holders electing to have
a Note purchased pursuant to a Change of Control Offer will be required to
surrender the Note, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third business day
prior to the Change of Control Payment Date.
On the Change of Control Payment Date, the Company will, to the extent
lawful:
(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an officers' certificate stating the aggregate
principal amount of Notes or portions thereof being purchased by the
Company.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
This right, as well as restrictions in the Indenture described herein on the
ability of the Company and its Restricted Subsidiaries to incur additional
Indebtedness, to grant liens on its property, to make Restricted Payments and to
make Asset Sales, may make more difficult or discourage a takeover of the
Company, whether favored or opposed by the management of the Company.
Consummation of any such transaction in certain circumstances may require
redemption or repurchase of the Notes, and there can be no assurance that the
Company or the acquiring party will have sufficient financial resources to
effect such redemption or repurchase. Such restrictions and the restrictions on
transactions with Affiliates may, in certain circumstances, make more difficult
or discourage any leveraged buyout of the Company or any of its Subsidiaries.
While such restrictions cover a wide variety of arrangements which have
traditionally been used to effect highly leveraged transactions, the Indenture
may not afford the Holders of Notes protection in all circumstances from the
adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any
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securities laws or regulations conflict with the "Change of Control" provisions
of the Indenture, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
the "Change of Control" provisions of the Indenture by such compliance.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any Restricted Subsidiary
may incur Indebtedness (including, without limitation, Acquired Indebtedness),
if on the date of the incurrence of such Indebtedness, after giving effect to
the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the
Company is greater than 2.0 to 1.0. For purposes of determining any particular
amount of Indebtedness under this "Limitation on Incurrence of Additional
Indebtedness" covenant, guarantees, Liens or obligations with respect to letters
of credit supporting Indebtedness otherwise included in the determination of
such particular amount shall not be included.
Limitation on Restricted Payments. The Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of the
Company) on or in respect of shares of the Company's Capital Stock to
holders of such Capital Stock;
(b) declare or pay any dividend or make any distribution on or in
respect of shares of any Restricted Subsidiary's Capital Stock other than
(i) to the Company or any of its Restricted Subsidiaries or (ii) to all
holders of any class, series or the same type of Capital Stock of such
Restricted Subsidiary on a pro rata basis; provided that in the case of
this clause (iii) such dividend or distribution shall not constitute
Indebtedness or Disqualified Stock;
(c) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase
or acquire shares of any class of such Capital Stock, other than
repurchases of equity interests of the Company deemed to occur upon the
exercise of options to acquire Capital Stock of the Company if such equity
interests represent a portion of the exercise price of such options;
(d) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any scheduled
final maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness of the Company that is subordinate or junior in right of
payment to the Notes or the Guarantees other than (1) Indebtedness of the
Company to a Wholly Owned Restricted Subsidiary and (2) Seller Notes; or
(e) make any Investment (other than Permitted Investments) (each of
the actions set forth in clauses (a), (b), (c), (d) and (e) being referred
to as a "Restricted Payment"),
if at the time of such Restricted Payment or immediately after giving effect
thereto:
(i) a Default or an Event of Default shall have occurred and be
continuing, or
(ii) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant, or
(iii) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date (the
amount expended for such purposes, if other than
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in cash, being the fair market value of such property as determined
reasonably and in good faith by the Board of Directors of the Company)
shall exceed the sum of the following amounts (without duplication):
(1) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of the Company accrued on a cumulative basis during the
period beginning on the first day of the fiscal quarter immediately
following the Closing Date and ending on the last day of the last
fiscal quarter preceding the date the Restricted Payment occurs (the
"Reference Date") (treating such period as a single accounting
period); plus
(2) 100% of the aggregate net cash proceeds received by the
Company from any Person (other than a Subsidiary of the Company) from
the issuance and sale subsequent to the Issue Date and on or prior to
the Reference Date of Qualified Capital Stock of the Company or any
options, warrants or other rights to acquire Qualified Capital Stock
of the Company; plus
(3) 100% of the aggregate net cash proceeds received subsequent
to the Issue Date by the Company from any Person (other than a
Subsidiary of the Company) from the issuance or sale of debt
securities or shares of Disqualified Capital Stock that have been
converted into or exchanged for Qualified Capital Stock, together
with the aggregate cash received by the Company at the time of such
conversion or exchange; plus
(4) 100% of the aggregate net cash proceeds of any equity
contribution received by the Company subsequent to the Issue Date
from a holder of the Company's Capital Stock (other than from a
Subsidiary of the Company); plus
(5) the lesser of (a) an amount equal to the net reduction in
Investments made after the Issue Date pursuant to paragraphs (a) and
(b) of the "Limitation on Restricted Payments" covenant in any Person
resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in
each case to the Company or any Restricted Subsidiary (except to the
extent any such payment is included in the calculation of
Consolidated Net Income), or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries valued in each case as
provided in the definition of "Investments," and (b) the amount of
Investments previously made by the Company or any Restricted
Subsidiary in such Person.
The provisions set forth in the immediately preceding paragraph do not
prohibit:
(1) the payment of any dividend or the consummation of any irrevocable
redemption within 60 days after the date of declaration of such dividend or
the giving of notice of such irrevocable redemption if the dividend or
redemption would have been permitted on the date of declaration or the
giving of such irrevocable redemption notice;
(2) if no Default or Event of Default shall have occurred and be
continuing, the repurchase, redemption or other acquisition or retirement
of any shares of Capital Stock of the Company, either (i) solely in
exchange for shares of Qualified Capital Stock of the Company or any
options, warrants or other rights to acquire Qualified Capital Stock of the
Company or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of
shares of Qualified Capital Stock of the Company, or any options, warrants,
or other rights to acquire Qualified Capital Stock of the Company;
(3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition for value or payment of principal of any
Indebtedness of the Company that is subordinate or junior in right of
payment to the Notes either (i) solely in exchange for shares of Qualified
Capital Stock of the Company or any options, warrants or other rights to
acquire Qualified Capital Stock of the Company or (ii) through the
application of net proceeds of (A) a substantially concurrent sale for cash
(other than to a Subsidiary
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of the Company) of shares of Qualified Capital Stock of the Company or any
options, warrants or other rights to acquire Qualified Capital Stock of the
Company, or (B) Refinancing Indebtedness;
(4) if no Default or Event of Default shall have occurred and be
continuing, repurchases by the Company of Common Stock of the Company from
employees of the Company or any of its Subsidiaries or their authorized
representatives upon the death, disability or termination of employment of
such employees, in an aggregate amount not to exceed $1.0 million in any
calendar year; and
(5) other Restricted Payments in an aggregate amount not to exceed
$15.0 million.
In determining the aggregate amount of Restricted Payments made subsequent
to the Issue Date in accordance with clause (iii) of the immediately
preceding paragraph, amounts expended pursuant to clauses (1), (2)(ii),
3(ii)(A), (4) and (5) shall be included in such calculation.
Not later than the date any Restricted Payment is made, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations
shall be based upon the Company's latest available public quarterly financial
statements.
Limitation on Asset Sales. The Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless:
(i) the Company or the applicable Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets sold or otherwise disposed of
(as determined in good faith by the Company's Board of Directors); and
(ii) at least 75% of the consideration received by the Company or the
Restricted Subsidiary, as the case may be, from such Asset Sale shall be in
the form of cash or Cash Equivalents and is received at the time of such
disposition.
Within 365 days of the consummation of an Asset Sale, the Company shall
apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale either:
(A) to prepay any Senior Debt or Guarantor Senior Debt and, in the
case of any Senior Debt or Guarantor Senior Debt under any revolving credit
facility, effect a permanent reduction in the availability under such
revolving credit facility,
(B) to make an investment in properties and assets or Persons that
replace the properties and assets that were the subject of such Asset Sale
or in properties and assets that will be used in the business of the
Company and its Restricted Subsidiaries as existing on the Issue Date or in
businesses reasonably related thereto ("Replacement Assets"), or
(C) a combination of prepayment and investment permitted by the
foregoing clauses (A) and (B).
Pending the final application of any such Net Cash Proceeds, the Company
may temporarily reduce Senior Debt or otherwise invest such Net Cash Proceeds in
any manner that is not prohibited by the Indenture. On the 366th day after an
Asset Sale or such earlier date, if any, as the Board of Directors of the
Company or of such Restricted Subsidiary determines not to apply the Net Cash
Proceeds relating to such Asset Sale as set forth in clauses (A), (B) and (C) of
the preceding paragraph (each, a "Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which have not been applied on or before
such Net Proceeds Offer Trigger Date as permitted in clauses (A), (B) and (C) of
the preceding paragraph (each, a "Net Proceeds Offer Amount") shall be applied
by the Company or such Restricted Subsidiary to make an offer to purchase (the
"Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less
than 30 nor more than 45 days following the applicable Net Proceeds Offer
Trigger Date, from all Holders on a pro rata basis, that amount of Notes equal
to the Net Proceeds Offer Amount at a price equal to 100% of the principal
amount of the Notes to be purchased, plus accrued and unpaid interest and
Additional Interest, if any, thereon to the date of purchase.
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If at any time any non-cash consideration received by the Company or any
Restricted Subsidiary of the Company, as the case may be, in connection with any
Asset Sale is converted into or sold or otherwise disposed of for cash (other
than interest received with respect to any such non-cash consideration), then
such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
the provisions described above. The Company may defer the Net Proceeds Offer
until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in
excess of $10.0 million resulting from one or more Asset Sales (at which time,
the entire unutilized Net Proceeds Offer Amount, and not just the amount in
excess of $10.0 million, shall be applied as required pursuant to this
covenant).
Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 30 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes, Notes of
tendering Holders will be purchased on a pro rata basis (based on amounts
tendered). To the extent that the aggregate principal amount of Notes tendered
under the Net Proceeds Offer is less than the Net Proceeds Offer Amount, the
Company may use such deficiency for any purpose not otherwise prohibited by the
Indenture. A Net Proceeds Offer shall remain open for a period of 20 business
days or such longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue of such
compliance.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "-- Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to:
(a) pay dividends or make any other distributions on or in respect of
its Capital Stock;
(b) make loans or advances or to pay any Indebtedness or other
obligation owed to the Company or any other Restricted Subsidiary of the
Company; or
(c) transfer any of its property or assets to the Company or any other
Restricted Subsidiary of the Company,
except for such encumbrances or restrictions existing under or by reason of:
(1) applicable law;
(2) the Indenture and the Notes;
(3) customary non-assignment provisions of any contract or any
lease governing a leasehold interest of any Restricted Subsidiary of the
Company;
(4) any instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person or the
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properties or assets of the Person so acquired, provided that such
Acquired Indebtedness was permitted by the terms of the Indenture;
(5) the Credit Agreement;
(6) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date;
(7) restrictions on the transfer of assets subject to any Lien
permitted under the Indenture imposed by the holder of such Lien;
(8) restrictions imposed by any agreement with respect to an Asset
Sale permitted under the Indenture to any Person pending the closing of
such sale;
(9) any agreement or instrument governing Capital Stock of any
Person that is acquired;
(10) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature
described in clause (c) above; or
(11) any agreement governing Refinancing Indebtedness issued,
assumed or incurred pursuant to an agreement referred to in clause (2),
(4), (5) or (6) above; provided, however, that the provisions relating
to such encumbrance or restriction contained in any such Indebtedness
are no less favorable to the Company in any material respect as
determined by the Board of Directors of the Company in their reasonable
and good faith judgment than the provisions relating to such
encumbrance, or restriction contained in agreements referred to in such
clause (2), (4), (5) or (6), respectively.
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary of the
Company) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) to own any Preferred Stock of any
Restricted Subsidiary of the Company.
Limitation on Liens. The Company will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of the Company or any of its Restricted Subsidiaries whether
owned on the Issue Date or acquired after the Issue Date, or any proceeds
therefrom, or assign or otherwise convey any right to receive income or profits
therefrom, except for:
(A) Liens equally and ratably securing (i) Indebtedness that ranks
pari passu with the Notes and the Guarantees, and (ii) the Notes and the
Guarantees;
(B) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date;
(C) Liens securing Senior Debt and Liens securing Guarantor Senior
Debt;
(D) Liens securing the Notes and the Guarantees;
(E) Liens of the Company or a Wholly Owned Restricted Subsidiary of
the Company on assets of any Subsidiary of the Company;
(F) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness which has been secured by a Lien permitted under
the Indenture and which has been incurred in accordance with the provisions
of the Indenture; provided, however, that such Liens (1) are no less
favorable to the Holders and are not more favorable to the lienholders with
respect to such Liens than the Liens in respect of the Indebtedness being
Refinanced and (2) do not extend to or cover any property or assets of the
Company or any of its Restricted Subsidiaries not securing the Indebtedness
so Refinanced; and
(G) Permitted Liens.
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Prohibition on Incurrence of Senior Subordinated Debt. The Company will
not incur or permit to exist Indebtedness that is senior in right of payment to
the Notes and subordinate or junior in right of payment to any Senior Debt of
the Company. No Guarantor will incur or permit to exist Indebtedness that is
subordinate or junior in right of payment to Guarantor Senior Debt of such
Guarantor and senior in right of payment to such Guarantor's Guarantee.
Merger, Consolidation and Sale of Assets. The Company will not, in a
single transaction or series of related transactions, consolidate or merge with
or into any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of (or cause or permit any Restricted Subsidiary of the Company to sell,
assign, transfer, lease, convey or otherwise dispose of) all or substantially
all of the Company's assets (determined on a consolidated basis for the Company
and the Company's Restricted Subsidiaries) whether as an entirety or
substantially as an entirety to any Person unless:
(i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of the Company and of the Company's
Restricted Subsidiaries substantially as an entirety (the "Surviving
Entity") (x) shall be a corporation organized and validly existing under
the laws of the United States or any State thereof or the District of
Columbia and (y) shall expressly assume, by supplemental indenture (in form
and substance satisfactory to the Trustee), executed and delivered to the
Trustee, the due and punctual payment of the principal of, and premium, if
any, and interest and Additional Interest, if any, on all of the Notes and
the performance of every covenant of the Notes, the Indenture and the
Registration Rights Agreement on the part of the Company to be performed or
observed;
(ii) immediately after giving effect to such transaction and the
assumption contemplated by clause (i)(2)(y) above (including giving effect
to any Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction), the Company
or such Surviving Entity, as the case may be, (1) shall have a Consolidated
Net Worth equal to or greater than the Consolidated Net Worth of the
Company immediately prior to such transaction and (2) shall be able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "Limitation on Incurrence of Additional
Indebtedness" covenant;
(iii) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (i)(2)(y) above
(including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no Default or
Event of Default shall have occurred and be continuing; and
(iv) the Company or the Surviving Entity shall have delivered to the
Trustee an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture
comply with the applicable provisions of the Indenture and that all
conditions precedent in the Indenture relating to such transaction have
been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
Upon any consolidation, combination or merger or any transfer of all or
substantially all of the assets of the Company in accordance with the foregoing,
in which the Company is not the continuing corporation, the Surviving Entity
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under the Indenture and the Notes with the same effect as if
such Surviving Entity had been named as such.
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Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture) will not, and
the Company will not cause or permit any Guarantor to, consolidate with or merge
with or into any Person other than the Company or any other Guarantor unless:
(i) the entity formed by or surviving any such consolidation or merger
(if other than the Guarantor) is a corporation organized and existing under
the laws of the United States or any State thereof or the District of
Columbia;
(ii) such surviving entity (if other than the Guarantor) assumes by
supplemental indenture all of the obligations of the Guarantor on the
Guarantee;
(iii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; and
(iv) immediately after giving effect to such transaction and the use
of any net proceeds therefrom on a pro forma basis, the Company could
satisfy the provisions of clause (ii) of the first paragraph of this
covenant.
In connection with any merger or consolidation of a Guarantor with and into
the Company (with the Company being the surviving entity) or another Guarantor
that is a Wholly Owned Restricted Subsidiary of the Company, the Company need
only deliver to the Trustee an officers' certificate and an opinion of counsel,
each stating that such consolidation or merger and, if a supplemental indenture
is required in connection with such transaction, such supplemental indenture,
comply with the applicable provisions of the Indenture and that all conditions
precedent in the Indenture relating to such transaction have been satisfied.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which is similar or part of a common plan) involving aggregate payments or other
property with a fair market value in excess of $5.0 million shall be approved by
the Board of Directors of the Company or such Restricted Subsidiary, as the case
may be, such approval to be evidenced by a Board Resolution stating that such
Board of Directors has determined that such transaction complies with the
foregoing provisions. If the Company or any Restricted Subsidiary of the Company
enters into an Affiliate Transaction (or a series of related Affiliate
Transactions related to a common plan) that involves an aggregate fair market
value of more than $10.0 million, the Company or such Restricted Subsidiary, as
the case may be, shall, prior to the consummation thereof, obtain a favorable
opinion as to the fairness of such transaction or series of related transactions
to the Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the same
with the Trustee.
(b) The restrictions set forth in clause (a) above shall not apply to:
(i) reasonable fees and compensation paid to, loans or advances to,
and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Restricted Subsidiary of the Company as
determined in good faith by the Company's Board of Directors or senior
management;
(ii) transactions exclusively between or among the Company and any of
its Wholly Owned Restricted Subsidiaries or exclusively between or among
such Wholly Owned Restricted Subsidiaries, provided such transactions are
not otherwise prohibited by the Indenture;
(iii) any payments or transactions pursuant to agreements in effect as
of the Issue Date or any amendment thereto or any transaction contemplated
thereby (including pursuant to any amendment thereto) in any replacement
agreement thereto so long as any such amendment or replacement
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agreement is not more disadvantageous to the Holders in any material
respect than the original agreement as in effect on the Issue Date;
(iv) Restricted Payments permitted by the Indenture;
(v) any Investments by an Affiliate of the Company in the Capital
Stock (other than Disqualified Stock) of the Company or any Restricted
Subsidiary of the Company; and
(vi) any transaction, the terms of which are entered into on an
arm's-length basis with a Person that is not then an Affiliate, which
becomes an Affiliate Transaction upon the consummation thereof.
Additional Subsidiary Guarantees. If (i) the Company or any of its
Restricted Subsidiaries acquires or creates another Restricted Subsidiary or
(ii) an Unrestricted Subsidiary of the Company is redesignated as a Restricted
Subsidiary or otherwise ceases to be an Unrestricted Subsidiary and thereafter
is a Restricted Subsidiary, then such newly acquired, created or redesignated
Restricted Subsidiary (other than a Foreign Restricted Subsidiary) shall execute
a supplemental indenture becoming a Guarantor in accordance with the terms of
the Indenture.
Conduct of Business. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar or related to the
businesses in which the Company and its Restricted Subsidiaries are engaged on
the Issue Date.
Reports to Holders. The Company will deliver to the Trustee within 15 days
after the filing of the Indenture with the Commission, copies of the quarterly
and annual reports and of the information, documents and other reports, if any,
which the Company is required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act. At all times from and after the Issue Date,
notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the Commission, to the extent permitted, and provide the Trustee and
Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act for so long as
any Notes are outstanding. The Company will also comply with the other
provisions of TIA sec. 314(a).
Payments for Consent. Neither the Company nor any of its Restricted
Subsidiaries will be permitted, directly or indirectly, to pay or cause to be
paid any consideration, whether by way of interest, fee or otherwise, to any
Holder for or as an inducement to obtain any consent, waiver or amendment of any
of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid or is paid to all Holders that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default for 30 days in the payment of interest or Additional
Interest, if any, on any Notes, whether or not such payment is prohibited
by the subordination provisions of the Indenture;
(ii) default in payment when due of the principal on any Notes,
whether or not such payment is prohibited by the subordination provisions
of the Indenture;
(iii) default in the observance or performance of any other covenant
or agreement contained in the Indenture which default continues for a
period of 30 days after the Company receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or
the Holders of at least 25% of the outstanding principal amount of the
Notes (except in the case of a default with respect to the "Merger,
Consolidation and Sale of Assets" covenant or the "Change of Control"
covenant, which will constitute an Event of Default with such notice
requirement but without such passage of time requirement);
(iv) the failure to pay at final maturity (after giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Restricted
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Subsidiary of the Company (including, without limitation, Indebtedness
under the Credit Agreement) and such failure continues for a period of 20
days or more, or the acceleration of the final stated maturity of any such
Indebtedness (which acceleration is not rescinded, annulled or otherwise
cured within 20 days of receipt by the Company or such Restricted
Subsidiary of notice of any such acceleration) if the aggregate principal
amount of such Indebtedness, together with the principal amount of any
other such Indebtedness in default for failure to pay principal at final
maturity or which has been accelerated, in each case with respect to which
the 20-day period described above has passed, aggregates $10.0 million or
more at any time;
(v) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $3.0 million, which judgments
are not paid, discharged or stayed within a period of 60 days after such
judgment or judgments become final and non-appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(vii) any of the Guarantees of a Guarantor that is a Significant
Subsidiary ceases to be in full force and effect or any of such Guarantees
is declared to be null and void and unenforceable or any of such Guarantees
is found to be invalid or any of such Guarantors denies its liability under
its Guarantee (other than by reason of release of such Guarantor in
accordance with the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding Notes
may declare the principal of and accrued interest and Additional Interest, if
any, on all the Notes to be due and payable by notice in writing to the Company
and the Trustee specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice"), and the same (i) shall
become immediately due and payable or (ii) if there are any amounts outstanding
under the Credit Agreement, shall become immediately due and payable upon the
first to occur of an acceleration under the Credit Agreement (which acceleration
is not rescinded, annulled or otherwise cured within 20 days of receipt by the
Company or such Restricted Subsidiary of notice of any such acceleration) or
five business days after receipt by the Company and the Representative under the
Credit Agreement of such Acceleration Notice but only if such Event of Default
is then continuing. If an Event of Default specified in clause (vi) above with
respect to the Company occurs and is continuing, then all unpaid principal of,
and premium, if any, and accrued and unpaid interest and Additional Interest, if
any, on all of the outstanding Notes will become due and payable immediately
without further action or notice.
Any time after a declaration of acceleration with respect to the Notes as
described in the preceding paragraph, the Holders of a majority in principal
amount of the Notes may rescind and cancel such declaration and its
consequences:
(i) if the rescission would not conflict with any judgment or decree,
(ii) if all existing Events of Default have been cured or waived
except nonpayment of principal or interest that has become due solely
because of the acceleration,
(iii) to the extent the payment of such interest is lawful, interest
on overdue installments of interest and Additional Interest and overdue
principal, which, has become due otherwise than by such declaration of
acceleration, has been paid,
(iv) if the Company has paid the Trustee its reasonable compensation
and reimbursed the Trustee for its expenses, disbursements and advances,
and
(v) in the event of the cure or waiver of an Event of Default of the
type described in clause (vi) of the description above of Events of
Default, the Trustee shall have received an officers' certificate and an
opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
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The Holders of a majority in aggregate principal amount of the then
outstanding Notes may waive any existing Default or Event of Default under the
Indenture, and its consequences, except a default in the payment of the
principal of or interest or Additional Interest, if any, on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all its
obligations discharged with respect to the outstanding Notes and all obligations
of the Guarantors discharged with respect to their Guarantees ("Legal
Defeasance") except for:
(i) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest and Additional
Interest, if any, on the Notes when such payments are due;
(ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost
or stolen Notes and the maintenance of an office or agency for payments;
(iii) the rights, powers, trusts, duties and immunities of the Trustee
and the Company's obligations in connection therewith; and
(iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company and the Guarantors released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(i) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders cash in U.S. dollars, non-callable U.S.
government obligations, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
and interest and Additional Interest, if any, on the Notes on the stated
date for payment thereof or on the applicable redemption date, as the case
may be, and the Company must specify whether the Notes are being defeased
to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date
of the Indenture, there has been a change in the applicable United States
federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders will not
recognize income, gain or loss for United States federal income tax
purposes as a result of such Legal Defeasance
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and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for United States federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
United States federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(iv) immediately after giving effect to such deposit on a pro forma
basis, no Default or Event of Default shall have occurred and be continuing
(A) either on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds, all or a portion of which
will be applied to such deposit), or (B) insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under the Indenture (other
than a Default or Event of Default resulting from the borrowing of funds,
all or a portion of which will be used to defease the Notes) or any other
material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound;
(vi) the Company must have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others;
(vii) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent relating to the Legal Defeasance or the Covenant Defeasance have
been complied with;
(viii) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that (A) the trust funds will not be subject to any
rights of holders of Senior Debt, and (B) after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and
(ix) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause
(ii) above need not be delivered if all Notes not theretofore delivered to the
Trustee for cancellation (x) have become due and payable, (y) will become due
and payable on the maturity date within one year or (z) are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when:
(i) either (a) all the Notes previously authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid
and Notes for whose payment money has theretofore been deposited in trust
or segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee
for cancellation or (b) all Notes not previously delivered to the Trustee
for cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee funds in
an amount sufficient to pay and discharge the principal of, premium, if
any, and interest and Additional Interest, if any, on the Notes to the date
of deposit not previously delivered to the Trustee for cancellation,
together with irrevocable
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instructions from the Company directing the Trustee to apply such funds to
the payment thereof at maturity or redemption, as the case may be;
(ii) the Company has paid all other sums payable under the Indenture
by the Company; and
(iii) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Guarantors and the Trustee, without the
consent of the Holders, may amend the Indenture for certain specified purposes,
including curing ambiguities, defects or inconsistencies, so long as such change
does not, in the opinion of the Trustee, adversely affect the rights of any of
the Holders in any material respect. In formulating its opinion on such matters,
the Trustee will be entitled to rely on such evidence as it deems appropriate,
including solely on an opinion of counsel.
Other modifications and amendments of the Indenture may be made with the
consent of the Holders of a majority in principal amount of the then outstanding
Notes issued under the Indenture, except that, without the consent of each
Holder affected thereby, no amendment may:
(i) reduce the amount of Notes whose Holders must consent to an
amendment;
(ii) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Notes;
(iii) reduce the principal of, or change or have the effect of
changing the fixed maturity of, any Notes, or change the date on which any
Notes may be subject to redemption or repurchase, or reduce the redemption
or repurchase price therefor;
(iv) make any Notes payable in money other than that stated in the
Notes;
(v) make any change in provisions of the Indenture protecting the
right of each Holder to receive payment of principal of and interest on
such Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting Holders of a majority in principal amount of Notes
to waive Defaults or Events of Default;
(vi) amend, change or modify in any material respect the obligation of
the Company to make and consummate a Change of Control Offer in the event
of a Change of Control or make and consummate a Net Proceeds Offer with
respect to any Asset Sale that has been consummated or modify any of the
provisions or definitions with respect thereto;
(vii) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Notes or any
Guarantee in a manner which adversely affects the Holders; or
(viii) release any Guarantor from any of its obligations under its
Guarantee or the Indenture otherwise than in accordance with the terms of
the Indenture.
GOVERNING LAW
The Indenture, the Notes and the Guarantees are governed by, and construed
according to, the laws of the State of New York but without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
THE TRUSTEE
Except during the continuance of an Event of Default, the Trustee will
perform only such duties as are specifically set forth in the Indenture. During
the existence of an Event of Default, the Trustee will exercise
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such rights and powers vested in it by the Indenture, and use the same degree of
care and skill in its exercise as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
If the Trustee becomes a creditor of the Company, the Indenture limits its
right to obtain payments of claims in certain cases or to realize on certain
property received in respect of any such claim as security or otherwise. The
Trustee will be permitted to engage in other transactions, provided, however,
that if it acquires any conflicting interest, it must eliminate such conflict or
resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries that is existing at the time such Person becomes a Restricted
Subsidiary of the Company or at the time it merges or consolidates with the
Company or any of its Subsidiaries or that is assumed in connection with the
acquisition of assets from such Person and in each case not incurred by such
Person in connection with, or in anticipation or contemplation of, such Person
becoming a Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"Additional Interest" means all liquidated damages then owing pursuant to
the Registration Rights Agreement.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other than
a Restricted Subsidiary of the Company) which constitute all or substantially
all of the assets of such Person or comprises any division or line of business
of such Person or any other properties or assets of such Person other than in
the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction or a
foreclosure pursuant to the Credit Agreement) to any Person other than the
Company or a Wholly Owned Restricted Subsidiary of the Company of:
(a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted
Subsidiary of the Company other than in the ordinary course of business;
provided, however, that Asset Sales shall not include:
(i) a transaction or series of related transactions for which the
Company or its Restricted Subsidiaries receive aggregate consideration
in any year of less than $1.0 million,
(ii) the sale, lease, conveyance, disposition or other transfer of
all or substantially all of the assets of the Company as permitted under
"Merger, Consolidation and Sale of Assets,"
(iii) disposals or replacements of obsolete or outdated equipment
or inventory, and
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(iv) the sale or discount, in each case without recourse (other
than recourse for a breach of a representation or warranty), of accounts
receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof in the ordinary
course of business and not as part of a financing transaction.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Cash Equivalents" means:
(i) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation
("S&P") or Moody's Investors Service, Inc. ("Moody's");
(iii) commercial paper maturing no more than 270 days from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the
date of acquisition thereof combined capital and surplus of not less than
$250.0 million;
(v) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (iv)
above; and
(vi) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (i) through
(v) above.
"Change of Control" means the occurrence of one or more of the following
events:
(i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets
of the Company to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of the
Indenture) (other than to one or more of the Permitted Holders);
(ii) the approval by the holders of Capital Stock of the Company of
any plan or proposal for the liquidation or dissolution of the Company
(whether or not otherwise in compliance with the provisions of the
Indenture);
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(iii) there is consummated any consolidation or merger of the Company
into another corporation in which the Company is not the surviving entity
(except that no Change of Control shall be deemed to have occurred if the
stockholders of the Company immediately prior to such transaction own 50%
or more of the aggregate voting power represented by the issued and
outstanding Capital Stock of such Person or Group immediately after such
transaction);
(iv) any Person or Group (other than one or more of the Permitted
Holders) shall become the owner, directly or indirectly, beneficially or of
record, of shares representing more than 50% of the aggregate voting power
represented by the issued and outstanding Capital Stock of the Company
(except that no Change of Control shall be deemed to have occurred if the
stockholders of the Company immediately prior to such transaction own 50%
or more of the aggregate voting power represented by the issued and
outstanding Capital Stock of such Person or Group immediately after such
transaction); or
(v) the replacement of a majority of the Board of Directors of the
Company over a two-year period from the directors who constituted the Board
of Directors of the Company at the beginning of such period, and such
replacement shall not have been approved by a vote of at least a majority
of the Board of Directors of the Company then still in office who either
were members of such Board of Directors at the beginning of such period or
whose election as a member of such Board of Directors was previously so
approved.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes of
such Person and its Restricted Subsidiaries paid or accrued in accordance with
GAAP for such period (other than income taxes attributable to extraordinary,
unusual or nonrecurring gains or losses or taxes attributable to sales or
dispositions outside the ordinary course of business), (B) Consolidated Interest
Expense and (C) Consolidated Non-Cash Charges, less any noncash items increasing
Consolidated Net Income for such period, all as determined on a consolidated
basis for such Person and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or immediately prior to
the date of the transaction giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to
Consolidated Fixed Charges of such Person for the Four Quarter Period. In
addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma (calculated on a basis consistent
with Regulation S-X under the Securities Act) basis for the period of such
calculation to (i) the incurrence or repayment of any Indebtedness of such
Person or any of its Restricted Subsidiaries (and the application of the
proceeds thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA (provided that such
Consolidated EBITDA shall be included only to the extent includable pursuant to
the definition of "Consolidated Net Income") attributable to the assets which
are the subject of the Asset Acquisition or Asset Sale during the Four Quarter
Period) occurring during the Four Quarter Period or at any time subsequent to
the last day of the Four Quarter Period and on or prior to the Transaction Date,
as if such
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Asset Sale or Asset Acquisition (including the incurrence, assumption or
liability for any such Acquired Indebtedness) occurred on the first day of the
Four Quarter Period. If such Person or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such Person or any Restricted Subsidiary of such Person had directly incurred
or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator of this
"Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local
income tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and amortization or write-off
of deferred financing costs, (b) the net costs under Interest Swap Obligations,
(c) all capitalized interest and (d) the interest portion of any deferred
payment obligation; and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom:
(a) for purposes of calculating the Consolidated Fixed Charge Coverage
Ratio only, after-tax gains, or losses (net of any related fees and
expenses) from Asset Sales or abandonments or reserves relating thereto,
(b) after-tax items classified as extraordinary or nonrecurring gains
or losses,
(c) the net income (or loss) of any Person acquired in a "pooling of
interests" transaction accrued prior to the date it becomes a Restricted
Subsidiary of the referent Person or is merged or consolidated with the
referent Person or any Restricted Subsidiary of the referent Person,
(d) the net income (but not loss) of any Restricted Subsidiary of the
referent Person to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is restricted by
a contract, operation of law or otherwise,
(e) the net income of any Person, other than a Restricted Subsidiary
of the referent Person, except to the extent of cash dividends or
distributions paid to the referent Person or to a Restricted Subsidiary of
the referent Person by such Person (provided that in the case of cash
dividends or distributions paid to any such Restricted Subsidiary that is
not a Wholly Owned Restricted Subsidiary, the portion of net income
included therein will be equal to the Company's interest in such Restricted
Subsidiary),
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(f) for purposes of calculating the Consolidated Fixed Charge Coverage
Ratio only, any restoration to income of any contingency reserve, except to
the extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following the Issue Date,
(g) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or
not such operations were classified as discontinued), and
(h) in the case of a successor to the referent Person by consolidation
or merger or as a transferee of the referent Person's assets, any earnings
of the successor corporation prior to such consolidation, merger or
transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person, provided that the Consolidated Net Worth of any Person
shall exclude the effect of any non-cash charges relating to the acceleration of
stock options or similar securities of such Person or another Person with which
such Person is merged or consolidated.
"Consolidated Non-Cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"Consolidated Tangible Assets" means, all accounts receivable, inventory
(including rental inventory), property, plant and equipment (including titled
equipment) of the Company and the Guarantors, determined on a consolidated basis
in accordance with GAAP.
"Credit Agreement" means the Second Amended and Restated Revolving Credit
and Term Loan Agreement dated as of September 24, 1998, as amended, among the
Company, the Company's subsidiaries party thereto, the lenders party thereto in
their capacities as lenders thereunder, BankBoston, N.A., as administrative
agent, LaSalle National Bank, as documentation agent, and Fleet Bank, N.A. and
NationsBank, N.A., as co-agents for the lenders party thereto, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder or adding Restricted
Subsidiaries of the Company as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means (i) Indebtedness of the Company and its
Subsidiaries under or in respect of the Credit Agreement or (ii) any other
Indebtedness constituting Senior Debt which, at the time of determination, has
an aggregate principal amount of at least $25.0 million and is specifically
designated in the instrument evidencing such Senior Debt as "Designated Senior
Debt" by the Company.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the Notes.
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"Equipment Debt" means that certain senior subordinated supplier debt in an
original principal amount not to exceed $25.0 million in favor of one of the
Company's suppliers or its designee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith (which determination shall be conclusive) and shall be
evidenced by a Board Resolution of the Board of Directors of the Company
delivered to the Trustee.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of the
Company that is incorporated in a jurisdiction other than the United States of
America, including its territories and possessions, or 80% of the sales,
earnings or assets of which are located in, generated from or derived from
operations located in, jurisdictions outside the United States of America.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date. All
ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP applied on a consistent basis.
"Guarantor" means (i) each of the Company's existing Restricted
Subsidiaries, and (ii) each of the Company's Restricted Subsidiaries that in the
future executes a supplemental indenture in which such Restricted Subsidiary
agrees to be bound by the terms of the Indenture as a Guarantor; provided that
any Person constituting a Guarantor as described above shall cease to constitute
a Guarantor when its respective Guarantee is released in accordance with the
terms of the Indenture.
"Guarantor Senior Debt" means with respect to any Guarantor, the principal
of, premium, if any, and interest (including any interest accruing subsequent to
the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on, and all other amounts owing in respect of:
(x) all monetary obligations (including guarantees thereof) of every
nature of such Guarantor under the Credit Agreement, including, without
limitation, obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities,
(y) all Interest Swap Obligations (including guarantees thereof), and
(z) all obligations (including guarantees thereof) under Currency
Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include:
(i) any Indebtedness of such Guarantor to a Restricted Subsidiary of
such Guarantor or any Affiliate of such Guarantor or any of such
Affiliate's Subsidiaries,
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(ii) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of such Guarantor or any Restricted
Subsidiary of such Guarantor (including, without limitation, amounts owed
for compensation),
(iii) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services (excluding Purchase
Money Indebtedness),
(iv) Indebtedness represented by Disqualified Capital Stock,
(v) any liability for federal, state, local or other taxes owed or
owing by such Guarantor,
(vi) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness,"
(vii) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company, and
(viii) any Indebtedness which is, by its express terms, subordinated
in right of payment to any other Indebtedness of such Guarantor.
"Indebtedness" means with respect to any Person, without duplication:
(i) all Obligations of such Person for borrowed money,
(ii) all Obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments,
(iii) all Capitalized Lease Obligations of such Person,
(iv) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable, leases that are not Capitalized Lease Obligations and
other accrued liabilities arising in the ordinary course of business),
(v) all Obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction,
(vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below,
(vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of
the Obligation so secured,
(viii) all Obligations under Currency Agreements and all Interest Swap
Obligations of such Person, and
(ix) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference
and its maximum fixed repurchase price, but excluding accrued dividends, if
any.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of the issuer of such Disqualified Capital
Stock. Indebtedness shall not include any liability for (i) federal, state,
local or other taxes, (ii) endorsements of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business or (iii)
any indebtedness that has been defeased or satisfied in accordance with the
terms of the documents governing such indebtedness.
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The amount of Indebtedness of any Person at any date shall be the
outstanding balance on such date of all unconditional Obligations as described
above, and the maximum liability upon the occurrence of the contingency giving
rise to the Obligation, on any contingent Obligations at such date; provided,
however, that the amount outstanding at any time of any Indebtedness incurred
with original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP.
The amount of any item of Indebtedness shall be an amount of such
Indebtedness properly classified as a liability on a balance sheet prepared in
accordance with GAAP.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include and be valued at
the fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments by
the Company or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, writedowns or write-offs with
respect to such Investment, reduced by the payment of dividends or distributions
in connection with such Investment or any other amounts received in respect of
such Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Common Stock of any
direct or indirect Restricted Subsidiary of the Company (other than all of the
Common Stock of such Restricted Subsidiary) such that, after giving effect to
any such sale or disposition, such Person is no longer a Restricted Subsidiary,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Common Stock of such
Person not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Restricted Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket
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expenses and fees relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees and sales commissions), (b) taxes
paid or payable after taking into account any reduction in consolidated tax
liability due to available tax credits or deductions and any tax sharing
arrangements, (c) repayment of Indebtedness that either (A) is secured by a Lien
on the property or assets sold or (B) is required to be repaid in connection
with such Asset Sale (or in order to obtain a consent required in connection
therewith), (d) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, (e) any
consideration for an Asset Sale (which would otherwise constitute Net Cash
Proceeds) that is required to be held in escrow pending determination of whether
a purchase price adjustment will be made, but amounts under this clause (e)
shall become Net Cash Proceeds at such time and to the extent such amounts are
released to such Person and (f) a pro rata portion of the amount of cash or Cash
Equivalents received by any non-Guarantor Restricted Subsidiary that is not a
Wholly-Owned Restricted Subsidiary to the extent of the interests in such
non-Guarantor Restricted Subsidiary that are held by Persons other than the
Company or its Restricted Subsidiaries.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Holder(s)" means H. Family Investments, Inc., James L. Kirk, Don
R. O'Neal, Gene J. Ostrow, H. Wayne Huizenga and Harris W. Hudson and any of
their respective Affiliates, spouses, siblings, lineal descendants or lineal
ascendants or any trust for the benefit of such persons.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes, the Indenture and the Guarantees;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed the
greater of (A) $435.0 million and (B) the product of (x) Consolidated
Tangible Assets and (y) 1.0; reduced in the case of the preceding clause
(A) by any required permanent repayments from the application of the use of
proceeds from Asset Sales (which in the case of a revolving credit facility
are accompanied by a corresponding permanent commitment reduction)
thereunder;
(iii) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually paid
or permanent reductions thereof;
(iv) Interest Swap Obligations of the Company or any of its Restricted
Subsidiaries covering Indebtedness of the Company or such Restricted
Subsidiary; provided, however, that such Interest Swap Obligations are
entered into to protect the Company and its Restricted Subsidiaries from
fluctuations in interest rates on Indebtedness incurred in accordance with
the Indenture to the extent the notional principal amount of such Interest
Swap Obligation does not exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
(v) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the
Company to the Company or to a Restricted Subsidiary of the Company for so
long as such Indebtedness is held by the Company or a Wholly Owned
Restricted Subsidiary of the Company, in each case subject to no Lien held
by a Person other than the Company, a Wholly Owned Restricted Subsidiary of
the Company or the lenders under the Credit Agreement; provided that if as
of any date any Person other than the Company, a Wholly
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Owned Restricted Subsidiary of the Company or the lenders under the Credit
Agreement owns or holds any such Indebtedness or holds a Lien in respect of
such Indebtedness, then the Company or such Restricted Subsidiary shall be
deemed to have incurred as of such date Indebtedness not constituting
Permitted Indebtedness pursuant to this clause (vi);
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a
Restricted Subsidiary of the Company or the lenders under the Credit
Agreement, in each case subject to no Lien (other than a lien in favor of
the lenders under the Credit Agreement); provided that (a) any Indebtedness
of the Company to any Wholly Owned Restricted Subsidiary of the Company
that is not a Guarantor is unsecured and subordinated, pursuant to a
written agreement, to the Company's obligations under the Indenture and the
Notes and (b) if as of any date any Person other than a Wholly Owned
Restricted Subsidiary of the Company or the lenders under the Credit
Agreement owns or holds any such Indebtedness or any Person holds a Lien in
respect of such Indebtedness, then Indebtedness not constituting Permitted
Indebtedness by the Company pursuant to this clause (vii) shall be deemed
to have been incurred on such date;
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(ix) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(x) Refinancing Indebtedness;
(xi) Capitalized Lease Obligations and Purchase Money Indebtedness of
the Company or any of its Restricted Subsidiaries not to exceed $10.0
million at any one time outstanding;
(xii) guarantees of Indebtedness otherwise permitted under the
Indenture;
(xiii) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount (or, in the case of
Indebtedness issued at a discount, an accreted amount (determined in
accordance with GAAP)) not to exceed $20.0 million at any one time
outstanding (which may, but need not, be incurred in whole or in part under
the Credit Agreement); and
(xiv) Equipment Debt.
For purposes of determining compliance with the "Limitation on Incurrence
of Additional Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the types of Permitted Indebtedness
described in the above clauses, the Company, in its sole discretion shall
classify such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of such clauses. Any Permitted Indebtedness
initially incurred pursuant to any of the clauses in the preceding paragraph may
at any time at the sole discretion of the Company be treated as having been
incurred pursuant to any other clause as long as the outstanding amount of such
Permitted Indebtedness at the time of any reclassification could be made
pursuant to such other clause.
"Permitted Investments" means:
(i) Investments by the Company or any Restricted Subsidiary of the
Company in any Person that is or will become immediately after such
Investment, a Wholly Owned Restricted Subsidiary of the Company or that
will merge or consolidate into the Company or a Wholly Owned Restricted
Subsidiary of the Company,
(ii) Investments in the Company by any Restricted Subsidiary of the
Company; provided that any Indebtedness evidencing such Investment is
unsecured and, to the extent made by a Restricted
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Subsidiary that is not a Guarantor, subordinated, pursuant to a written
agreement, to the Company's obligations under the Notes and the Indenture;
(iii) investments in cash and Cash Equivalents;
(iv) loans and advances to employees and officers of the Company and
its Restricted Subsidiaries in the ordinary course of business for bona
fide business purposes not in excess of $2.0 million at any one time
outstanding;
(v) Currency Agreements and Interest Swap Obligations entered into in
the ordinary course of the Company's or its Restricted Subsidiaries'
businesses and otherwise in compliance with the Indenture;
(vi) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers or in
good faith settlement of delinquent obligations of such trade creditors or
customers;
(vii) Investments made by the Company or its Restricted Subsidiaries
as a result of non-cash consideration received in connection with an Asset
Sale made in compliance with the "Limitation on Asset Sales" covenant;
(viii) Investments existing on the Issue Date;
(ix) guarantees of Indebtedness otherwise permitted under the
Indenture,
(x) obligations of one or more officers or other employees of the
Company or any of its Restricted Subsidiaries in connection with such
officers' or employees' acquisition of shares of Common Stock of the
Company so long as no cash is paid by the Company or any of its Restricted
Subsidiaries to such officers or employees in connection with the
acquisition of any such obligations; and
(xi) additional Investments in an aggregate amount that, together with
all other Investments made pursuant to this clause (xi), does not exceed
$5.0 million.
For purposes of determining compliance with the "Limitation on Restricted
Payments" covenant, in the event that an Investment meets the criteria of more
than one of the types of Permitted Investments described in the clauses in the
preceding paragraph, the Company, in its sole discretion, shall classify such
Permitted Investment and only be required to include the amount and type of such
Permitted Investment in one of such clauses. Any Permitted Investment initially
made pursuant to any of the clauses in the preceding paragraph may at any time
at the sole discretion of the Company be treated as having been made pursuant to
any other clause as long as the outstanding amount of such Permitted Investment
at the time of any reclassification could be made pursuant to such other clause.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
that are either (a) not yet due or are delinquent for less than ninety days
or (b) being contested in good faith by appropriate proceedings and as to
which the Company or its Restricted Subsidiaries shall have set aside on
its books such reserves, if any, as may be required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security;
(iv) Liens securing (a) letters of credit issued in the ordinary
course of business consistent with past practice in connection therewith,
or to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money) and any bank's
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unexercised right of set off with respect to deposits made in the ordinary
course and (b) indemnity obligations in respect of the disposition of any
business or assets of the Company or any Restricted Subsidiary (provided
that the property subject to such Lien does not have a fair market value in
excess of the cash or Cash Equivalent proceeds received by the Company and
its Restricted Subsidiaries in connection with such disposition);
(v) judgment Liens not giving rise to an Event of Default;
(vi) easements, rights-of-way, municipal ordinances, zoning
restrictions and other similar charges, encumbrances, title defects or
irregularities not interfering in any material respect with the ordinary
conduct of the business of the Company or any of its Restricted
Subsidiaries;
(vii) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(viii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary of the Company acquired in the
ordinary course of business; provided, however, that (A) the related
Purchase Money Indebtedness shall not exceed the cost of such property or
assets (including the cost of design, development, improvement, production,
acquisition, construction, installation and integration) and shall not be
secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired or
constructed (and any accounts, contract rights, chattel paper, documents
and instruments arising from the sale, lease or rental of such property or
assets and all attachments, parts, accessions, accessories and replacements
thereof, and all proceeds therefrom) and (B) the Lien securing such
Indebtedness shall be created within six months of such acquisition,
construction or improvement;
(ix) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(x) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(xi) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of offset
and set-off;
(xii) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xiii) Liens securing Indebtedness under Currency Agreements;
(xiv) any lease or sublease to a third party not interfering in any
material respect with the business of the Company and its Restricted
Subsidiaries; and
(xv) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant;
provided that (A) such Liens secured such Acquired Indebtedness at the time
of and prior to the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company and
(B) such Liens do not extend to or cover any property or assets of the
Company or of any of its Restricted Subsidiaries other than the property or
assets and the proceeds thereof that secured the Acquired Indebtedness
prior to the time such Indebtedness became Acquired Indebtedness of the
Company or a Restricted Subsidiary of the Company and are no more favorable
to the lienholders than those securing the Acquired Indebtedness prior to
the incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary of the Company.
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"Person" means an individual, partnership, corporation, unincorporated
organization, association, limited liability company, joint stock company, trust
or joint venture, or a governmental agency or political subdivision thereof or
any other entity.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Private Equity Offering" means an issuance of Qualified Capital Stock of
the Company for cash in a private placement.
"Public Equity Offering" means an underwritten public offering of Qualified
Capital Stock of the Company for cash pursuant to a registration statement filed
with the Commission in accordance with the Securities Act, the net proceeds of
which are at least $40.0 million.
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant, in each case
(except in the case of Indebtedness incurred pursuant to clause (ii), (iv), (v),
(vi), (vii), (viii) or (ix) of the definition of Permitted Indebtedness) that
does not (1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing (plus
the amount of any interest or premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of reasonable fees
and expenses incurred by the Company in connection with such Refinancing) or (2)
create Indebtedness with (A) a Weighted Average Life to Maturity that is less
than the Weighted Average Life to Maturity of the Indebtedness being Refinanced
or (B) a final maturity earlier than the final maturity of the Indebtedness
being Refinanced; provided that (x) if such Indebtedness being Refinanced is
Indebtedness solely of the Company, then such Refinancing Indebtedness shall be
Indebtedness solely of the Company and (y) if such Indebtedness being Refinanced
is subordinate or junior to the Notes, then such Refinancing Indebtedness shall
be subordinate to the Notes at least to the same extent and in the same manner
as the Indebtedness being Refinanced.
"Registration Rights Agreement" means that certain Registration Rights
Agreement, dated as of the date of the Indenture, among the Company, the
Guarantors and the Initial Purchasers.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
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"Seller Notes" means any Indebtedness incurred by the Company or any of the
Restricted Subsidiaries in favor of any Person or Persons from whom the Company
or such Restricted Subsidiary acquires a business or the assets or properties of
a business directly in connection with such acquisition.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of:
(x) all monetary obligations (including guarantees thereof) of every
nature of the Company under the Credit Agreement, including, without
limitation, obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities,
(y) all Interest Swap Obligations (including guarantees thereof) and
(z) all obligations (including guarantees thereof) under Currency
Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(i) any Indebtedness of the Company to a Subsidiary of the Company or
any Affiliate of the Company or any of such Affiliate's Subsidiaries,
(ii) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of the Company or any Subsidiary of the
Company (including, without limitation, amounts owed for compensation),
(iii) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services (excluding Purchase
Money Indebtedness),
(iv) Indebtedness represented by Disqualified Capital Stock,
(v) any liability for federal, state, local or other taxes owed or
owing by the Company,
(vi) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness,"
(vii) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company, and
(viii) any Indebtedness which is, by its express terms, subordinated
in right of payment to any other Indebtedness of the Company.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w)
of Regulation S-X under the Securities Act.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by, and
published in, the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
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date fixed for redemption of the Notes following a Change of Control (or, if
such Statistical Release is no longer published, any publicly available source
of similar market data)) most nearly equal to the then remaining Average Life to
Stated Maturity of the Notes; provided, however, that if the Average Life to
Stated Maturity of the Notes is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation (calculated to the nearest
one-twelfth of a year) from the weekly average yields of United States Treasury
securities for which such yields are given, except that if the Average Life to
Stated Maturity of the Notes is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of, the
Company or any other Restricted Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided that (x) the Company
certifies to the Trustee that such designation complies with the "Limitation on
Restricted Payments" covenant and (y) each Subsidiary to be so designated and
each of its Subsidiaries has not at the time of designation, and does not
thereafter, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable with respect to any Indebtedness pursuant to which the
lender has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation, the Company is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
REGISTRATION RIGHTS
The Company, the Guarantors and the Initial Purchasers entered into a
registration rights agreement (the "Registration Rights Agreement") pursuant to
which the Company and the Guarantors agreed that they will, at their cost, for
the benefit of the Holders, (i) within 90 days after the Issue Date (the "Filing
Date"), file a registration statement on an appropriate registration form (this
Exchange Offer Registration Statement) with respect to a registered offer (the
Exchange Offer) to exchange the Old Notes for the New Notes of the Company,
guaranteed by the Guarantors, which New Notes will have terms substantially
identical in all material respects to the Old Notes (except that the New Notes
will not contain terms with respect to transfer restrictions) and (ii) to use
their best efforts to cause the Exchange Offer Registration Statement to be
declared effective under the Securities Act within 150 days after the Issue
Date. Upon the Exchange Offer Registration Statement being declared effective,
the Company and the Guarantors will offer the New Notes in
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exchange for surrender of the Old Notes. The Company and the Guarantors will
keep the Exchange Offer open for not less than 20 business days (or longer if
required by applicable law) after the date notice of the Exchange Offer is
mailed to the Holders. For each of the Old Notes surrendered to the Company
pursuant to the Exchange Offer, the Holder who surrendered such Old Notes will
receive a New Note having a principal amount equal to that of the surrendered
Old Notes. Interest on each New Note will accrue (A) from the later of (i) the
last interest payment date on which interest was paid on the Old Note
surrendered in exchange therefor, and (ii) if the Old Note is surrendered for
exchange on a date in a period which includes the record date for an interest
payment date to occur on or after the date of such exchange and as to which
interest will be paid, the date of such interest payment date or (B) if no
interest has been paid on the Old Notes, from the Issue Date.
If (1) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, the Company and the Guarantors
are not permitted to effect an Exchange Offer, (2) the Exchange Offer is not
consummated within 180 days of the Issue Date, (3) any holder of Notes notifies
the Company within a certain time period that (a) it is prohibited by law or SEC
policy from participating in the Exchange Offer, (b) it may not resell the New
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales, (c) it is a
broker-dealer and owns Old Notes acquired directly from the Company or any
Guarantor or an affiliate of the Company or any Guarantor, or (d) in the case of
any Holder that participates in the Exchange Offer, such Holder does not receive
New Notes on the date of the exchange that may be sold without restriction under
state and federal securities laws (other than due solely to the status of such
Holder as an affiliate of the Company or any Guarantor within the meaning of the
Securities Act), then in each case, the Company and the Guarantors will (x)
promptly deliver to the Holders and the Trustee written notice thereof and (y)
at their sole expense, (a) as promptly as practicable, file a shelf registration
statement covering resales of the Notes (the "Shelf Registration Statement"),
(b) use their best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act and (c) use their best efforts to
keep effective the Shelf Registration Statement until the earlier of two years
after the Issue Date or such time as all of the applicable Old Notes have been
sold thereunder. The Company will, in the event that a Shelf Registration
Statement is filed, provide to each Holder copies of the prospectus that is a
part of the Shelf Registration Statement, notify each such Holder when the Shelf
Registration Statement for the Notes has become effective and take certain other
actions as are required to permit unrestricted resales of the Notes. A Holder
that sells Old Notes pursuant to the Shelf Registration Statement will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement that are
applicable to such a Holder (including certain indemnification rights and
obligations).
If the Company or the Guarantors fail to comply with the above provisions
or if the Exchange Offer Registration Statement or the Shelf Registration
Statement fails to become effective, then, as liquidated damages, additional
interest (the "Additional Interest") shall become payable in respect of the
Notes as follows (each, a "Registration Default"):
(i) if (A) the Exchange Offer Registration Statement is not filed with
the Commission on or prior to the Filing Date or (B) notwithstanding that
the Company and the Guarantors filed the Exchange Offer Registration
Statement on or prior to the Filing Date, the Company and the Guarantors
are required to file a Shelf Registration Statement and such Shelf
Registration Statement is not filed on or prior to the date required by the
Registration Rights Agreement (the "Shelf Filing Date"), then commencing on
the day after either such required filing date, Additional Interest shall
accrue on the principal amount of the Notes at a rate of 0.25% per annum,
for the first 90 days immediately following each such filing date, such
Additional Interest rate increasing by an additional 0.25% per annum at the
beginning of each subsequent 90-day period; or
(ii) if (A) the Exchange Offer Registration Statement is not declared
effective by the Commission on or prior to 150 days after the Issue Date
(the "Effectiveness Date") or (B) notwithstanding that the Notes Exchange
Offer Registration Statement was declared effective on or prior to the
Effectiveness
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Date, the Company and the Guarantors are required to file a Shelf
Registration Statement and such Shelf Registration Statement is not
declared effective by the Commission on or prior to the 60th day following
the date such Shelf Registration Statement was filed (the "Shelf
Effectiveness Date"), then, commencing on the date after the 60th day
following the applicable effectiveness date, Additional Interest shall
accrue on the principal amount of the Notes at a rate of 0.25% per annum
for the first 90 days immediately following such date, such Additional
Interest rate increasing by an additional 0.25% per annum at the beginning
of each subsequent 90-day period; or
(iii) If (A) the Company and the Guarantors have not exchanged
Exchange Notes for all Notes validly tendered in accordance with the terms
of the Exchange Offer on or prior to the 30th day after the date on which
the Exchange Offer Registration Statement was declared effective or (B) if
applicable, the Shelf Registration Statement has been declared effective
and such Shelf Registration Statement ceases to be effective at any time
prior to the second anniversary of the Issue Date (other than after such
time as all Notes have been disposed of thereunder), then Additional
Interest shall accrue on the principal amount of the Notes at a rate of
0.25% per annum for the first 90 days commencing on (x) the 31st day after
such effective date, in the case of (A) above, or (y) the day such Shelf
Registration Statement ceases to be effective in the case of (B) above,
such Additional Interest rate increasing by an additional 0.25% per annum
at the beginning of each subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes may not exceed
in the aggregate 2.0% per annum; provided, further, that the Company and the
Guarantors shall in no event be required to pay Additional Interest for more
than one Registration Default at any given time; and provided, further, that (1)
upon the filing of the Exchange Offer Registration Statement or a Shelf
Registration Statement, as applicable (in the case of clause (i) above), (2)
upon the effectiveness of the Exchange Offer Registration Statement or a Shelf
Registration Statement, as applicable (in the case of clause (ii) above), or (3)
upon the exchange of Exchange Notes for all Notes tendered (in the phrase of
clause (iii)(A) above), or upon the effectiveness of the Shelf Registration
Statement which had ceased to remain effective (in the case of clause (iii)(B)
above), as applicable, Additional Interest on the Notes as a result of such
clause (or the relevant subclause thereof), as the case may be, shall cease to
accrue.
Any amounts of Additional Interest due pursuant to clauses (i), (ii) or
(iii) above will be payable in the manner provided for the payment of interest
in the Indenture, on the same original interest payment date as set forth in the
Indenture and the Notes. The amount of Additional Interest will be determined by
multiplying the applicable Additional Interest rate by the principal amount of
the Notes multiplied by a fraction, the numerator of which is the number of days
such Additional Interest rate was applicable during such period (determined on
the basis of a 360-day year comprised of twelve 30-day months), and the
denominator of which is 360.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which will be available upon request to the Company.
BOOK-ENTRY, DELIVERY AND FORM
Except as described in the next paragraph, the New Notes initially will be
represented by one or more permanent global certificates in definitive, fully
registered form (the "Global Notes"). The Global Notes will be deposited on the
Issue Date with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC") and registered in the name of a nominee of DTC. The Global Notes
will be subject to certain restrictions on transfer set forth therein and will
bear the legend regarding such restrictions set forth under the heading
"Transfer Restrictions" herein.
Notes (i) transferred to "foreign purchasers" (as defined in "Transfer
Restrictions") or (ii) held by QIBs or institutional Accredited Investors who
are not QIBs who elect to take physical delivery of their certificates instead
of holding their interests through a Global Note (and which are thus ineligible
to trade through DTC) (collectively referred to herein as the "Non-Global
Purchasers") will be issued in registered
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form (the "Certificated Security"). Upon the transfer to a QIB of any
Certificated Security initially issued to a Non-Global Purchaser, such
Certificated Security will, unless the transferee requests otherwise or the
Global Notes have previously been exchanged in whole for Certificated
Securities, be exchanged for an interest in a Global Note. For a description of
the restrictions on the transfer of Certificated Securities and any interest in
the Global Notes, see "Transfer Restrictions."
THE GLOBAL NOTES
The Company expects that pursuant to procedures established by DTC (i) upon
the issuance of the Global Notes, DTC or its custodian will credit, on its
internal system, the principal amount of Notes of the individual beneficial
interests represented by such Global Notes to the respective accounts of persons
who have accounts with such depositary and (ii) ownership of beneficial
interests in the Global Notes will be shown on, and the transfer of such
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
Such accounts initially will be designated by or on behalf of the Initial
Purchasers and ownership of beneficial interests in the Global Notes will be
limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants. QIBs and institutional Accredited Investors
who are not QIBs may hold their interests in the Global Notes directly through
DTC if they are participants in such system, or indirectly through organizations
which are participants in such systems.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in the Global Notes will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any) interest (including
Additional Interest) on the Global Notes will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest (including Additional Interest) on the
Global Notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Notes as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests in
the Global Notes held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's sameday funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes or to pledge such
securities, such holder must transfer its interest in a Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and
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trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performances by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Note and a successor depositary is not appointed by the Company
within 90 days of receipt of a written notice from DTC, Certificated Securities
will be issued in exchange for the Global Notes, which certificates will bear
the legends referred to under the heading "Transfer Restrictions."
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of the New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes acquired
as a result of market-making activities or other trading activities. The Company
has agreed that it will make this Prospectus available to any broker-dealer for
use in connection with any such resale for a period of 120 days after the
Expiration Date or until all participating broker-dealers have so resold. Any
such broker-dealer who intends to use this Prospectus in connection with the
resale of New Notes received in exchange for Old Notes pursuant to the Exchange
Offer must notify the Company, or cause the Company to be notified, on or prior
to the Expiration Date, that it is such a broker-dealer.
The Company will not receive any proceeds from the issuance of the New
Notes offered hereby or from any sale of New Notes by broker-dealers. New Notes
received by broker-dealers for their own account pursuant to the Exchange Offer
may be sold from time to time in one or more transactions in the over-the-
counter market, in negotiated transactions, through the writing of options on
the New Notes or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly to purchasers
or to or through brokers or dealers who may receive compensation in the form of
commissions or concession from any such broker-dealer and/or the purchasers of
any New Notes. Any broker-dealer that resells New Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker-dealer that
participates in a distribution of New Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act, and any profit on any resale of New
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company has not entered into any arrangement or understanding with any
person to distribute the New Notes to be received in the Exchange Offer, and to
the best of the Company's information and belief, each person participating in
the Exchange Offer is acquiring the New Notes in its ordinary course of business
and has no arrangement or understanding with any person to participate in the
distribution of the New Notes to be received in the Exchange Offer.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the Notes,
but does not purport to be a complete analysis of all the potential tax
considerations relating thereto (possibly with retroactive effect). This summary
is based on the
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Internal Revenue Code of 1986, as amended (the "Code"), existing, temporary, and
proposed Treasury Regulations, and laws, rulings and decisions now in effect,
all of which are subject to change. This summary deals only with holders that
will hold Notes as "capital assets" (within the meaning of Section 1221 of the
Code). This summary does not address holders subject to special rules, such as
tax-exempt organizations, insurance companies, dealers in securities or
currencies, or persons that will hold Notes as a position in a hedging
transaction, "straddle" or "conversion transaction" for tax purposes.
For the purposes of this discussion, a "U.S. holder" means any holder of a
Note that is (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any state thereof (except, in the case of a partnership, to the
extent future Treasury Regulations provide otherwise), (iii) an estate the
income of which is subject to United States federal income taxation regardless
of its source, (iv) a trust other than a "foreign trust," as such term is
defined in Section 7701(a)(31) of the Code or (v) otherwise subject to United
States federal income tax on a net income basis in respect of its worldwide
taxable income. A "Non-U.S. holder" means any holder of a Note that is not a
U.S. holder.
THE FOLLOWING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, INVESTORS
CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISERS WITH
RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX
LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING
UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY
APPLICABLE TAX TREATY.
UNITED STATES FEDERAL INCOME TAXATION OF U.S. HOLDERS
Payment of Interest
Interest on a Note generally will be includable in the income of the U.S.
holder of such Note as ordinary income at the time such interest is received or
accrued, in accordance with such holder's method of accounting for United States
federal income tax purposes. It is expected that the Notes will be issued
without original issue discount and the following discussion so assumes.
Market Discount
If a U.S. holder purchases a Note for an amount that is less than its
principal amount, the amount of the difference will be treated as "market
discount" for United States federal income tax purposes, unless such difference
is less than a specified de minimis amount. Under the market discount rules, a
U.S. holder will be required to treat any partial principal payment on, or any
gain on the sale, exchange, retirement or other disposition of, a Note as
ordinary income to the extent of the market discount which has not previously
been included in income and is treated as having accrued on such Note at the
time of such payment or disposition. In addition, the U.S. holder may be
required to defer, until the maturity of the Note or its earlier disposition in
a taxable transaction, the deduction of all or a portion of the interest expense
on any indebtedness incurred or continued to purchase or carry such Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the U.S.
holder elects to accrue on a constant interest method. A U.S. holder may elect
to include market discount in income currently as it accrues (on either a
ratable or constant interest method), in which case the rule described above
regarding deferral of interest deductions will not apply. This election to
include market discount in income currently, once made, applies to all market
discount obligations acquired on or after the first taxable year to which the
election applies and may not be revoked without the consent of the Internal
Revenue Service (the "IRS").
96
<PAGE> 102
Amortizable Bond Premium
A U.S. holder that purchases a Note for an amount in excess of the
principal amount will be considered to have purchased the Note at a "premium." A
U.S. holder generally may elect to amortize the premium over the remaining term
of the Note on a constant yield method. However, if the Note is purchased at a
time when the Note may be optionally redeemed for an amount that is in excess of
its principal amount, special rules would apply that could result in a deferral
of the amortization of bond premium until later in the term of the Note. The
amount amortized in any year will be treated as a reduction of the U.S. holder's
interest income from the Note. Bond premium on a Note held by a U.S. holder that
does not make such an election will decrease the gain or increase the loss
otherwise recognized on disposition of the Note. The election to amortize
premium on a constant yield method, once made, applies to all debt obligations
held or subsequently acquired by the electing U.S. holder on or after the first
day of the first taxable year to which the election applies and may not be
revoked without the consent of the IRS.
Sale, Exchange or Retirement of the Notes
Upon the sale, exchange or redemption of a Note, a U.S. holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash proceeds and the fair market value of any property received on
the sale, exchange or redemption (except to the extent such amount is
attributable to either Additional Interest discussed below, or accrued interest
income not previously included in income which is taxable as ordinary income)
and (ii) such holder's adjusted tax basis in the Note. A holder's adjusted tax
basis in a Note generally will equal the cost of the Note to such holder. Such
capital gain or loss will be long-term capital gain or loss if the Note was held
by the U.S. holder for more than 12 months. Under recently enacted legislation,
the net capital gain of an individual derived in respect of the Notes generally
will be taxed at a maximum rate of 20% if it is long-term capital gain.
Exchange of Notes for Exchange Notes
The exchange of Notes for Exchange Notes pursuant to the Exchange Offer
should not be considered a taxable exchange for U.S. federal income tax purposes
because the Exchange Notes should not constitute a material modification of the
terms of the Notes. Accordingly, such exchange should have no U.S. federal
income tax consequences to U.S. holders of Notes, and the basis and holding
period of such a holder in an Exchange Note will be the same as such holder's
adjusted tax basis and holding period in the Note exchanged therefor.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note and payments of the proceeds
of the sale of a Note to certain noncorporate holders, and a 31% backup
withholding tax may apply to such payments if the U.S. holder (i) fails to
furnish or certify his correct taxpayer identification number to the payer in
the manner required, (ii) is notified by the Internal Revenue Service that he
has failed to report payments of interest and dividends properly, or (iii) under
certain circumstances, fails to certify that he has not been notified by the
Internal Revenue Service that he is subject to backup withholding for failure to
report interest and dividend payments. Any amounts withheld under the backup
withholding rules from a payment to a U.S. holder will be allowed as a credit
against such holder's United States federal income tax and may entitle the
holder to a refund, provided that the required minimum information is furnished
to the Internal Revenue Service.
Additional Interest
The Company believes that Additional Interest, if any, described above
under "Exchange Offer -- Registration Rights" will be taxable to the U.S. holder
as ordinary income in accordance with the holder's method of accounting for
federal income tax purposes. The Internal Revenue Service may take a different
position, however, which could affect the timing of a holder's income with
respect to Additional Interest, if any.
97
<PAGE> 103
UNITED STATES FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a person other than a U.S. holder generally
will not be subject to U.S. federal income tax provided (i) such gain is not
effectively connected with the conduct by such holder of a trade or business in
the United States, and (ii) in the case of gains derived by an individual, such
individual is not present in the United States for 183 days or more in the
taxable year of the disposition.
Payments of interest to a Non-U.S. holder with respect to a Note generally
will not be subject to U.S. federal income tax and a withholding tax if (a)
either (i) the beneficial owner of the Note certifies to the Company or its
agent, under penalties of perjury, that it is not a U.S. person and provides its
name and address on an Internal Revenue Service Form W-8 (or a suitable
substitute form) or (ii) a securities clearing organization, bank or other
financial organization that holds customers' securities in the ordinary course
of business (a "financial institution") and holds the Note certifies under
penalties of perjury that such a Form W-8 (or suitable substitute form) has been
received from the beneficial owner by it or by a financial institution between
it and the beneficial owner and furnishes the payor with a copy thereof, and (b)
the holder does not actually or constructively own 10% or more of the voting
power of all voting stock of the Company and is not a controlled foreign
corporation for U.S. tax purposes that is related to the Company through stock
ownership. A Non-U.S. holder that does not meet the requirements above would
generally be subject to U.S. federal withholding at a flat rate of 30% (or a
lower applicable treaty rate) on payments of interest with respect to the Notes.
If a Non-U.S. holder of a Note is engaged in a trade or business in the
United States and interest on the Note is effectively connected with the conduct
of such trade or business, such Non-U.S. holder, although exempt from U.S.
federal withholding tax (provided the Non-U.S. holder files the appropriate
certification with the Company or its U.S. agent) will be subject to U.S.
federal income tax on such interest in the same manner as if it were a U.S.
holder. In addition, if such Non-U.S. holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits (subject to adjustment) for that taxable year unless it
qualifies for a lower rate under an applicable income tax treaty.
Recently finalized Treasury obligations, which are generally effective with
respect to payments made after December 31, 1999, subject to certain transition
rules, provide alternative certification requirements and means by which a
holder of a Note could claim the exemption from U.S. federal income and
withholding tax.
If interest on the Notes is exempt from United States federal income and
withholding tax under the rules described above, the Notes will not be included
in the estate of a deceased Non-U.S. holder for United States federal estate tax
purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company will, where required, report to the holders of Notes and the
Internal Revenue Service the amount of any interest paid on the Notes in each
calendar year and the amounts of tax withheld, if any, with respect to such
payments. Copies of these information returns may also be made available under
the provisions of a specific treaty agreement to the tax authorities of the
country in which the Non-U.S. holder resides.
In the case of payments of interest to Non-U.S. holders, Temporary Treasury
regulations provide that the 31% backup withholding tax and certain information
reporting will not apply to such payments with respect to which either the
requisite certification, as described above, has been received or an exemption
has otherwise been established; provided that neither the Company nor its
payment agent has actual knowledge that the holder is a United States person or
that the conditions of any other exemption are not in fact satisfied. Under
temporary Treasury regulations, these information reporting and backup
withholding requirements will apply, however, to the gross proceeds paid to a
Non-U.S. holder on the disposition of the Notes by or through a United States
office of a United States or foreign broker, unless the holder certifies to the
broker under penalties of perjury as to its name, address, and status as a
foreign person, and such broker has no actual knowledge to the contrary, or the
holder otherwise establishes an exemption. Information reporting requirements,
but not backup withholding, will also apply to a payment of the proceeds of a
disposition of the Notes
98
<PAGE> 104
by or through a foreign office of a United States broker or a foreign broker
that is a controlled foreign corporation for United States federal income tax
purposes or a foreign person that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United States,
unless such broker has documentary evidence in its file that the holder of the
Notes is not a United States person, and such broker has no actual knowledge to
the contrary, or the holder establishes an exception. Neither information
reporting nor backup withholding generally will apply to a payment of the
proceeds of a disposition of the Notes by or through a foreign office of a
foreign broker not subject to the preceding sentence.
In October 1997, Treasury regulations were issued which alter the foregoing
rules in certain respects and which generally will apply to any payments in
respect of a Note or proceeds from the sale of a Note that are made after
December 31, 1999. Among other things, such regulations expand the number of
foreign intermediaries that are potentially subject to information reporting and
address certain documentary evidence requirements relating to exemption from the
general backup withholding requirements. Holders of the Notes should consult
their tax advisers concerning the possible application of such regulations to
any payments made on or with respect to the Notes.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-U.S.
holder's United States federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
EXCHANGE OFFER
For federal income tax purposes, the exchange of Old Notes for New Notes
pursuant to the Exchange Offer will not result in recognition of gain or loss by
U.S. Holders of Notes, the holding period of the New Notes will include the
holding period of the Old Notes and the basis of the New Notes will be the same
as the basis of the Old Notes immediately before the exchange. In the case of a
holder of the Old Notes who is a cash basis taxpayer and whose taxable year ends
prior to the date on which the first interest payment under the Notes is paid,
the exchange of the Old Notes for the New Notes could result in the acceleration
of interest income accrued during the holding period of the Old Notes through
the date of the exchange.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Akerman, Senterfitt & Eidson, P.A., Miami, Florida. Certain attorneys
at Akerman, Senterfitt & Eidson, P.A. currently own shares of Common Stock of
the Company.
EXPERTS
The financial statements of the Company, Gabriel Trailer Manufacturing
Company, Inc., R. and R. Rental, Inc., C & E Rental and Service, Inc., Titan
Rentals, Inc., The Bode-Finn Company, RFL Enterprises, Inc., Naples Rent-All &
Sales Company, Inc., Raymond Equipment Company, Inc., The Florida Panhandle and
Southeast Texas Divisions of General Rental, Inc., Associated Rental Equipment
Management Company, Inc., Revco Equipment Rentals, Inc., High Reach Company,
Inc. and High Reach Leasing Company, Reliable Rental & Supply Co., Inc., Ray L.
O'Neal, Inc. and Arenco, LLC, and Action Equipment Company, Inc. and Action
Supply Co., Inc., included in this Prospectus and Registration Statement and the
Schedule of the Company included elsewhere in the Prospectus have been audited
by Arthur Andersen LLP, independent certified public accountants, as indicated
in their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
The financial statements of Logan Equipment Corporation as of December 31,
1997 and for the year then ended, appearing in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
99
<PAGE> 105
NATIONSRENT, INC.
INDEX TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
NATIONSRENT, INC.
Introduction to Pro Forma Consolidated Financial
Statements............................................. PF-2
Pro Forma Consolidated Balance Sheet at September 30,
1998................................................... PF-3
Pro Forma Consolidated Statements of Operations for the
year ended December 31, 1997........................... PF-4
Predecessor Pro Forma Consolidated Statements of
Operations for the year ended December 31, 1997........ PF-5
Acquisitions Consolidated Statements of Operations for the
year ended December 31, 1997........................... PF-6
Pro Forma Consolidated Statements of Operations for the
nine months ended September 30, 1998................... PF-7
Notes to Unaudited Pro Forma Consolidated Financial
Statements............................................. PF-8
</TABLE>
PF-1
<PAGE> 106
NATIONSRENT, INC.
INTRODUCTION TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma consolidated financial statements of the Company
present the pro forma consolidated balance sheet at September 30, 1998 and the
pro forma consolidated statements of operations for the year ended December 31,
1997 and the nine months ended September 30, 1998. The pro forma consolidated
financial statements give effect to the Acquisitions, the Founders' Additional
Contribution, the Private Placement, certain borrowings under the Credit
Facilities, conversion to equity of certain subordinated acquisition debt,
incurrance of certain senior subordinated supplier debt and the Private Debt
Offering. The pro forma consolidated balance sheet at September 30, 1998 gives
effect to the transactions and events described above as if they occurred on
September 30, 1998. The pro forma consolidated statements of operations for the
year ended December 31, 1997 reflect the Acquisitions as if they occurred on
January 1, 1997. The pro forma consolidated statements of operations for the
nine months ended September 30, 1998 are comprised of the historical results of
the Company, which include the results of operations of all businesses acquired
during 1997 and the first nine months of 1998 (consisting of Sam's Equipment
Rental, Inc. ("Sam's"), Ashland Rental and Sales, Inc. ("Ashland"), R. and R.
Rental, Inc. ("R&R"), C&E Rental and Service, Inc. ("C&E"), Titan Rentals, Inc.
("Titan"), Central Rent-All, Inc. ("Central"), Revco Equipment Rentals, Inc.
("Revco"), RFL Enterprises, Inc. ("RFL"), Naples Rent-All and Sales Company,
Inc. ("Naples"), The Bode-Finn Company ("Bode-Finn"), U-Rent-It Company, Inc.
("U-Rent-It"), A-Action Rental, Inc. ("A-Action"), Raymond Equipment Company,
Inc, ("Jobs"), The J. Kelly Co., Inc. ("J. Kelly"), General Rental, Inc.
("General"), Associated Rental Equipment Management Company, Inc.
("Associated"), A to Z Rents It, Inc. ("A to Z"), Big "R" Rents Corporation
("Big R"), High Reach Company, Inc. and High Reach Leasing Company ("High
Reach"), Agstar, Inc. and Lightnin' Truck Rental, Inc. ("Lightnin"'), Reliable
Rental & Supply Co., Inc. ("Reliable"), Witt Equipment Company ("Witt"),
Louisiana Rentals of Houma, Inc. ("Louisiana"), Sheffield Equipment Co., Inc.
("Sheffield"), Gold Coast Aerial Lift, Inc. ("Gold Coast"), Central Alabama
Rental Center, Inc. ("Central Alabama"), Tennessee Tool and Supply, Inc.
("Tennessee")), and reflect the results of operations of all businesses acquired
in the Acquisitions subsequent to September 30, 1998 as if they occurred on
January 1, 1998.
The pro forma consolidated financial statements are based upon available
information and certain assumptions considered reasonable by management. The pro
forma consolidated financial statements do not reflect the potential cost
savings the Company may have achieved had the Company owned the acquired
businesses for the full period. Accordingly, these statements are not
necessarily indicative of the actual results of operations that might have
occurred, nor are they necessarily indicative of expected results in the future.
The pro forma consolidated financial statements should be read in
conjunction with the Company's Consolidated Financial Statements and
management's discussion thereof contained elsewhere in this Prospectus.
PF-2
<PAGE> 107
NATIONSRENT, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL OTHER PRO FORMA
COMPANY A-1 LOGAN ACTION ACQUISITIONS ADJUSTMENTS PRO FORMA
---------- --------- ------- ------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........ $ 9,231 $ 252 $ 1,760 $ 266 $ 100 $ -- $ 11,609
Accounts receivable, net......... 48,115 7,010 8,169 2,833 3,979 -- 70,106
Inventories...................... 12,406 2,231 5,871 1,558 650 (1,031)(a) 21,685
Due from related party........... -- -- -- 461 -- (461)(b) --
Prepaid expenses and other
assets......................... 11,424 1,920 785 404 1,327 -- 15,860
Rental equipment, net............ 316,824 38,278 35,343 8,650 12,736 8,760(b) 420,591
Property and equipment, net...... 19,416 2,971 2,396 857 1,439 -- 27,079
Intangible assets related to
acquired business, net......... 245,434 -- 1,831 -- -- 215,620(c) 462,885
-------- ------- ------- ------- ------- -------- ----------
Total assets............... $662,850 $52,662 $56,155 $15,029 $20,231 $222,888 $1,029,815
======== ======= ======= ======= ======= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................. $ 44,117 $ 920 $ 8,882 $ 4,163 $ 1,606 $ -- $ 59,688
Accrued expenses and other
liabilities.................... 32,053 3,019 -- 511 662 -- 36,245
Debt............................. 389,841 14,683 42,359 10,906 16,502 174,376(d) 648,667
Income taxes payable............. 638 -- -- -- (5) -- 633
Deferred taxes................... 7,442 -- -- -- -- 1,451(e) 8,893
-------- ------- ------- ------- ------- -------- ----------
Total liabilities.......... 474,091 18,622 51,241 15,580 18,765 175,827 754,126
Put Warrants..................... -- -- -- 1,875 -- (1,875) --
Stockholders' equity
Treasury stock................... -- (95) -- -- (792) 887(f) --
Common stock..................... 444 62 5 10 135 (100)(g) 556
Additional paid-in capital....... 180,460 200 507 1,624 473 84,014(h) 267,278
Retained earnings................ 7,855 33,873 4,402 (4,060) 1,650 (35,865)(f) 7,855
-------- ------- ------- ------- ------- -------- ----------
Total stockholders'
equity................... 188,759 34,040 4,914 (2,426) 1,466 48,936 275,689
-------- ------- ------- ------- ------- -------- ----------
Total liabilities and
stockholders' equity..... $662,850 $52,662 $56,155 $15,029 $20,231 $222,888 $1,029,815
======== ======= ======= ======= ======= ======== ==========
<CAPTION>
OFFERING PRO FORMA
ADJUSTMENTS AS ADJUSTED
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents........ $ -- $ 11,609
Accounts receivable, net......... -- 70,106
Inventories...................... -- 21,685
Due from related party........... -- --
Prepaid expenses and other
assets......................... 6,250(i) 22,110
Rental equipment, net............ -- 420,591
Property and equipment, net...... -- 27,079
Intangible assets related to
acquired business, net......... -- 462,885
-------- ----------
Total assets............... $ 6,250 $1,036,065
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUIT
Accounts payable................. $ -- $ 59,688
Accrued expenses and other
liabilities.................... -- 36,245
Debt............................. 6,250(j) 654,917
Income taxes payable............. -- 633
Deferred taxes................... -- 8,893
-------- ----------
Total liabilities.......... 6,250 760,376
Put Warrants..................... -- --
Stockholders' equity
Treasury stock................... -- --
Common stock..................... -- 556
Additional paid-in capital....... -- 267,278
Retained earnings................ -- 7,855
-------- ----------
Total stockholders'
equity................... -- 275,689
-------- ----------
Total liabilities and
stockholders' equity..... $ 6,250 $1,036,065
======== ==========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
PF-3
<PAGE> 108
NATIONSRENT, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ACQUISITION PRO FORMA OFFERING PRO FORMA
COMPANY ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
---------- ------------ ----------- --------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Equipment rentals........................ $18,367 $225,324 $ (932)(1) $242,759 $ -- $242,759
Sales of equipment, merchandise, parts
and supplies........................... 4,622 153,593 -- 158,215 -- 158,215
------- -------- ------- -------- -------- --------
Total revenue...................... 22,989 378,917 (932) 400,974 -- 400,974
Cost of revenue:
Cost of equipment rentals, excluding
depreciation........................... 5,669 86,432 (2,617)(a) 89,055 -- 89,055
(429)(1)
Rental equipment depreciation............ 3,705 64,014 (19,558)(b) 47,984 -- 47,984
(177)(1)
Sales of equipment, merchandise, parts
and supplies........................... 3,538 108,351 18(c) 111,907 -- 111,907
------- -------- ------- -------- -------- --------
Total cost of revenue.............. 12,912 258,797 (22,763) 248,946 -- 248,946
------- -------- ------- -------- -------- --------
Gross profit............................... 10,077 120,120 21,831 152,028 -- 152,028
Operating expenses:
Selling, general and administrative
expenses............................... 3,391 74,921 (12,880)(d) 65,618 -- 65,618
(520)(l)
706(e)
Depreciation and amortization of
non-rental property and equipment...... 675 4,222 (863)(f) 14,908 -- 14,908
10,874(g)
------- -------- ------- -------- -------- --------
Total operating expenses........... 4,066 79,143 (2,683) 80,526 -- 80,526
------- -------- ------- -------- -------- --------
Operating income........................... 6,011 40,977 24,514 71,502 -- 71,502
Other (income)/expense
Interest expense......................... 2,469 18,145 25,774(h) 46,310 5,140(k) 51,450
(78)(l)
Other (income)/expense, net.............. 12 (1,482) 300(i) (1,170) -- (1,170)
------- -------- ------- -------- -------- --------
Total other (income)/expense....... 2,481 16,663 25,996 45,140 5,140 50,280
------- -------- ------- -------- -------- --------
Income before provision for income taxes... 3,530 24,314 (1,482) 26,362 (5,140) 21,222
Provision for income taxes............... 1,482 10,471 (881)(j) 11,072 (2,159)(j) 8,913
------- -------- ------- -------- -------- --------
Net income......................... $ 2,048 $ 13,843 $ (601) $ 15,290 $ (2,981) $ 12,309
======= ======== ======= ======== ======== ========
Basic and diluted net income per
share............................ $ 0.08 $ 0.27 $ 0.22
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
PF-4
<PAGE> 109
NATIONSRENT, INC.
PREDECESSOR PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
PREDECESSOR COMPANY ADJUSTMENTS PRO FORMA
JANUARY 1, 1997 TO INCEPTION TO TO PREDECESSOR HISTORICAL
AUGUST 31, 1997 DECEMBER 31, 1997 AND COMPANY COMPANY
------------------ ----------------- -------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Equipment rentals................................... $10,957 $7,410 $ -- $18,367
Sales of equipment, merchandise, parts and
supplies.......................................... 2,727 1,895 -- 4,622
------- ------ ----- -------
Total revenue................................. 13,684 9,305 -- 22,989
Cost of revenue:
Cost of equipment rentals, excluding depreciation... 3,473 2,196 -- 5,669
Rental equipment depreciation....................... 2,642 1,526 (463)(b) 3,705
Sales of equipment, merchandise, parts and supplies
sold.............................................. 1,847 1,691 -- 3,538
------- ------ ----- -------
Total cost of revenue......................... 7,962 5,413 (463) 12,912
------- ------ ----- -------
Gross profit.......................................... 5,722 3,892 463 10,077
Operating expenses:
Selling, general and administrative expenses........ 2,653 1,081 (343)(d) 3,391
Depreciation and amortization of non-rental property
and equipment..................................... 140 284 (62)(f) 675
313(g)
------- ------ ----- -------
Total operating expenses...................... 2,793 1,365 (92) 4,066
------- ------ ----- -------
Operating income...................................... 2,929 2,527 555 6,011
Other (income)/expense
Interest expense.................................... 809 760 900(h) 2,469
Other (income)/expense, net......................... 12 -- -- 12
------- ------ ----- -------
Total other (income)/expense.................. 821 760 900 2,481
------- ------ ----- -------
Income before provision for income taxes.............. 2,108 1,767 (345) 3,530
Provision for income taxes.......................... 880 766 (164)(j) 1,482
------- ------ ----- -------
Net income (loss)............................. $ 1,228 $1,001 $(181) $ 2,048
======= ====== ===== =======
Basic and diluted net income per share........ $ 0.04 $ 0.08
====== =======
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
PF-5
<PAGE> 110
NATIONSRENT, INC.
ACQUISITIONS CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
R & R C & E TITAN RFL BODE-FINN NAPLES JOBS REVCO
------ ------ ------ ------ --------- ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Equipment rentals................................... $2,409 $4,506 $1,927 $ 966 $20,212 $2,262 $12,651 $2,129
Sales of equipment, merchandise, parts and
supplies.......................................... 2,107 2,768 3,042 2,077 41,038 3,805 8,307 495
------ ------ ------ ------ ------- ------ ------- ------
Total revenue.................................. 4,516 7,274 4,969 3,043 61,250 6,067 20,958 2,624
Cost of revenue:
Cost of equipment rentals, excluding depreciation... 1,398 1,846 1,303 463 4,978 1,707 2,423 1,004
Rental equipment depreciation....................... 631 766 302 261 7,266 440 4,520 613
Sales of equipment, merchandise, parts and supplies
sold.............................................. 1,808 1,791 2,043 1,472 28,584 2,967 6,150 223
------ ------ ------ ------ ------- ------ ------- ------
Total cost of revenue.......................... 3,837 4,403 3,648 2,196 40,828 5,114 13,093 1,840
------ ------ ------ ------ ------- ------ ------- ------
Gross profit......................................... 679 2,871 1,321 847 20,422 953 7,865 784
Operating expenses:
Selling, general and administrative expenses........ 715 1,417 824 209 16,597 518 2,373 312
Depreciation and amortization of non-rental property
and equipment..................................... 76 157 16 23 257 45 212 25
------ ------ ------ ------ ------- ------ ------- ------
Total operating expenses....................... 791 1,574 840 232 16,854 563 2,585 337
------ ------ ------ ------ ------- ------ ------- ------
Operating income..................................... (112) 1,297 481 615 3,568 390 5,280 447
Other (income)/expense
Interest expense.................................... 80 101 34 92 1,602 23 1,846 122
Other (income)/expense, net......................... (30) (61) 7 (15) (348) (52) -- (3)
------ ------ ------ ------ ------- ------ ------- ------
Total other (income)/expense................... 50 40 41 77 1,254 (29) 1,846 119
------ ------ ------ ------ ------- ------ ------- ------
Income before provision for income taxes............. (162) 1,257 440 538 2,314 419 3,434 328
Provision for income taxes.......................... -- 503 168 215 929 167 1,374 131
------ ------ ------ ------ ------- ------ ------- ------
Net income (loss).............................. $(162) $ 754 $ 272 $ 323 $ 1,385 $ 252 $ 2,060 $ 197
====== ====== ====== ====== ======= ====== ======= ======
<CAPTION>
GENERAL ASSOCIATED HIGH REACH RELIABLE A-1 LOGAN ACTION
------- ---------- ---------- -------- ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Equipment rentals................................... $7,238 $24,261 $15,138 $8,315 $40,691 $ 5,882 $6,114
Sales of equipment, merchandise, parts and
supplies.......................................... 1,876 16,527 3,085 1,151 7,549 9,632 7,732
------ ------- ------- ------ ------- ------- ------
Total revenue.................................. 9,114 40,788 18,223 9,466 48,240 15,514 13,846
Cost of revenue:
Cost of equipment rentals, excluding depreciation... 4,018 4,973 6,007 4,183 14,514 1,197 3,187
Rental equipment depreciation....................... 942 8,626 3,153 1,291 14,741 1,297 661
Sales of equipment, merchandise, parts and supplies
sold.............................................. 1,204 13,464 1,703 626 3,608 7,218 6,315
------ ------- ------- ------ ------- ------- ------
Total cost of revenue.......................... 6,164 27,063 10,863 6,100 32,863 9,712 10,163
------ ------- ------- ------ ------- ------- ------
Gross profit......................................... 2,950 13,725 7,360 3,366 15,377 5,802 3,683
Operating expenses:
Selling, general and administrative expenses........ 1,495 6,143 2,739 2,041 11,241 3,466 3,432
Depreciation and amortization of non-rental property
and equipment..................................... 407 466 344 297 372 74 190
------ ------- ------- ------ ------- ------- ------
Total operating expenses....................... 1,902 6,609 3,083 2,338 11,613 3,540 3,622
------ ------- ------- ------ ------- ------- ------
Operating income..................................... 1,048 7,116 4,277 1,028 3,764 2,262 61
Other (income)/expense
Interest expense.................................... 704 3,748 2,185 419 698 922 780
Other (income)/expense, net......................... -- (358) (13) (15) (328) -- (28)
------ ------- ------- ------ ------- ------- ------
Total other (income)/expense................... 704 3,390 2,172 404 370 922 752
------ ------- ------- ------ ------- ------- ------
Income before provision for income taxes............. 344 3,726 2,105 624 3,394 1,340 (691)
Provision for income taxes.......................... 138 1,490 942 250 1,358 -- --
------ ------- ------- ------ ------- ------- ------
Net income (loss).............................. $ 206 $ 2,236 $ 1,163 $ 374 $ 2,036 $ 1,340 $(691)
====== ======= ======= ====== ======= ======= ======
<CAPTION>
OTHER TOTAL
------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenue:
Equipment rentals................................... $70,623 $225,324
Sales of equipment, merchandise, parts and
supplies.......................................... 42,402 153,593
------- --------
Total revenue.................................. 113,025 378,917
Cost of revenue:
Cost of equipment rentals, excluding depreciation... 33,231 86,432
Rental equipment depreciation....................... 18,504 64,014
Sales of equipment, merchandise, parts and supplies
sold.............................................. 29,175 108,351
------- --------
Total cost of revenue.......................... 80,910 258,797
------- --------
Gross profit......................................... 32,115 120,120
Operating expenses:
Selling, general and administrative expenses........ 21,399 74,921
Depreciation and amortization of non-rental property
and equipment..................................... 1,261 4,222
------- --------
Total operating expenses....................... 22,660 79,143
------- --------
Operating income..................................... 9,455 40,977
Other (income)/expense
Interest expense.................................... 4,789 18,145
Other (income)/expense, net......................... (238) (1,482)
------- --------
Total other (income)/expense................... 4,551 16,663
------- --------
Income before provision for income taxes............. 4,904 24,314
Provision for income taxes.......................... 2,806 10,471
------- --------
Net income (loss).............................. 2,098 $ 13,843
======= ========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
PF-6
<PAGE> 111
NATIONSRENT, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL BODE HIGH
COMPANY RFL FINN NAPLES JOBS REVCO GENERAL ASSOCIATED REACH
---------- ---- --------- ------ ------ ------ ------- ---------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Equipment rentals................ $73,644 $228 $ 6,336 $ 513 $4,086 $ 493 $4,494 $15,172 $13,434
Sales of equipment, merchandise,
parts and supplies............. 39,084 481 16,971 892 4,258 40 657 7,502 1,982
------- ---- ------- ------ ------ ------ ------ ------- -------
Total revenue............... 112,728 709 23,307 1,405 8,344 533 5,151 22,674 15,416
Cost of revenue:
Cost of equipment rentals,
excluding depreciation......... 25,195 129 1,088 395 1,073 189 2,519 4,999 5,396
Rental equipment
depreciation................... 13,555 73 2,493 94 2,022 140 589 5,876 2,825
Sales of equipment,
merchandise, parts and supplies
sold........................... 28,090 328 11,940 687 3,342 27 204 5,483 1,473
------- ---- ------- ------ ------ ------ ------ ------- -------
Total cost of revenue....... 66,840 530 15,521 1,176 6,437 356 3,312 16,358 9,694
------- ---- ------- ------ ------ ------ ------ ------- -------
Gross profit...................... 45,888 179 7,786 229 1,907 177 1,839 6,316 5,722
Operating expenses:
Selling, general and
administrative expenses........ 22,287 26 6,315 120 1,473 79 640 2,609 2,253
Depreciation and
amortization of
non-rental property and
equipment...................... 2,931 6 82 9 94 1 197 240 263
------- ---- ------- ------ ------ ------ ------ ------- -------
Total operating expenses.... 25,218 32 6,397 129 1,567 80 837 2,849 2,516
------- ---- ------- ------ ------ ------ ------ ------- -------
Operating income.................. 20,670 147 1,389 100 340 97 1,002 3,467 3,206
Other (income)/expense
Interest expense................. 9,391 18 506 4 738 31 381 2,600 2,089
Other
(income)/expense,
net............................ (538) -- (121) (13) -- -- -- (78) 205
------- ---- ------- ------ ------ ------ ------ ------- -------
Total other (income)/
expense.................... 8,853 18 385 (9) 738 31 381 2,522 2,294
------- ---- ------- ------ ------ ------ ------ ------- -------
Income before provision for income
taxes............................ 11,817 129 1,004 109 (398) 66 621 945 912
Provision for income taxes....... 4,963 54 421 46 (167) 28 261 397 383
------- ---- ------- ------ ------ ------ ------ ------- -------
Net income (loss)................. $ 6,854 $75 $ 583 $ 63 $ (231) $ 38 $ 360 $ 548 $ 529
======= ==== ======= ====== ====== ====== ====== ======= =======
Basic and diluted net income per
share............................ $ 0.23
=======
<CAPTION>
OTHER ACQUISITION PRO FORMA OFFERING
RELIABLE A-1 ACTION LOGAN ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS
-------- ------- ------- ------- ------------ ----------- --------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Equipment rentals................ 6,423 $37,440 $ 5,626 $12,881 $39,095 $ (961)(1) $218,904 $ --
Sales of equipment, merchandise,
parts and supplies............. 1,200 7,306 5,464 18,048 13,978 -- 117,863
------ ------- ------- ------- ------- ------- -------- -------
Total revenue............... 7,623 44,746 11,090 30,929 53,073 (961) 336,767 --
Cost of revenue:
Cost of equipment rentals,
excluding depreciation......... 2,970 12,713 2,657 2,107 20,124 (1,980)(a) 79,237 --
Rental equipment (337)(l)
depreciation................... 993 13,762 598 3,253 8,686 (15,986)(b) 38,905 --
Sales of equipment, (68)(l)
merchandise, parts and supplies
sold........................... 421 1,958 4,690 13,488 9,195 (5)(1) 81,321 --
------ ------- ------- ------- ------- ------- -------- -------
Total cost of revenue....... 4,384 28,433 7,945 18,848 38,005 (18,376) 199,463 --
------ ------- ------- ------- ------- ------- -------- -------
Gross profit...................... 3,239 16,313 3,145 12,081 15,068 17,415 137,304 --
Operating expenses:
Selling, general and
administrative expenses........ 1,736 3,745 2,451 7,518 9,227 (3,406)(d) 57,121 --
Depreciation and (468)(l)
amortization of 516(e)
non-rental property and
equipment...................... 231 238 153 176 579 6,286 (f)(g 11,486 --
------ ------- ------- ------- ------- ------- -------- -------
Total operating expenses.... 1,967 3,983 2,604 7,694 9,806 2,928 68,607 --
------ ------- ------- ------- ------- ------- -------- -------
Operating income.................. 1,272 12,330 541 4,387 5,262 14,487 68,697 --
Other (income)/expense
Interest expense................. 288 789 2,394 1,912 2,716 14,312(h) 38,130 3,855(k)
Other (39)(l)
(income)/expense,
net............................ (17) (297) (5) -- 161 73(i) (630) --
------ ------- ------- ------- ------- ------- -------- -------
Total other (income)/
expense.................... 271 492 2,389 1,912 2,877 14,346 37,500 3,855
------ ------- ------- ------- ------- ------- -------- -------
Income before provision for income
taxes............................ 1,001 11,838 (1,848) 2,475 2,385 141 31,197 (3,855)
Provision for income taxes....... 420 4,735 -- 44 1,001 516(j) 13,102 (1,619)(j)
------ ------- ------- ------- ------- ------- -------- -------
Net income (loss)................. $ 581 $ 7,103 $(1,848) $ 2,431 $ 1,384 $ (375) $ 18,095 $(2,236)
====== ======= ======= ======= ======= ======= ======== =======
Basic and diluted net income per
share............................
<CAPTION>
PRO FORMA
AS ADJUSTED
-----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C>
Revenue:
Equipment rentals................ $218,904
Sales of equipment, merchandise,
parts and supplies............. 117,863
--------
Total revenue............... 336,767
Cost of revenue:
Cost of equipment rentals,
excluding depreciation......... 79,237
Rental equipment
depreciation................... 38,905
Sales of equipment,
merchandise, parts and supplies
sold........................... 81,321
--------
Total cost of revenue....... 199,463
--------
Gross profit...................... 137,304
Operating expenses:
Selling, general and
administrative expenses........ 57,121
Depreciation and
amortization of
non-rental property and
equipment...................... 11,486
--------
Total operating expenses.... 68,607
--------
Operating income.................. 68,697
Other (income)/expense
Interest expense................. 41,985
Other
(income)/expense,
net............................ (630)
--------
Total other (income)/
expense.................... 41,355
--------
Income before provision for income
taxes............................ 27,342
Provision for income taxes....... 11,483
--------
Net income (loss)................. $ 15,859
========
Basic and diluted net income per
share............................ $ 0.28
========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
PF-7
<PAGE> 112
NATIONSRENT, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. HISTORICAL FINANCIAL STATEMENTS
The historical financial data presented in these pro forma consolidated
financial statements represents the financial position of the Company and the
acquired businesses at September 30, 1998 and their results of operations for
the year ended December 31, 1997 and nine months ended September 30, 1998
(except that the financial data for Jobs included in the pro forma consolidated
statements of operations for the year ended December 31, 1997 consists of the
combined six months ended June 30, 1997 and December 31, 1997, the financial
data for J. Kelly included in the pro forma consolidated statements of
operations for the year ended December 31, 1997 is for the year ended March 31,
1998 and includes $1,546 in revenue also included in the pro forma consolidated
statements of operations for the nine months ended September 30, 1998, the
financial data for High Reach included in the pro forma consolidated statements
of operations for the year ended December 31, 1997 is for the year ended
September 30, 1997, the financial data for Acme Rental, Inc. included in the pro
forma consolidated statements of operations for the year ended December 31, 1997
consists of the combined three months ended March 31, 1997 and nine months ended
December 31, 1997, and the financial data for Central Alabama included in the
pro forma consolidated statements of operations for the year ended December 31,
1997 consists of the combined nine months ended September 30, 1997 and the three
months ended December 31, 1997).
2. ACQUISITIONS
During the year ended December 31, 1997 the Company completed five
acquisitions. Following year-end but prior to September 30, 1998, the Company
completed twenty-two acquisitions and subsequent to September 30, 1998, the
Company completed five acquisitions. Each of these was accounted for in the
unaudited pro forma consolidated financial statements using the purchase method
of accounting. Preliminary purchase accounting values for the acquired
businesses prior to September 30, 1998 have been recorded based on estimated
fair values of the assets and liabilities acquired. Final adjustments will be
recorded when final information as to fair values of the net assets acquired is
available. The purchase accounting adjustments for the acquisitions subsequent
to September 30, 1998 were based on the respective companies' September 30, 1998
balance sheets using estimates as to the fair values of assets and liabilities
acquired. As a result, final allocation could be different.
The following table presents the allocation of purchase price for the
acquisitions subsequent to September 30, 1998:
<TABLE>
<S> <C>
Purchase price.............................................. $265,827
Net assets acquired......................................... 46,108
Acquisition adjustments
Rental Equipment.......................................... 4,750
Inventories............................................... (1,031)
Deferred income taxes..................................... (1,451)
--------
Intangible assets recorded.................................. $217,451
========
</TABLE>
PF-8
<PAGE> 113
NATIONSRENT, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
3. PRO FORMA ADJUSTMENTS
<TABLE>
<S> <C>
BALANCE SHEET:
a. Represents the preliminary estimate of the adjustment to
fair market value.
b. To eliminate the assets not acquired in the Acquisitions.
c. Represents the excess purchase price over the estimated fair
value of the net assets acquired of $217,451, net of
historical goodwill and other intangibles of $1,831.
d. Represents borrowings for the Acquisitions of $123,630,
$31,100 and $74,168 funded by the Credit Facilities, through
the issuance of subordinated convertible notes and
subordinated notes to the sellers, respectively. Also
reflected are reductions for pre-acquisition debt not
assumed in the Acquisitions of $4,522 and the conversion to
equity of convertible notes issued in connection with the
A-1 acquisition (the "A-1 Convertible Notes") for $50,000.
e. Represents the estimated deferred income tax liability
related to the purchase accounting adjustments recorded for
the Acquisitions.
f. To eliminate the equity accounts reflected in the historical
financial statements of the Acquisitions.
g. Represents the elimination of the equity accounts of the
Acquisitions of $212, the issuance of Common Stock of $43
and $70 for acquisitions and the conversion of the A-1
Convertible Notes respectively.
h. Represents the elimination of the equity accounts of the
Acquisitions of $2,803 and additional paid-in capital
related to the issuance of Common Stock of $36,886 and
$49,931 for acquisitions and the conversion to equity of the
A-1 Convertible Notes.
i. Represents debt issuance costs related to the Private Debt
Offering.
j. Represents the Private Debt Offering of $175,000 and
reductions to the Credit Facilities and subordinated notes
using the estimated net proceeds of $168,750.
STATEMENTS OF OPERATIONS:
a. Adjustment to eliminate historical lease expense on rental
equipment resulting from the termination of certain leases
which occurred in connection with purchases of the
Acquisitions.
b. Adjustment to the historical rental equipment depreciation
recorded to conform to the Company's accounting policies.
Adjustment is based on the estimated fair value of rental
equipment acquired using estimated useful lives ranging from
2 to 10 years on the straight-line method with salvage
values ranging from zero to ten percent of cost.
c. Adjustment to conform the historical accounting for
inventory of the Acquisitions from the LIFO method to FIFO
method, where applicable.
d. Adjustment to reduce historical compensation and benefits of
certain former owners and executives of the Acquisitions to
amounts consistent with employment arrangements entered into
between the certain owners and executives and the Company,
as well as the elimination of certain private company
business expenses that will not be incurred by the Company.
e. Adjustment to historical facility lease expense to reflect
the increase in current lease payments in excess of
historical amounts.
f. Adjustment to historical property and equipment depreciation
recorded to conform to the Company's accounting policies.
Adjustment is based on the estimated fair value of property
and equipment acquired using estimated useful lives ranging
from 3 to 39 years on the straight-line method.
</TABLE>
PF-9
<PAGE> 114
NATIONSRENT, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
g. Adjustment to recognize the amortization of goodwill and
non-compete agreements using an estimated useful life of 40
and five years, respectively. Management believes that 40
years is a reasonable life for goodwill in light of the
characteristics of the equipment rental industry such as the
lack of dependence on technological change, the many years
that the industry has been in existence, the current trend
towards the outsourcing of equipment, the recent double
digit annual growth rate and the stable nature of the
customer base. In addition, the Company has focused on
acquiring well established companies that have been in
existence for many years.
h. Adjustment to record interest on borrowings under the Credit
Facilities and notes issued to former owners of the
Acquisitions, net of interest related to debt not assumed or
paid off at acquisition. The interest rate on the Credit
Facilities is determined using a base rate plus a spread
based on certain financial performance ratios. Based on
current market rates, an incremental borrowing rate of 8.1%
was used to determine interest expense. A change of
one-eighth of a percent would result in a $312 reduction or
increase in the pro forma adjustment to annual interest
expense.
i. To eliminate historical gains related to assets not
acquired.
j. To record a provision (benefit) for income taxes at an
expected effective rate of 42%.
k. To record interest expense and amortization of debt issuance
costs related to the Private Debt Offering.
l. Adjustment to eliminate operations of a division of one of
the acquired business not purchased.
</TABLE>
4. PRO FORMA EARNINGS PER SHARE
Pro forma diluted earnings per share is calculated based on the shares
outstanding at December 31, 1997 and September 30, 1998, as well as giving
effect to the Private Placement, the Initial Public Offering, the Acquisitions,
and the conversion to equity of the A-1 Convertible Notes as if these shares
were outstanding at the beginning of the respective periods. The shares used to
calculate pro forma earnings per share ("EPS") are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Shares outstanding................................... 25,000 44,360
Shares issued in Private Placement................... 5,119 --
Shares issued in Initial Public Offering............. 13,000 --
A-1 Convertible Notes................................ 6,957 6,957
Acquisitions......................................... 5,553 4,312
------ ------
Shares used in basic EPS computation 55,629 55,629
Common Stock equivalents --(a) 177
Convertible Notes --(a) 9,099
------ ------
Shares used in diluted EPS computation............... 55,629 64,905
====== ======
Add back to net income for interest expense, net of
income taxes, for assumed conversion of convertible
notes.............................................. $ --(a) $2,375
====== ======
</TABLE>
- ---------------
(a) Excluded from computation as antidilutive.
PF-10
<PAGE> 115
NATIONSRENT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE REGISTRANT
NATIONSRENT, INC.
Report of Independent Certified Public Accountants........ F-5
Consolidated Balance Sheet as of December 31, 1997........ F-6
Consolidated Statement of Income for the period from
inception (August 14, 1997) to December 31, 1997....... F-7
Consolidated Statement of Stockholders' Equity for the
period from inception (August 14, 1997) to December 31,
1997................................................... F-8
Consolidated Statement of Cash Flows for the period from
inception (August 14, 1997) to December 31, 1997....... F-9
Notes to Consolidated Financial Statements................ F-10
NATIONSRENT, INC. -- UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
Unaudited Consolidated Balance Sheet as of September 30,
1998................................................... F-19
Unaudited Consolidated Statements of Income for the period
from inception (August 14, 1997) to September 30, 1997
and for the nine months ended September 30, 1998....... F-20
Unaudited Consolidated Statements of Cash Flows for the
period from inception (August 14, 1997) to September
30, 1997 and for the nine months ended September 30,
1998................................................... F-21
Notes to Unaudited Consolidated Financial Statements...... F-22
THE PREDECESSOR COMPANY
GABRIEL TRAILER MANUFACTURING COMPANY, INC. ("SAM'S")
Report of Independent Certified Public Accountants........ F-26
Consolidated Balance Sheets as of March 31, 1997 and
August 31, 1997........................................ F-27
Consolidated Statements of Income for the years ended
March 31, 1996 and 1997 and the period from April 1,
1997 to August 31, 1997................................ F-28
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1996 and 1997 and the period from
April 1, 1997 to August 31, 1997....................... F-29
Consolidated Statements of Cash Flows for the years ended
March 31, 1996 and 1997 and the period from April 1,
1997 to August 31, 1997................................ F-30
Notes to Consolidated Financial Statements................ F-31
COMPLETED ACQUISITIONS
R. AND R. RENTAL, INC.
Report of Independent Certified Public Accountants........ F-36
Balance Sheet as of December 10, 1997..................... F-37
Statement of Operations for the period from January 1,
1997 to December 10, 1997.............................. F-38
Statement of Stockholder's Equity for the period from
January 1, 1997 to December 10, 1997................... F-39
Statement of Cash Flows for the period from January 1,
1997 to December 10, 1997.............................. F-40
Notes to Financial Statements............................. F-41
C&E RENTAL AND SERVICE, INC.
Report of Independent Certified Public Accountants........ F-44
Balance Sheets as of December 31, 1996 and December 22,
1997................................................... F-45
</TABLE>
F-1
<PAGE> 116
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Statements of Income for the year ended December 31, 1996
and the period from January 1, 1997 to December 22,
1997................................................... F-46
Statements of Stockholder's Equity for the year ended
December 31, 1996 and the period from January 1, 1997
to December 22, 1997................................... F-47
Statements of Cash Flows for the year ended December 31,
1996 and the period from January 1, 1997 to December
22, 1997............................................... F-48
Notes to Financial Statements............................. F-49
TITAN RENTALS, INC.
Report of Independent Certified Public Accountants........ F-53
Balance Sheet as of December 30, 1997..................... F-54
Statement of Income for the period from January 1, 1997 to
December 30, 1997...................................... F-55
Statement of Stockholders' Equity for the period from
January 1, 1997 to December 30, 1997................... F-56
Statement of Cash Flows for the period from January 1,
1997 to December 30, 1997.............................. F-57
Notes to Financial Statements............................. F-58
THE BODE-FINN COMPANY
Report of Independent Certified Public Accountants........ F-62
Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998 (unaudited)................................... F-63
Statements of Income for the years ended December 31,
1995, 1996 and 1997 and for the three month periods
ended March 31, 1997 and 1998 (unaudited).............. F-64
Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997 and for the three
month period ended March 31, 1998 (unaudited).......... F-65
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and for the three month periods
ended March 31, 1997 and 1998 (unaudited).............. F-66
Notes to Financial Statements............................. F-67
RFL ENTERPRISES, INC.
Report of Independent Certified Public Accountants........ F-74
Balance Sheets as of December 31, 1997 and March 31, 1998
(unaudited)............................................ F-75
Statements of Income for the year ended December 31, 1997
and for the three month periods ended March 31, 1997
and 1998 (unaudited)................................... F-76
Statements of Stockholder's Equity for the year ended
December 31, 1997 and for the three month period ended
March 31, 1998 (unaudited)............................. F-77
Statements of Cash Flows for the year ended December 31,
1997 and for the three month periods ended March 31,
1997 and 1998 (unaudited).............................. F-78
Notes to Financial Statements............................. F-79
NAPLES RENT-ALL & SALES COMPANY, INC.
Report of Independent Certified Public Accountants........ F-83
Balance Sheets as of December 31, 1997 and March 31, 1998
(unaudited)............................................ F-84
Statements of Income for the year ended December 31, 1997
and for the three month periods ended March 31, 1997
and 1998 (unaudited)................................... F-85
Statements of Stockholder's Equity for the year ended
December 31, 1997 and for the three month period ended
March 31, 1998 (unaudited)............................. F-86
Statements of Cash Flows for the year ended December 31,
1997 and for the three month periods ended March 31,
1997 and 1998 (unaudited).............................. F-87
Notes to Financial Statements............................. F-88
</TABLE>
F-2
<PAGE> 117
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
RAYMOND EQUIPMENT COMPANY, INC. ("JOBS")
Report of Independent Certified Public Accountants........ F-93
Balance Sheets as of June 30, 1996 and 1997 and March 31,
1998 (unaudited)....................................... F-94
Statements of Income for the years ended June 30, 1996 and
1997 and for the nine month periods ended March 31,
1997 and 1998 (unaudited).............................. F-95
Statements of Stockholders' Equity for the years ended
June 30, 1996 and 1997 and for the nine month period
ended March 31, 1998 (unaudited)....................... F-96
Statements of Cash Flows for the years ended June 30, 1996
and 1997 and for the nine month periods ended March 31,
1997 and 1998 (unaudited).............................. F-97
Notes to Financial Statements............................. F-98
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS OF
GENERAL RENTAL, INC.
Report of Independent Certified Public Accountants........ F-102
Division Balance Sheets as of December 31, 1997 and June
30, 1998 (unaudited)................................... F-103
Statements of Division Operations for the year ended
December 31, 1997 and for the six month periods ended
June 30, 1997 and 1998 (unaudited)..................... F-104
Statements of Division Equity for the year ended December
31, 1997 and for the six month period ended June 30,
1998 (unaudited)....................................... F-105
Statements of Division Cash Flows for the year ended
December 31, 1997 and for the six month periods ended
June 30, 1997 and 1998 (unaudited)..................... F-106
Notes to Division Financial Statements.................... F-107
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
Report of Independent Certified Public Accountants........ F-113
Balance Sheets as of December 31, 1996 and 1997 and June
30, 1998 (unaudited)................................... F-114
Statements of Income for the years ended December 31,
1995, 1996 and 1997 and for the six month periods ended
June 30, 1997 and 1998 (unaudited)..................... F-115
Statements of Stockholder's Equity for the years ended
December 31, 1995, 1996 and 1997 and for the six month
period ended June 30, 1998 (unaudited)................. F-116
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and for the six month periods ended
June 30, 1997 and 1998 (unaudited)..................... F-117
Notes to Financial Statements............................. F-118
REVCO EQUIPMENT RENTALS, INC.
Report of Independent Certified Public Accountants........ F-126
Balance Sheets as of December 31, 1997 and March 31, 1998
(unaudited)............................................ F-127
Statements of Income for the year ended December 31, 1997
and for the three month periods ended March 31, 1997
and 1998 (unaudited)................................... F-128
Statements of Stockholders' Equity for the year ended
December 31, 1997 and for the three month period ended
March 31, 1998 (unaudited)............................. F-129
Statements of Cash Flows for the year ended December 31,
1997 and for the three month periods ended March 31,
1997 and 1998 (unaudited).............................. F-130
Notes to Financial Statements............................. F-131
HIGH REACH COMPANY, INC. AND HIGH REACH LEASING COMPANY
Report of Independent Certified Public Accountants........ F-134
Combined Balance Sheets as of September 30, 1997 and June
30, 1998 (unaudited)................................... F-135
Combined Statements of Income for the year ended September
30, 1997 and for the nine months ended June 30, 1997
and 1998 (unaudited)................................... F-136
Combined Statements of Stockholder's Equity and Owner's
Capital for the year ended September 30, 1997 and for
the nine months ended June 30, 1998 (unaudited)........ F-137
</TABLE>
F-3
<PAGE> 118
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Combined Statements of Cash Flows for the year ended
September 30, 1997 and for the nine month period ended
June 30, 1997 and 1998 (unaudited)..................... F-138
Notes to Combined Financial Statements.................... F-139
RELIABLE RENTAL & SUPPLY CO, INC.
Report of Independent Certified Public Accountants........ F-147
Balance Sheets as of December 31, 1997 and June 30, 1998
(unaudited)............................................ F-148
Statements of Income for the year ended December 31, 1997
and for the six month period ended June 30, 1997 and
1998 (unaudited)....................................... F-149
Statements of Stockholders' Equity for the year ended
December 31, 1997 and for the six months ended June 30,
1998 (unaudited)....................................... F-150
Statements of Cash Flows for the year ended December 31,
1997 and for the six month period ended June 30, 1997
and 1998 (unaudited)................................... F-151
Notes to Financial Statements............................. F-152
RAY L. O'NEAL, INC. AND ARENCO, LLC
Report of Independent Certified Public Accountants........ F-157
Combined Balance Sheets as of December 31, 1996 and 1997
and September 30, 1998 (unaudited)..................... F-158
Combined Statements of Income for the years ended December
31, 1995, 1996 and 1997 and for the nine month periods
ended September 30, 1997 and 1998 (unaudited).......... F-159
Combined Statements of Stockholders' Equity for the years
ended December 31, 1995, 1996 and 1997 and for the nine
month period ended September 30, 1998 (unaudited)...... F-160
Combined Statements of Cash Flows for the years ended
December 31, 1995, 1996, and 1997 and for the nine
month periods ended September 30, 1997 and 1998
(unaudited)............................................ F-161
Notes to Combined Financial Statements.................... F-163
ACTION EQUIPMENT COMPANY, INC. AND ACTION SUPPLY CO., INC.
Report of Independent Public Accountants.................. F-168
Combined Balance Sheets as of December 31, 1997 and
September 30, 1998 (unaudited)......................... F-169
Combined Statements of Operations for the year ended
December 31, 1997 and for the nine months ended
September 30, 1997 and 1998 (unaudited)................ F-170
Combined Statements of Stockholders' Deficit for the year
ended December 31, 1997 and for the nine months ended
September 30, 1998 (unaudited)......................... F-171
Combined Statements of Cash Flows for the year ended
December 31, 1997 and for the nine months ended
September 30, 1997 and 1998 (unaudited)................ F-172
Notes to Combined Financial Statements.................... F-173
LOGAN EQUIPMENT CORPORATION
Report of Independent Auditors............................ F-180
Balance Sheets as of December 31, 1997 and September 30,
1998 (unaudited)....................................... F-181
Statements of Income for the year ended December 31, 1997
and for the nine months ended September 30, 1997 and
1998 (unaudited)....................................... F-182
Statements of Changes in Stockholders' Equity for the year
ended December 31, 1997 and for the nine months ended
September 30, 1998 (unaudited)......................... F-183
Statements of Cash Flows for the year ended December 31,
1997 and for the nine month period ended September 30,
1997 and 1998 (unaudited).............................. F-184
Notes to Consolidated Financial Statements................ F-185
</TABLE>
F-4
<PAGE> 119
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To NationsRent, Inc.:
We have audited the accompanying consolidated balance sheet of NationsRent,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for the period from August 14, 1997 (inception) to December 31, 1997. 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 NationsRent,
Inc. and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the period from August 14, 1997 (inception)
to December 31, 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
June 3, 1998 (except with respect to
the matters referred to in the
third and fifth paragraphs of Note 10,
as to which the date is July 15, 1998).
F-5
<PAGE> 120
NATIONSRENT, INC.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 1,493
Accounts receivable, net of allowance for doubtful accounts
of $587................................................... 5,008
Inventories................................................. 1,840
Prepaid expenses and other assets........................... 755
Rental equipment, net....................................... 30,619
Property and equipment, net................................. 2,334
Intangible assets related to acquired businesses, net....... 37,108
-------
Total Assets...................................... $79,157
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 2,303
Accrued repair and maintenance expenses................... 950
Accrued compensation and related taxes.................... 328
Accrued expenses and other liabilities.................... 2,579
Debt...................................................... 42,928
Income taxes payable...................................... 1,523
Deferred income taxes..................................... 2,545
-------
Total liabilities................................. 53,156
-------
Commitments and Contingencies (Notes 9 and 10)
Stockholders' Equity:
Preferred stock -- $0.01 par value, 5,000,000 shares
authorized, no shares issued and outstanding........... --
Common stock -- $0.01 par value, 100,000,000 shares
authorized, 25,000,000 shares issued and outstanding... 250
Additional paid-in capital................................ 24,750
Retained earnings......................................... 1,001
-------
Total stockholders' equity........................ 26,001
-------
Total Liabilities and Stockholders' Equity........ $79,157
=======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-6
<PAGE> 121
NATIONSRENT, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM INCEPTION (AUGUST 14, 1997) THROUGH DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
Revenue:
Equipment rentals......................................... $ 7,410
Sales of equipment, parts and supplies.................... 1,895
-------
Total revenue..................................... 9,305
-------
Cost of revenue:
Cost of equipment rentals, excluding depreciation......... 2,196
Rental equipment depreciation............................. 1,526
Cost of sales of equipment, parts and supplies............ 1,691
-------
Total cost of revenue............................. 5,413
-------
Gross profit................................................ 3,892
Operating expenses:
Selling, general and administrative expenses.............. 1,081
Non-rental equipment depreciation and amortization........ 284
-------
Operating income............................................ 2,527
-------
Other (income)/expense:
Interest expense.......................................... 760
Interest income........................................... (29)
Other, net................................................ 29
-------
760
-------
Income before provision for income taxes.................... 1,767
Provision for income taxes................................ 766
-------
Net income.................................................. $ 1,001
=======
Net income per share -- basic and diluted................... $ 0.04
=======
Weighted average common shares outstanding:
Basic..................................................... 25,000
=======
Diluted................................................... 25,007
=======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-7
<PAGE> 122
NATIONSRENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
NUMBER OF PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, August 14, 1997 (Inception)............ -- $ -- $ -- $ -- $ --
Issuance of common stock (after giving effect
to the stock split discussed in Note 1).... 25,000,000 250 24,750 -- 25,000
Net income.................................... -- -- -- 1,001 1,001
---------- ---- ------- ------ -------
BALANCE, December 31, 1997...................... 25,000,000 $250 $24,750 $1,001 $26,001
========== ==== ======= ====== =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-8
<PAGE> 123
NATIONSRENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 1,001
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.......................... 1,810
Gain on sale of rental equipment....................... (59)
Deferred income tax provision.......................... 357
Changes in operating assets and liabilities:
Accounts receivable............................... 334
Inventories....................................... 83
Prepaid expenses and other assets................. (296)
Accounts payable.................................. 776
Accrued expenses and other liabilities............ (428)
Income taxes payable.............................. 117
--------
Net cash provided by operating activities......... 3,695
--------
CASH FLOWS FROM INVESTING ACTIVITIES, NET OF ACQUISITIONS:
Acquisitions of businesses, net of cash acquired....... (34,137)
Purchases of rental equipment.......................... (2,461)
Purchases of property and equipment.................... (963)
Proceeds from sale of rental equipment................. 1,159
Decrease in notes receivable affiliates................ 1,358
--------
Net cash used in investing activities............. (35,044)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock................. 25,000
Proceeds from debt..................................... 21,917
Repayments of debt..................................... (14,075)
--------
Net cash provided by financing activities......... 32,842
--------
Net increase in cash and cash equivalents................... 1,493
Cash and cash equivalents, beginning of period.............. --
--------
Cash and cash equivalents, end of period.................... $ 1,493
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................. $ 621
========
Cash paid for income taxes............................. $ 390
========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
The Company acquired the net assets and assumed
certain liabilities of certain businesses as
follows:
Total assets, net of cash acquired................ $ 78,629
Total liabilities assumed......................... (27,311)
Amounts paid through the issuance of debt......... (17,181)
--------
Net cash paid..................................... $ 34,137
========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-9
<PAGE> 124
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ACCOUNTING POLICIES
Basis of presentation
NationsRent, Inc. (the "Company") was incorporated in the state of Delaware
on August 14, 1997 for the purpose of creating a nationally branded network of
equipment rental locations offering a broad selection of equipment primarily to
the construction and industrial segments of the equipment rental industry in the
United States. The Company also sells used and new equipment, spare parts,
merchandise and supplies, and provides maintenance and repair services.
The nature of the Company's business is such that short-term obligations
are typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying consolidated balance sheets
are presented on an unclassified basis.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. The Company had no
cash equivalents at December 31, 1997.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Inventories
Inventories, which consist of equipment, tools, parts and related
merchandise supply items, are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Provision is made to
reduce excess or obsolete inventories to their estimated net realizable value.
Rental equipment
Rental equipment purchased new by the Company is recorded at cost and
depreciated over the estimated useful life of the equipment using the
straight-line method. Rental equipment that is obtained through the acquisition
of a business is valued at its estimated fair market value at the time of
acquisition. The range of useful lives estimated by management for rental
equipment is two to ten years. Rental equipment is depreciated to a salvage
value of zero to ten percent of cost. Rental equipment having a cost of $500 or
less is charged to expense at the time of purchase. Accumulated depreciation on
rental equipment was $1,526,000 at December 31, 1997. Ordinary maintenance and
repair costs are charged to operations as incurred.
F-10
<PAGE> 125
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment
Property and equipment purchased new by the Company is recorded at cost.
Property and equipment obtained through the acquisition of a business is
recorded at the estimated fair market value at the time of acquisition.
Depreciation and amortization are recorded on a straight-line basis over the
following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements........................ 10-39 years, not to exceed lease term
Furniture, fixtures and office equipment.......... 3-7 years
Vehicles, delivery and shop equipment............. 5-10 years
</TABLE>
Ordinary maintenance and repair costs are charged to expense as incurred.
Intangible assets
Intangible assets are recorded at cost and are amortized using the
straight-line method over their estimated useful lives of five years for
covenants not to compete and 40 years for goodwill. The accumulated amortization
of intangible assets, including goodwill, relating to acquired businesses, was
approximately $180,000 at December 31, 1997.
Long-lived assets
The carrying value of long-lived assets, including goodwill, is reviewed if
the facts and circumstances suggest that it may be impaired. If this review
indicates that long-lived assets will not be recoverable, as determined based on
the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value of the long-lived assets will
be reduced by the amount by which carrying value exceeds fair value.
Fair value of financial instruments
The carrying amounts reported in the accompanying consolidated balance
sheets for accounts receivable, accounts payable and accrued expenses and other
liabilities approximate fair value due to the short-term nature of these
accounts. The fair value of debt is determined using current interest rates for
similar instruments at December 31, 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.
Revenue recognition
Rental revenue is recognized as earned during the rental agreement period.
Equipment rentals in the consolidated statements of operations includes revenue
earned on equipment rentals, rental equipment delivery and pick-up fees and fuel
sales. Revenue from the sale of used equipment, parts and supplies and retail
merchandise is recognized at the time of delivery to, or pick-up by, the
customer. When rental equipment is sold, the related cost and accumulated
depreciation are removed from the respective accounts. Proceeds from the sale
and the related book value of the equipment sold are reported as revenue from
rental equipment sales and cost of rental equipment sales, respectively, in the
statements of operations.
Advertising
Advertising costs are charged to expense as incurred. For the period from
August 14, 1997 (inception) to December 31, 1997, the Company incurred $171,000
of advertising costs.
F-11
<PAGE> 126
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes
The Company accounts for income taxes under the liability method pursuant
to Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes. Under the liability method, deferred tax assets and liabilities
are determined based on differences between the financial reporting and tax
bases of assets and liabilities using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse. The Company and its
wholly owned subsidiaries file a consolidated federal income tax return.
Computation of earnings per share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, Earnings Per Share. SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Under SFAS No. 128, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Earnings per share
amounts for all periods have been presented to conform with SFAS No. 128 and
Staff Accounting Bulletin No. 98 (issued by the Securities and Exchange
Commission in February 1998), which amends the determination of and accounting
for "cheap stock" in periods prior to an initial public offering. The effect of
dilutive securities is computed using the treasury stock method.
Stock split
During June 1998, the Company effected a 2,500-for-one split of its common
stock. The accompanying consolidated financial statements reflect the stock
split on a retroactive basis from the beginning of the periods presented.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base. No single customer represents greater than 10%
of total accounts receivable. The Company controls credit risk through credit
approvals, credit limits, and monitoring procedures.
Stock based compensation
The Company accounts for stock compensation arrangements in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25")
and accordingly, recognizes no compensation expense for the stock compensation
arrangements since the stock options are granted at exercise prices at or
greater than the fair value of the shares at the date of grant.
Seasonality
The Company's initial acquisitions have been in the Midwest region of the
United States. The Company's revenue and income are dependent upon the activity
in the construction industry in the markets served by the Company. Construction
activity is dependent upon weather and the traditional seasons for construction
work. Because of this variability in demand, the Company's quarterly revenue may
fluctuate, and revenue for the first quarter of each year can be expected to be
lower than the remaining quarters. Although the Company believes that the
historical trend in quarterly revenue for the second, third and fourth quarters
of each year is generally higher than the first quarter, there can be no
assurance that this will occur in future periods.
F-12
<PAGE> 127
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accordingly, quarterly or other interim results should not be considered
indicative of results to be expected for any quarter or for the full year.
Impact of recently issued accounting standards
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company is required to adopt the provisions of these
Statements in fiscal year 1998. SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components in a primary financial
statement. The Company is currently evaluating the reporting formats recommended
under this Statement. SFAS No. 131 establishes a new method by which companies
will report operating segment information. This method requires disclosure of
information which is based on the manner in which management organizes the
segments within a company for making operating decisions and assessing
performance. The Company continues to evaluate the provisions of SFAS No. 131
and, upon adoption, the Company may report operating segments. In April 1998,
the American Institute of Certified Public Accountants issued Statement of
Position No. 98-5 ("SOP 98-5"). SOP 98-5 requires that all non-governmental
entities expense costs of start-up activities, including pre-operating,
pre-opening and organization activities, as those costs are incurred. In the
opinion of management, the adoption of this statement will have no impact on its
statement of operations.
2. ACQUISITIONS
The Company is building a nationally branded network of equipment rental
locations. Pursuant to this strategy, the Company has made five acquisitions
during 1997. Consideration for these acquisitions has consisted of cash and debt
payable to former owners. The acquisitions have been accounted for using the
purchase method and, accordingly, the acquired assets and assumed liabilities,
including goodwill, have been recorded at their estimated fair values as of the
date of acquisition. Purchase accounting values for all acquisitions have been
assigned on a preliminary basis, and are subject to adjustment when final
information as to the fair values of the nets assets acquired is available. The
operations of the acquired businesses have been included in the Company's
consolidated statement of income since the date of each respective acquisition.
The following table sets forth businesses acquired during 1997 and the
consideration paid:
<TABLE>
<CAPTION>
TOTAL
NAME OF BUSINESS DATE OF ACQUISITION CONSIDERATION
- ---------------- ------------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Sam's Equipment Rental, Inc......................... August 31, 1997 $23,431
Ashland Rental and Sales, Inc. ..................... November 18, 1997 2,221
R. and R. Rental, Inc. ............................. December 10, 1997 8,000
C & E Rental and Service, Inc. ..................... December 23, 1997 12,250
Titan Rentals, Inc. ................................ December 31, 1997 5,900
-------
Total..................................... $51,802
=======
</TABLE>
The following table sets forth the estimated fair value of the assets
acquired and liabilities assumed for the above acquisitions (in thousands):
<TABLE>
<S> <C>
Assets, including cash...................................... $41,828
Goodwill.................................................... 36,686
Other intangibles........................................... 599
Liabilities................................................. 27,311
</TABLE>
F-13
<PAGE> 128
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the unaudited pro forma consolidated results
of operations for the year ended December 31, 1997 giving effect to the above
acquisitions as if such acquisitions had occurred on January 1, 1997 (in
thousands, except per share data):
<TABLE>
<S> <C>
Revenue..................................................... $42,085
Net income.................................................. 2,816
Basic and diluted earnings per share........................ $ 0.11
</TABLE>
The above unaudited pro forma consolidated results are based upon certain
assumptions and estimates which the Company believes are reasonable. The
unaudited pro forma consolidated results of operations may not be indicative of
the operating results that actually would have been reported had the Company
been in existence and had the acquisitions been consummated on January 1, 1997,
nor are they necessarily indicative of results which will be reported in the
future.
3. PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
Buildings and improvements.................................. $ 96
Furniture, fixtures and office equipment.................... 514
Vehicles, delivery and shop equipment....................... 906
Construction in process..................................... 923
------
2,439
Less -- accumulated depreciation and amortization........... (105)
------
Property and equipment, net............................... $2,334
======
</TABLE>
4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
Subordinated promissory notes, bearing interest at 8.5%,
interest payable quarterly and maturities through December
2000...................................................... $ 6,091
Subordinated convertible notes, bearing interest at 6.5%,
interest payable quarterly and maturities through December
2002...................................................... 11,090
Mortgage payable, bearing interest at 9.5%, payable in
monthly installments through July 2007.................... 112
Note payable, with interest at 8.25%, payable in monthly
installments through August 1998.......................... 33
Equipment notes, bearing interest at 6.0% to 9.25%, payable
in various monthly installments through June 2000, secured
by equipment.............................................. 5,144
Notes payable to financial institutions..................... 20,458
-------
Total debt........................................ $42,928
=======
</TABLE>
The subordinated promissory notes and the subordinated convertible notes
were issued in connection with the acquisitions of certain businesses. The
convertible notes have features that allow the holder to convert the principal,
or portion thereof, of the note into common stock in the event the Company
completes an initial
F-14
<PAGE> 129
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
public offering ("IPO") of its common stock. Such principal would be converted
into common stock at the IPO price. Certain convertible notes have provisions
that prospectively increase the interest rates to 8.5% if the Company does not
complete an IPO of its common stock before March 1999.
Notes payable to financial institutions at December 31, 1997 consist of
amounts due under: (i) a $12,500,000 interest bearing term loan, with interest
equal to the prime rate less 0.25%, payable in equal monthly installments of
$20,833 and a final payment of $12,000,000 on September 22, 1999, (ii) a
$6,000,000 interest bearing term loan, with interest equal to the prime rate
less 0.25%, payable in equal monthly installments of $83,333 and a final payment
of $5,500,000 on June 18, 1998 and (iii) a $2,000,000 revolving credit
agreement, bearing interest equal to the prime rate less 0.25%, with the
principal due on September 22, 1999. Each of the above notes imposes, among
other covenants, an earnings to fixed charges covenant, a minimum net worth
covenant and a liabilities to worth covenant, as defined. The notes also provide
the financial institution with a security interest in all of the assets of the
Company.
In March 1998, the Company entered into a $165,000,000 credit facility, as
amended, with a syndicate of lenders to provide for cash borrowings and letters
of credit. The credit facility has a three year term scheduled to expire on May
15, 2001. The credit facility can be used to complete permitted acquisitions,
make capital expenditures, enter into standby letters of credit, or for working
capital and other general corporate purposes. Cash borrowings bear interest at
either the BankBoston base rate plus a percentage ranging from 0.00% to 0.50%
or, at the Company's option, the Eurodollar market rate plus a percentage
ranging from 1.50% to 2.75%. The percentage over the BankBoston base rate or the
Eurodollar market rate is based on the Company's financial performance as
measured by a total funded debt ratio (as defined in the credit facility). The
credit facility provides the banks with a security interest in substantially all
of the assets of the Company. The credit facility also imposes, among other
covenants, a tangible assets to senior debt covenant, a restriction on all of
the Company's retained earnings including the declaration and payment of cash
dividends, consent requirements on certain acquisitions and a restriction on the
ratio of total funded debt to earnings before interest, income taxes,
deprecation and amortization. The proceeds from the credit facility were used to
repay substantially all of the notes payable to financial institutions that were
outstanding at December 31, 1997.
The aggregate maturity of debt at December 31, 1997 for the five years
ending December 31 is: 1998, $13,892,000; 1999, $17,039,000; 2000, $9,521,000;
2001, $184,000; 2002, $2,197,000; 2003 and thereafter, $95,000.
5. STOCKHOLDERS' EQUITY
Preferred stock
The Company has authorized 5,000,000 shares of $0.01 par value preferred
stock. No shares of preferred stock have been issued at December 31, 1997. The
rights and preferences of the preferred stock will be fixed by the Board of
Directors at the time such shares are issued. The preferred stock, when issued,
will have dividend and liquidation preferences over those of the common
stockholders.
Stock options
During 1997, the Company granted to certain employees options to purchase
an aggregate of 282,527 shares of common stock, at exercise prices ranging from
$2.96 to $4.40 per share. At December 31, 1997 all options granted during the
year were outstanding and had a weighted average remaining contractual life of
9.93 years. The weighted average exercise price per share for these stock
options was $3.54. The exercise price per share was based on the estimated fair
value of the Company's common stock at the time of the grant. As such, no
compensation cost will be recognized for these stock options. The above options
become exercisable in equal 25% increments commencing on the first anniversary
of date of the grant, and expire 10 years from the date of grant. Accordingly,
no options were exercisable at December 31, 1997.
F-15
<PAGE> 130
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be determined
as if the Company had accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model. The following assumptions were used in the
valuation: average expected life 7 years, expected volatility 0.75, risk free
interest rate 6% and no dividends. The weighted average fair value of options
granted during the year was $2.86.
For purposes of pro forma disclosures of net income and earnings per share,
the estimated fair value of the options is amortized to expense over the
options' vesting period, resulting in pro forma compensation expense of
approximately $23,000 for the period from August 14, 1997 (inception) to
December 31, 1997. The Company's pro forma net income for the period from August
14, 1997 (inception) to December 31, 1997 was $978,000 with pro forma diluted
and basic net income per share of $0.04.
6. INCOME TAXES
The components of the provision for federal and state income taxes for the
period from August 14, 1997 (inception) to December 31, 1997 are as follows (in
thousands):
<TABLE>
<S> <C>
Current..................................................... $409
Deferred.................................................... 357
----
$766
====
Federal..................................................... $602
State....................................................... 164
----
$766
====
</TABLE>
A reconciliation of the difference between the expected provision for
income taxes using the statutory federal income tax rate of 34% and the
Company's actual provision for the period from August 14, 1997 (inception) to
December 31, 1997 is as follows:
<TABLE>
<S> <C>
Federal statutory income tax rate........................... 34.0%
Add:
Non-deductible goodwill amortization...................... 3.0
State income taxes, net of federal tax benefit............ 6.1
Other, net................................................ 0.3
----
43.4%
====
</TABLE>
The components of deferred income tax liabilities (assets) at December 31,
1997 are as follows (in thousands):
<TABLE>
<S> <C>
Depreciation and amortization differences................... $2,766
Accrued liabilities not deductible until paid............... (761)
Bad debt provision not currently deductible................. (233)
Change from cash to accrual basis for income tax reporting
purposes.................................................. 773
------
Net deferred income tax liabilities....................... $2,545
======
</TABLE>
F-16
<PAGE> 131
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 14, 1997
(INCEPTION) TO
DECEMBER 31,
1997
---------------
<S> <C>
Numerator:
Net income................................................ $ 1,001
=======
Denominator:
Denominator for basic earnings per
share -- weighted-average shares....................... 25,000
Effect of dilutive securities:
Employee stock options................................. 7
-------
Denominator for diluted earnings per share -- adjusted
weighted-average shares................................ 25,007
=======
Basic earnings per share.................................... $ 0.04
=======
Diluted earnings per share.................................. $ 0.04
=======
</TABLE>
Options to purchase 113,752 shares of common stock at $4.40 per share were
outstanding at December 31, 1997 but were not included in the computation of
diluted earnings per share because the options' exercise price was greater than
the average fair value of the common shares and, therefore, the effect would be
antidilutive.
See Note 10 for a description of certain transactions occurring in 1998
that would have significantly changed the number of common shares outstanding at
December 31, 1997 if these transactions had occurred before December 31, 1997.
8. RELATED PARTY TRANSACTIONS
The Company rents certain buildings from a related party. Such rental
expense totaled $160,000 for the period from August 14, 1997 (inception) to
December 31, 1997. One of the principal owners of the related party is an
officer and director of the Company.
9. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases rental equipment, real estate and certain office
equipment under operating leases. Certain real estate leases require the Company
to pay maintenance, insurance, taxes and certain other expenses in addition to
the stated rentals. Future minimum lease payments under noncancelable operating
leases, including the related party lease discussed above, at December 31, 1997
total $1,108,000, $867,000, $555,000, $518,000 and $398,000 for the years ending
December 31, 1998, 1999, 2000, 2001 and 2002, respectively. There are no
payments under noncancelable operating leases subsequent to the year ending
December 31, 2002. Rent expense under noncancelable operating leases for the
period from August 14, 1997 (inception) to December 31, 1997 was $410,000,
including the related party lease discussed above.
Legal matters
The Company is subject to claims and lawsuits in the ordinary course of its
business. In the opinion of management, the Company has either adequate legal
defense, indemnification for such matters from previous
F-17
<PAGE> 132
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
owners or is adequately covered by insurance. If not insured, such matters will
not, in the aggregate, have a material adverse impact upon the Company's
consolidated financial position, results of future operations or cash flows.
Environmental matters
The Company and its operations are subject to various laws and related
regulations governing environmental matters. 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 or in, or emanating from, such
property, as well as investigation of property damage. As part of the Company's
acquisition due diligence, the Company performs extensive environmental
analysis. The remediation has typically been the responsibility of the prior
owner and is addressed prior to closing. The Company does not believe there are
currently any environmental liabilities which should be recorded or disclosed in
its financial statements. The Company believes the possibility is remote that
its compliance with various laws and regulations relating to the protection of
the environment will have a material effect on its capital expenditures, future
earnings or financial position.
10. SUBSEQUENT EVENTS
In June 1998, the founding stockholders of the Company made an additional
capital contribution of $17,400,000. Also, in June 1998, the Company sold an
aggregate of 5,118,694 shares of common stock in a private placement for
aggregate proceeds of $27,600,000. Investors in the private placement include
Company employees and associates of the founding stockholders of the Company.
In May 1998, the Company received an unsecured subordinated loan in the
amount of $17,400,000 (the "Huizenga Note") from Huizenga Investments Limited
Partnership, an entity controlled by a current director and stockholder of the
Company. The loan accrued interest at the prevailing prime rate which was
payable quarterly. The loan had a maturity date of January 19, 2001. The loan
was repaid, without any prepayment penalty, in its entirety on June 3, 1998
using the proceeds from the aforementioned additional capital contribution.
Through July 15, 1998, the Company has completed eleven acquisitions of
rental equipment businesses since December 31, 1997 for aggregate consideration
of $170,875,000. Such consideration consisted of $131,566,000 of cash,
$39,309,000 of subordinated convertible debt and warrants to purchase
approximately $800,000 of the Company's common stock at the IPO price. The cash
portion of the consideration was funded through borrowings under the credit
facility and the Huizenga Note. Each of the acquisitions has been accounted for
using the purchase method.
Subsequent to December 31, 1997, through April 20, 1998, the Company
granted to certain employees options to purchase an aggregate of 805,044 shares
of common stock, at exercise prices ranging from $4.40 to $6.69 per share. The
weighted average exercise price per share for these stock options was $5.95. The
exercise prices per share were based on the estimated fair value of the
Company's common stock at the time of the grants. As such, no compensation cost
will be recognized for these stock options.
In July 1998, the Company amended its credit facility to increase the limit
for cash borrowings and letters of credit from $165,000,000 to $265,000,000.
F-18
<PAGE> 133
NATIONSRENT, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 9,231 $ 1,493
Accounts receivable, net of allowance for doubtful accounts
of $2,742 and $587 at September 30, 1998 and December 31,
1997, respectively........................................ 48,115 5,008
Inventories................................................. 12,406 1,840
Prepaid expenses and other assets........................... 11,424 755
Rental equipment, net....................................... 316,824 30,619
Property and equipment, net................................. 19,416 2,334
Intangible assets related to acquired businesses, net....... 245,434 37,108
-------- -------
Total Assets...................................... $662,850 $79,157
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 44,117 $ 2,303
Accrued repair and maintenance expenses................... 4,681 950
Accrued compensation and related taxes.................... 3,520 328
Accrued expenses and other liabilities.................... 23,852 2,579
Debt...................................................... 389,841 42,928
Income taxes payable...................................... 638 1,523
Deferred income taxes..................................... 7,442 2,545
-------- -------
Total liabilities................................. 474,091 53,156
-------- -------
Commitments and Contingencies (Note 7)
Stockholders' Equity:
Preferred stock -- $0.01 par value, 5,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common stock -- $0.01 par value, 250,000,000 shares
authorized, 44,360,334 shares and 25,000,000 shares
issued and outstanding at September 30, 1998 and
December 31, 1997, respectively........................ 444 250
Additional paid-in capital................................ 180,460 24,750
Retained earnings......................................... 7,855 1,001
-------- -------
Total stockholders' equity........................ 188,759 26,001
-------- -------
Total Liabilities and Stockholders' Equity........ $662,850 $79,157
======== =======
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these consolidated financial statements.
F-19
<PAGE> 134
NATIONSRENT, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
FROM
AUGUST 14, 1997
NINE MONTHS (INCEPTION)
ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- ---------------
<S> <C> <C>
Revenue:
Equipment rentals......................................... $73,644 $ 2,643
Sales of equipment, parts and supplies.................... 39,084 198
------- -------
Total revenue..................................... 112,728 2,841
------- -------
Cost of revenue:
Cost of equipment rentals, excluding depreciation......... 25,195 577
Rental equipment depreciation............................. 13,555 326
Cost of sales of equipment, parts and supplies............ 28,090 78
------- -------
Total cost of revenue............................. 66,840 981
------- -------
Gross profit................................................ 45,888 1,860
Operating expenses:
Selling, general and administrative expenses.............. 22,287 286
Non-rental equipment depreciation and amortization........ 2,931 64
------- -------
Operating income............................................ 20,670 1,510
------- -------
Other (income)/expense:
Interest expense.......................................... 9,391 104
Interest income........................................... (143) (12)
Other, net................................................ (395) (2)
------- -------
8,853 90
------- -------
Income before provision for income taxes.................... 11,817 1,420
Provision for income taxes................................ 4,963 614
------- -------
Net income.................................................. $ 6,854 $ 806
======= =======
Net income per share:
Basic..................................................... $ 0.23 $ 0.03
======= =======
Diluted................................................... $ 0.23 $ 0.03
======= =======
Weighted average common shares outstanding:
Basic..................................................... 29,894 25,000
======= =======
Diluted................................................... 33,501 25,000
======= =======
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these consolidated financial statements.
F-20
<PAGE> 135
NATIONSRENT, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
FROM
NINE MONTHS AUGUST 14, 1997
ENDED (INCEPTION)
SEPTEMBER 30, THROUGH
1998 SEPTEMBER 30, 1997
------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 6,854 $ 806
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 16,742 390
Gain on sale of rental equipment.......................... (2,910) (14)
Deferred income tax provision............................. 3,580 382
Changes in operating assets and liabilities:
Accounts receivable..................................... (14,175) (662)
Inventories............................................. 917 (40)
Prepaid expenses and other assets....................... (3,666) 53
Accounts payable........................................ 32,588 496
Accrued expenses and other liabilities.................. 270 (63)
Income taxes payable.................................... (903) 231
--------- --------
Net cash provided by operating activities............. 39,297 1,579
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired.......... (207,967) (11,900)
Purchases of rental equipment............................. (76,816) (250)
Purchases of property and equipment....................... (6,004) (2)
Decreases in notes receivable affiliates.................. -- 1,358
Proceeds from sale of rental equipment.................... 12,808 71
--------- --------
Net cash used in investing activities................. (277,979) (10,723)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 123,277 15,000
Capital contribution...................................... 23,400 --
Proceeds from debt........................................ 560,173 1,547
Repayments of debt........................................ (456,885) (994)
Debt issuance costs....................................... (3,545) --
--------- --------
Net cash provided by financing activities............. 246,420 15,553
--------- --------
Net increase in cash and cash equivalents................... 7,738 6,409
Cash and cash equivalents, beginning of period.............. 1,493 --
--------- --------
Cash and cash equivalents, end of period.................... $ 9,231 $ 6,409
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 7,416 $ 155
========= ========
Cash paid for income taxes................................ $ 1,791 $ 98
========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
The Company acquired the net assets and assumed certain
liabilities of certain businesses as follows:
Total assets, net of cash acquired...................... $ 497,008 $ 47,804
Total liabilities assumed............................... (229,760) (24,123)
Amount paid with common stock and warrants.............. (9,227) --
Amount paid through the issuance of debt and future
payments.............................................. (50,054) (11,781)
--------- --------
Net cash paid......................................... $ 207,967 $ 11,900
========= ========
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these consolidated financial statements.
F-21
<PAGE> 136
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have
been prepared by NationsRent, Inc. (the "Company") and reflect all adjustments
of a normal recurring nature which are, in the opinion of management, necessary
for a fair presentation of financial results for the three and nine months ended
September 30, 1998 and for the period from August 14, 1997 (Inception) through
September 30, 1997, in accordance with generally accepted accounting principles
for interim financial reporting and pursuant to Article 10 of Regulation S-X.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These unaudited interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements for the period ended December 31, 1997
appearing in the Company's Registration Statement on Form S-1, as amended
(Commission File No. 333-56233), filed with the Securities and Exchange
Commission. The results of operations for the three and nine months ended
September 30, 1998 are not necessarily indicative of the results which may be
reported for the year ending December 31, 1998.
The unaudited interim consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material
intercompany transactions and balances have been eliminated in consolidation.
Impact of recently issued accounting standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company adopted SFAS No. 130 during the
quarter ended June 30, 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in a full set
of financial statements. The objective of SFAS No. 130 is to report a measure
(comprehensive income) of all changes in equity of an enterprise that result
from transactions and other economic events in a period other than transactions
with owners. The adoption of SFAS 130 did not have a material impact on the
Company's consolidated financial statements, as comprehensive income was equal
to net income for all periods presented. The Company is currently evaluating the
reporting formats recommended under this Statement. SFAS No. 131 establishes a
new method by which companies will report operating segment information. This
method requires disclosure of information which is based on the manner in which
management organizes the segments within a company for making operating
decisions and assessing performance. The Company continues to evaluate the
provisions of SFAS No. 131 and, upon adoption, the Company may report operating
segments.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 establishes criteria for determining which costs of
developing or obtaining internal-use computer software should be charged to
expense and which should be capitalized. SOP 98-1 is effective for all
transactions entered into in fiscal years beginning after December 15, 1998. The
Company does not believe that the adoption of SOP 98-1 will have a material
effect on the Company's financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5. SOP 98-5 requires that all
non-governmental entities expense costs of start-up activities, including
pre-operating, pre-opening and organization activities, as those costs are
incurred. In the opinion of
F-22
<PAGE> 137
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
SEPTEMBER 30, 1998
management, the adoption of this Statement will not have a material effect on
the Company's financial position or results of operations.
NOTE 2 -- ACQUISITIONS
The Company is building a nationally branded network of equipment rental
locations. Pursuant to this strategy, the Company made 22 acquisitions of
equipment rental businesses during the nine months ended September 30, 1998. The
aggregate consideration for these acquisitions was $272,099,000 and consisted
of, (i) $212,818,000 of cash, (ii) $44,350,000 of subordinated convertible debt,
(iii) $1,409,000 of subordinated debt, (iv) $4,295,000 of future contractual
cash payments, (v) 1,241,640 shares of the Company's common stock, $0.01 par
value per share ("Common Stock"), and (vi) warrants to purchase 100,000 shares
of Common Stock. In addition, in connection with seven of the acquisitions, the
Company has agreed to make up to an aggregate $4,113,000 of future payments to
the former owners based on the achievement of certain future operating results.
Such payments will be made at various times through July 2001. The cash portion
of the consideration was funded through borrowings under the Company's revolving
credit facility (the "Credit Facility"), capital contributions by the founders
of the Company and a private placement of Common Stock. In addition, the Company
repaid or assumed outstanding indebtedness of the acquired companies in the
aggregate amount of $196,386,000. The acquisitions have been accounted for using
the purchase method and, accordingly, the acquired assets and assumed
liabilities, including goodwill, have been recorded at their estimated fair
values as of the date of acquisition. Purchase accounting values for all
acquisitions have been assigned on a preliminary basis, and are subject to
adjustment when final information as to the fair values of the net assets
acquired is available. The operations of the acquired businesses have been
included in the Company's consolidated statements of income since the date of
each respective acquisition.
The following table sets forth the estimated fair value of the assets
acquired and liabilities assumed for the aforementioned acquisitions (in
thousands):
<TABLE>
<S> <C>
Assets, including cash...................................... $292,488
Goodwill.................................................... 208,982
Other intangibles........................................... 389
Liabilities................................................. 229,760
</TABLE>
The following table sets forth the unaudited pro forma consolidated results
of operations for the nine months ended September 30, 1998 giving effect to the
aforementioned acquisitions as if such acquisitions had occurred on January 1,
1998 (in thousands, except per share data):
<TABLE>
<S> <C>
Revenue..................................................... $231,044
Net income.................................................. 11,763
Earnings per share:
Basic.................................................. $ 0.27
Diluted................................................ $ 0.26
</TABLE>
NOTE 3 -- COMMON STOCK
During the first nine months of 1998, the founding stockholders of the
Company made an additional capital contribution of $23,400,000. In June 1998,
the Company sold an aggregate of 5,118,694 shares of Common Stock in a private
placement for aggregate proceeds of $27,600,000. Investors in the private
placement included Company employees and associates of the founding stockholders
of the Company.
In August 1998, the Company consummated its initial public offering of
13,000,000 shares of Common Stock at $8.00 per share. The Company received net
proceeds of approximately $95,677,000 after deducting
F-23
<PAGE> 138
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
SEPTEMBER 30, 1998
underwriting discounts and commissions and offering expenses. The Company used
all of the net proceeds to repay a portion of the outstanding borrowings of the
Company under its Credit Facility.
NOTE 4 -- SEASONALITY
The Company's initial acquisitions have been primarily in the Midwest
region of the United States. The Company's revenue and income are dependent upon
the activity in the construction industry in the markets served by the Company.
Construction activity is dependent upon weather and the traditional seasons for
construction work. Because of this variability in demand, the Company's
quarterly revenue may fluctuate, and revenue for the first quarter of each year
can be expected to be lower than the remaining quarters. Although the Company
believes that the historical trend in quarterly revenue for the second, third
and fourth quarters of each year is generally higher than the first quarter,
there can be no assurance that this will occur in future periods. Accordingly,
quarterly or other interim results should not be considered indicative of
results to be expected for any quarter or for the full year.
NOTE 5 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
FROM
AUGUST 14, 1997
THREE MONTHS NINE MONTHS (INCEPTION)
ENDED ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1997
------------- ------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Net income -- basic earnings
per share................... $ 5,561 $ 6,854 $ 806
Interest expense on convertible
subordinated debt, net of
income taxes................ 488 821 --
------- ------- -------
Numerator -- diluted earnings
per share................... $ 6,049 $ 7,675 $ 806
======= ======= =======
Denominator:
Denominator for basic earnings
per share --
weighted-average shares..... 37,909 29,894 25,000
Effect of dilutive securities:
Convertible subordinated
debt...................... 6,083 3,430 --
Employee stock options...... 279 177 --
------- ------- -------
Denominator for diluted
earnings per share --
adjusted weighted-average
shares...................... 44,271 33,501 25,000
======= ======= =======
Basic earnings per share......... $ 0.15 $ 0.23 $ 0.03
======= ======= =======
Diluted earnings per share....... $ 0.14 $ 0.23 $ 0.03
======= ======= =======
</TABLE>
F-24
<PAGE> 139
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
SEPTEMBER 30, 1998
NOTE 6 -- DEBT
In September 1998, the Company amended its Credit Facility to increase the
facility to include a term loan of $175,000,000 (the "Term Loan") in addition to
its existing revolving credit facility of up to $260,000,000 (the "Revolver").
Recently, the Credit Facility was amended further to allow the administrative
agent to reallocate the aggregate dollar amounts of the bank commitments between
the Revolver and the Term Loan, provided that the aggregate commitment may not
be less than $435,000,000 and the aggregate commitment under the Revolver may
not be less than $260,000,000. The Revolver has a three-year term scheduled to
expire in September 2001 and the Term Loan has a six-year term scheduled to
expire in September 2004. The Credit Facility can be used to complete permitted
acquisitions, make capital expenditures, enter into standby letters of credit,
or for working capital and other general corporate purposes. Borrowings under
the Revolver bear interest at either the BankBoston base rate plus a percentage
ranging from 0.0% to 0.50% or, at the Company's option, the Eurodollar market
rate plus a percentage ranging from 2.00% to 2.75%. The Term Loan bears interest
ranging from 3.00% to 3.25% over the Eurodollar market rate. The percentage over
the BankBoston base rate or the Eurodollar market rate is based on the Company's
financial performance as measured by the total funded debt ratio. The Credit
Facility is secured by a security interest in substantially all of the assets of
the Company. The Credit Facility also imposes, among other covenants, a tangible
assets to senior debt covenant, a restriction on all of the Company's retained
earnings including the declaration and payment of cash dividends, consent
requirements on certain acquisitions and a restriction on the ratio of total
funded debt to earnings before interest, income taxes, depreciation and
amortization.
NOTE 7 -- SUBSEQUENT EVENTS
The Company has completed three acquisitions of rental equipment businesses
since September 30, 1998 for aggregate consideration of $187,946,000. Such
consideration consisted of, (i) $108,076,000 of cash, (ii) $51,770,000 of
subordinated convertible debt, and (iii) $28,100,000 of subordinated debt. Also,
upon the satisfaction of certain post-closing earnings targets, the Company
shall pay additional consideration of $10,000,000 in cash and $10,000,000 in
shares of the Company's Common Stock. The cash portion of the consideration was
funded through borrowings under the Credit Facility. Each of the acquisitions
has been accounted for using the purchase method.
F-25
<PAGE> 140
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Gabriel Trailer Manufacturing Company, Inc.:
We have audited the accompanying consolidated balance sheets of Gabriel Trailer
Manufacturing Company, Inc. and subsidiary (an Ohio corporation) as of March 31,
1997 and August 31, 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for the years ended March 31, 1996 and 1997
and for the period from April 1, 1997 through August 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Gabriel Trailer Manufacturing
Company, Inc. and subsidiary as of March 31, 1997 and August 31, 1997, and the
results of their operations and their cash flows for the years ended March 31,
1996 and 1997 and for the period from April 1, 1997 through August 31, 1997 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 8, 1998.
F-26
<PAGE> 141
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
1997 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 17,186 $ 149,742
Accounts receivable, net of allowances for doubtful accounts
of $265,000 and $330,000 as of March 31, and August 31,
1997, respectively........................................ 2,044,590 3,335,663
Inventories................................................. 947,322 991,902
Due from affiliates......................................... 1,421,199 1,357,990
Rental equipment, net....................................... 21,788,980 21,885,967
Property, plant and equipment, net.......................... 1,208,147 1,145,612
Other assets................................................ 186,704 221,186
----------- -----------
Total assets...................................... $27,614,128 $29,088,062
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable.......................................... $ 1,739,231 $ 422,591
Accrued expenses and other liabilities.................... 1,667,030 1,759,464
Debt...................................................... 16,100,269 16,558,863
Income taxes payable...................................... 1,491,129 1,423,026
Deferred income taxes..................................... 2,149,565 3,156,458
----------- -----------
Total liabilities................................. 23,147,224 23,320,402
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 7, 8 and 10)
STOCKHOLDERS' EQUITY:
Common stock -- no par value, 10,000 shares authorized,
issued and outstanding................................. 500 500
Retained earnings......................................... 4,466,404 5,767,160
----------- -----------
Total stockholders' equity........................ 4,466,904 5,767,660
----------- -----------
Total liabilities and stockholders' equity........ $27,614,128 $29,088,062
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-27
<PAGE> 142
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE YEAR ENDED MARCH 31, APRIL 1, 1997
---------------------------- TO
1996 1997 AUGUST 31, 1997
------------ ------------ ---------------
<S> <C> <C> <C>
REVENUE:
Equipment rentals................................ $11,871,114 $15,327,802 $8,514,810
Sales of equipment, parts and supplies........... 4,301,865 4,177,194 1,204,708
----------- ----------- ----------
16,172,979 19,504,996 9,719,518
COST OF REVENUE:
Cost of equipment rentals, excluding
depreciation.................................. 4,379,534 6,029,585 2,192,790
Rental equipment depreciation.................... 2,052,534 3,465,293 1,847,567
Cost of sales of equipment, parts and supplies... 4,490,975 2,790,666 984,147
----------- ----------- ----------
10,923,043 12,285,544 5,024,504
----------- ----------- ----------
Gross profit............................. 5,249,936 7,219,452 4,695,014
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....... 2,972,337 3,563,930 1,683,311
NONRENTAL DEPRECIATION............................. 180,101 237,905 114,993
----------- ----------- ----------
Operating income......................... 2,097,498 3,417,617 2,896,710
----------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest expense................................. (582,807) (866,284) (580,107)
Interest income.................................. 71,103 15,941 15,710
Other, net....................................... 125,468 187,044 (77,597)
----------- ----------- ----------
Total other income (expense), net........ (386,236) (663,299) (641,994)
----------- ----------- ----------
Income before provision for income
taxes.................................. 1,711,262 2,754,318 2,254,716
PROVISION FOR INCOME TAXES......................... 732,793 1,127,416 938,790
----------- ----------- ----------
NET INCOME......................................... $ 978,469 $ 1,626,902 $1,315,926
=========== =========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-28
<PAGE> 143
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------
NUMBER OF TREASURY RETAINED
SHARES AMOUNT STOCK EARNINGS TOTAL
--------- ------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, April 1, 1995.................... 10,000 $500 $(190,000) $2,051,033 $1,861,533
Retirement of treasury stock............ -- -- 190,000 (190,000) --
Net income.............................. -- -- -- 978,469 978,469
------ ---- --------- ---------- ----------
BALANCE, March 31, 1996................... 10,000 500 -- 2,839,502 2,840,002
Net income.............................. -- -- -- 1,626,902 1,626,902
------ ---- --------- ---------- ----------
BALANCE, March 31, 1997................... 10,000 500 -- 4,466,404 4,466,904
Distribution............................ -- -- -- (15,170) (15,170)
Net income.............................. -- -- -- 1,315,926 1,315,926
------ ---- --------- ---------- ----------
BALANCE, August 31, 1997.................. 10,000 $500 $ -- $5,767,160 $5,767,660
====== ==== ========= ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated statements.
F-29
<PAGE> 144
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE YEAR ENDED MARCH 31, APRIL 1, 1997
---------------------------- TO AUGUST 31,
1996 1997 1997
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 978,469 $ 1,626,902 $ 1,315,926
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation................................... 2,232,635 3,703,200 1,962,560
(Gain) loss on sale of assets.................. 16,202 (68,548) 84,020
Deferred income taxes.......................... 486,450 809,283 1,006,893
Changes in operating assets and liabilities:
Accounts receivable.......................... (309,761) (688,006) (1,291,073)
Inventories.................................. (122,582) (187,075) (44,580)
Other assets................................. (41,962) 8,601 (93,296)
Accounts payable............................. 244,241 777,122 (1,316,640)
Accrued expenses and other liabilities....... 446,252 503,630 92,434
Income taxes payable......................... 246,343 318,133 (68,103)
----------- ----------- -----------
Net cash provided by operating
activities.............................. 4,176,287 6,803,242 1,648,141
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............... (494,684) (516,029) (63,792)
Proceeds from sale of property and equipment...... 314,097 17,560 8,733
Purchases of rental equipment..................... (8,799,248) (8,101,137) (1,775,155)
Proceeds from sale of rental equipment............ 916,403 1,326,510 136,685
----------- ----------- -----------
Net cash used in investing activities..... (8,063,432) (7,273,096) (1,693,529)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt................................ 12,823,899 17,922,405 4,843,858
Repayments of debt................................ (8,658,333) (14,417,413) (3,651,766)
Payments of equipment financings.................. -- (1,928,097) (1,045,871)
(Advances to) repayments from affiliates, net..... (316,721) (1,094,105) 31,723
----------- ----------- -----------
Net cash provided by financing
activities.............................. 3,848,845 482,790 177,944
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... (38,300) 12,936 132,556
CASH AND CASH EQUIVALENTS, beginning of period...... 42,550 4,250 17,186
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period............ $ 4,250 $ 17,186 $ 149,742
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................ $ 553,206 $ 821,349 $ 546,085
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Equipment financing............................... $ -- $ 4,637,084 $ 387,503
=========== =========== ===========
Property dividends................................ $ -- $ -- $ 15,170
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated statements.
F-30
<PAGE> 145
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND AUGUST 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION:
Gabriel Trailer Manufacturing Company, Inc. ("Gabriel") (together with its
subsidiary, the "Company") was incorporated in March 1970 to manufacture, buy,
sell and deal in trailer equipment, other related equipment and parts and
accessories. Gabriel's wholly-owned subsidiary, Sam's Equipment Rental, Inc. was
formed for the purpose of renting and leasing construction related equipment.
The Company currently rents a broad array of equipment to a diverse customer
base including construction industry participants, industrial companies,
homeowners and others. The Company also engages in related activities such as
selling used equipment, acting as a distributor for certain new and used
equipment, and selling related merchandise and parts. The nature of the
Company's business is such that short-term obligations are typically met by cash
flow generated from long-term assets. Consequently, consistent with industry
practice, the accompanying balance sheets are presented on an unclassified
basis.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash equivalents
The Company considers all highly liquid instruments with an original
maturity of three months or less when purchased to be cash equivalents. At March
31, 1997 and August 31, 1997, the Company had no cash equivalents.
Inventories
Inventories consist of equipment, tools, parts, fuel and related rental
equipment supplies and accessories. Inventories are stated at the lower of cost
or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The range of
useful lives estimated by management for rental equipment is five to seven
years. Ordinary maintenance and repair costs are charged to operations as
incurred.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to the rental of equipment is recognized
over the contract term.
Property, plant and equipment
Property, plant and equipment is recorded at cost and depreciated over the
estimated useful life using the straight-line method. The range of useful lives
estimated by management for property, plant and equipment is three to forty
years. Ordinary maintenance and repair costs are charged to operations as
incurred.
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
F-31
<PAGE> 146
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair value of financial instruments
The carrying amounts reported in the accompanying consolidated balance
sheets for cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses and other liabilities approximate fair value as of March 31,
1997 and August 31, 1997.
Income taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires, among other things, recognition
of future tax effects measured at enacted rates attributable to deductible
temporary differences between financial statement and income tax bases of assets
and liabilities to the extent that realization of said effects is more likely
than not.
Use of 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 in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base. No single customer represents greater than 10%
of total accounts receivable. The Company controls credit risk through credit
approvals, credit limits and monitoring procedures.
3. RENTAL EQUIPMENT:
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
1997 1997
----------- -----------
<S> <C> <C>
Rental equipment.......................................... $28,790,435 $30,641,146
Less -- accumulated depreciation.......................... 7,001,455 8,755,179
----------- -----------
Rental equipment, net................................ $21,788,980 $21,885,967
=========== ===========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
1997 1997
----------- -----------
<S> <C> <C>
Land...................................................... $ 49,863 $ 49,863
Building.................................................. 757,816 757,816
Furniture and fixtures.................................... 355,131 339,593
Vehicles.................................................. 1,134,204 1,113,193
----------- -----------
2,297,014 2,260,465
Less -- accumulated depreciation.......................... (1,088,867) (1,114,853)
----------- -----------
Property, plant and equipment, net.............. $ 1,208,147 $ 1,145,612
=========== ===========
</TABLE>
F-32
<PAGE> 147
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
1997 1997
---------- ----------
<S> <C> <C>
Personal property taxes..................................... $1,044,423 $1,172,905
Payroll-related............................................. 231,274 188,246
Tax penalties and interest.................................. 248,000 248,000
Other....................................................... 143,333 150,313
---------- ----------
Accrued expenses and other liabilities............ $1,667,030 $1,759,464
========== ==========
</TABLE>
6. DEBT:
Debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
1997 1997
----------- -----------
<S> <C> <C>
Lines of credit, with borrowings up to $6.3 million,
secured by substantially all of the Company's assets,
interest ranging from 8.25% to 8.50%, payable in
monthly installments through September 1997.......... $ 4,091,315 $ 5,497,095
Revolving term loans, secured by substantially all of
the Company's assets, interest ranging from 8.25% to
8.90%, payable in monthly installments through
January 2000......................................... 6,444,444 6,233,334
Equipment notes, secured by rental equipment, interest
ranging from 6.90% to 9.00%, payable in monthly
installments through June 2000....................... 5,312,900 4,656,172
Mortgages payable, secured by real estate, interest
ranging from 6.75% to 9.50%, payable in monthly
installments through August 2005..................... 161,798 113,936
Note payable to related party, secured by life insurance
policy on officer, interest at 8.25%, payable in
monthly installments through August 1998............. 89,812 58,326
----------- -----------
Total debt...................................... $16,100,269 $16,558,863
=========== ===========
</TABLE>
Maturities of the Company's debt at August 31, 1997, for the years ended
August 31, are as follows:
<TABLE>
<S> <C>
1998........................................................ $14,155,433
1999........................................................ 1,677,753
2000........................................................ 636,277
2001........................................................ 9,853
2002........................................................ 10,831
Thereafter.................................................. 68,716
-----------
$16,558,863
===========
</TABLE>
F-33
<PAGE> 148
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES:
The provision for Federal and state income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED PERIOD FROM
MARCH 31, APRIL 1, 1997
---------------------- TO AUGUST 31,
1996 1997 1997
-------- ---------- -------------
<S> <C> <C> <C>
Current......................................... $246,343 $ 318,133 $ (68,103)
Deferred........................................ 486,450 809,283 1,006,893
-------- ---------- ----------
$732,793 $1,127,416 $ 938,790
======== ========== ==========
Federal......................................... $575,542 $ 885,481 $ 737,333
State........................................... 157,251 241,935 201,457
-------- ---------- ----------
$732,793 $1,127,416 $ 938,790
======== ========== ==========
</TABLE>
A reconciliation of the difference between the expected provision for
income taxes using the statutory Federal income tax rate of 34% and the
Company's actual provision is as follows:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED PERIOD FROM
MARCH 31, APRIL 1, 1997
---------------------- TO AUGUST 31,
1996 1997 1997
-------- ---------- -------------
<S> <C> <C> <C>
Provision at the statutory tax rate............. $581,829 $ 936,468 $766,603
State income taxes.............................. 103,786 159,677 132,962
Nondeductible expenses.......................... 47,178 31,271 39,225
-------- ---------- --------
$732,793 $1,127,416 $938,790
======== ========== ========
</TABLE>
Deferred income taxes arise primarily due to temporary differences in
recognizing certain revenues and expenses for tax purposes and the use of
accelerated depreciation for tax purposes. The components of the deferred income
tax liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
1997 1997
---------- ----------
<S> <C> <C>
Depreciation of property and equipment and rental
equipment................................................. $2,211,443 $2,708,783
Accrued liabilities......................................... (871,739) (349,825)
Accounts receivable......................................... 809,861 (118,830)
Section 481 cash to accrual election change................. -- 916,330
---------- ----------
Deferred income tax liability............................. $2,149,565 $3,156,458
========== ==========
</TABLE>
The Company's income tax returns and related payments for the years ended
March 31, 1995, 1996 and 1997 were not filed on a timely basis. It is not
possible to predict the ultimate outcome of the Company's penalties for failure
to file, and pay on a timely basis and underpayment. The Company has estimated
an approximate liability of $175,000, which is included in accrued expenses and
other liabilities.
8. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases rental equipment, real estate and certain office
equipment under operating leases. Certain real estate leases require the Company
to pay maintenance, insurance, taxes and certain other expenses in addition to
the stated rentals. The leases cover several operating locations and expire at
various dates through September 2002. Future minimum lease payments to related
and unrelated third parties, by
F-34
<PAGE> 149
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
year and in the aggregate, at August 31, 1997 for noncancelable operating leases
with initial or remaining terms of one year or more are as follows:
<TABLE>
<CAPTION>
RELATED PARTY OTHER TOTAL
------------- -------- ----------
<S> <C> <C> <C>
1998............................................ $ 480,000 $328,322 $ 808,322
1999............................................ 368,000 228,866 596,866
2000............................................ 256,000 67,821 323,821
2001............................................ 192,000 -- 192,000
2002............................................ 8,000 -- 8,000
---------- -------- ----------
Total $1,304,000 $625,009 $1,929,009
========== ======== ==========
</TABLE>
Rent expense under noncancelable operating leases for the years ended March
31, 1996 and 1997 and the period from April 1, 1997 through August 31, 1997 is
$784,354, $1,098,234 and $423,798, respectively. Included in total rent expense
is rent to a related party of approximately $280,000, $357,000 and $200,000 for
the years ended March 31, 1996 and 1997 and the period from April 1, 1997
through August 31, 1997, respectively.
Litigation, Claims and Assessments
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
9. EMPLOYEE BENEFIT PLAN:
The Company has a 401(k) defined contribution profit-sharing plan under
which employees having worked a minimum of twelve months are eligible to
participate. Employer contributions, which are discretionary and depend on the
Company's profitability, were approximately $54,600, $70,100 and $47,700 for the
years ended March 31, 1996 and 1997 and for the period from April 1, 1997
through August 31, 1997, respectively.
10. SUBSEQUENT EVENT:
Effective September 1, 1997, all of the outstanding stock of the Company
was purchased by NationsRent, Inc., an unrelated third party, in exchange for
cash and debt.
F-35
<PAGE> 150
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To R. and R. Rental, Inc.:
We have audited the accompanying balance sheet of R. and R. Rental, Inc. (an
Ohio S corporation) at December 10, 1997, and the related statements of
operations, stockholder's equity and cash flows for the period from January 1,
1997 through December 10, 1997. 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 financial position of R. and R. Rental, Inc. at
December 10, 1997, and the results of its operations and its cash flows for the
period from January 1, 1997 through December 10, 1997 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 8, 1998.
F-36
<PAGE> 151
R. AND R. RENTAL, INC.
BALANCE SHEET
AS OF DECEMBER 10, 1997
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 193,714
Accounts receivable, net of allowance for doubtful accounts
of $150,000............................................... 649,193
Inventories................................................. 928,962
Rental equipment, net....................................... 4,002,825
Property and equipment, net................................. 267,903
Other assets................................................ 3,400
----------
Total assets...................................... $6,045,997
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable.......................................... $ 15,354
Accrued expenses and other liabilities.................... 108,996
Note payable.............................................. 1,523,139
----------
Total liabilities................................. 1,647,489
----------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
STOCKHOLDER'S EQUITY:
Common stock -- no par value, 250 shares authorized,
issued and outstanding................................. 500
Additional paid-in capital................................ 5,327,477
Accumulated deficit....................................... (929,469)
----------
Total stockholder's equity........................ 4,398,508
----------
Total liabilities and stockholder's equity........ $6,045,997
==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
balance sheet.
F-37
<PAGE> 152
R. AND R. RENTAL, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 10, 1997
<TABLE>
<S> <C>
REVENUE:
Equipment rentals......................................... $2,409,518
Sales of equipment, parts and supplies.................... 2,106,695
----------
4,516,213
COST OF REVENUE:
Cost of equipment rentals, excluding depreciation......... 1,398,174
Rental equipment depreciation............................. 630,548
Cost of sales of equipment, parts and supplies............ 1,808,076
----------
3,836,798
----------
Gross profit...................................... 679,415
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 715,140
NONRENTAL DEPRECIATION...................................... 76,630
----------
Operating loss.................................... (112,355)
----------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (79,579)
Other income.............................................. 29,829
----------
Total other income (expense), net................. (49,750)
----------
NET LOSS.......................................... $ (162,105)
==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-38
<PAGE> 153
R. AND R. RENTAL, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 10, 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL
NUMBER PAID-IN ACCUMULATED
OF SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997.................. 250 $500 $3,761,380 $(767,364) $2,994,516
Capital contributions................... -- -- 1,566,097 -- 1,566,097
Net loss................................ -- -- -- (162,105) (162,105)
--- ---- ---------- --------- ----------
BALANCE, December 10, 1997................ 250 $500 $5,327,477 $(929,469) $4,398,508
=== ==== ========== ========= ==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-39
<PAGE> 154
R. AND R. RENTAL, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 10, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (162,105)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 707,178
Loss on sale of rental equipment....................... 65,326
Changes in operating assets and liabilities:
Accounts receivable.................................. (40,271)
Inventories.......................................... (298,639)
Other assets......................................... 4,523
Accounts payable..................................... (382,070)
Accrued expenses and other liabilities............... 28,016
-----------
Net cash used in operating activities............. (78,042)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental equipment............................. (2,208,233)
Purchases of property and equipment....................... (96,568)
Proceeds from sale of rental equipment.................... 307,793
-----------
Net cash used in investing activities............. (1,997,008)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable................................ 1,523,139
Repayments of note payable................................ (935,609)
Capital contributions..................................... 1,566,097
-----------
Net cash provided by financing activities......... 2,153,627
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 78,577
CASH AND CASH EQUIVALENTS, beginning of period.............. 115,137
-----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 193,714
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 79,579
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-40
<PAGE> 155
R. AND R. RENTAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 10, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
R. and R. Rentals, Inc. (the "Company") was incorporated in July 1988 in
the State of Ohio. The Company rents a broad array of equipment to a diverse
customer base that includes construction industry participants, industrial
companies, homeowners and others. The Company also engages in related activities
such as selling used equipment, acting as a distributor for certain new
equipment and selling related merchandise and parts. The nature of the Company's
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the accompanying balance sheet is presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. At December 10,
1997, the Company had no cash equivalents.
Inventories
Inventories consist of equipment, tools, parts, fuel and related equipment
supplies and accessories inventories are stated at the lower of weighted average
cost or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The useful life
estimated by management for rental equipment is seven years. Ordinary
maintenance and repair costs are charged to operations as incurred.
Revenue recognition
Revenue related to the sale of equipment is recognized at the point of
sale. Revenue related to equipment rental is recognized over the contract term.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. The range of useful lives
estimated by management for property and equipment is three to fifteen years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
Fair value of financial instruments
The carrying amounts reported in the balance sheet for cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and other
liabilities and note payable approximate fair value as of December 10, 1997.
F-41
<PAGE> 156
R. AND R. RENTAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes
The Company is an S corporation for income tax purposes. Accordingly,
income, losses and related temporary differences which arise in the recording of
income and expense items for financial reporting and tax reporting purposes are
included in the individual tax return of the stockholder. Therefore, no
provision or liability for Federal and state income taxes has been included in
the accompanying financial statements.
On a pro forma basis, the Company would have had a tax benefit, however it
would have been fully offset by a valuation allowance as the benefit would not
have achieved the realization requirements of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Use of 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 in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base. No single customer represents greater than 10%
of total accounts receivable. The Company controls credit risk through credit
approvals, credit limits, and monitoring procedures.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation as of December 10,
1997, consist of the following:
<TABLE>
<S> <C>
Rental equipment............................................ $ 5,349,321
Less -- accumulated depreciation............................ (1,346,496)
-----------
Rental equipment, net............................. $ 4,002,825
===========
</TABLE>
4. PROPERTY AND EQUIPMENT
A summary of property and equipment as of December 10, 1997, is as follows:
<TABLE>
<S> <C>
Trucks and autos............................................ $ 255,842
Furniture and fixtures...................................... 147,333
Computer equipment.......................................... 81,986
Leasehold improvements...................................... 38,466
---------
523,627
Less -- accumulated depreciation............................ (255,724)
---------
Property and equipment, net....................... $ 267,903
=========
</TABLE>
F-42
<PAGE> 157
R. AND R. RENTAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities as of December 10, 1997, consists of
the following:
<TABLE>
<S> <C>
Accrued property taxes...................................... $100,000
Payroll-related............................................. 8,996
--------
Accrued expenses and other liabilities............ $108,996
========
</TABLE>
6. DEBT
The Company entered into a demand promissory note bearing interest at prime
(8.5% at December 10, 1997), with interest payable quarterly. This note is
secured by substantially all of the Company's rental equipment. The note had an
outstanding balance of $1,523,139 at December 10, 1997.
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases various automobiles under operating leases. Future
minimum lease payments, by year and in the aggregate, for noncancelable
operating leases with initial or remaining terms of one year or more are as
follows at December 10, 1997 for the following years ended December 10:
<TABLE>
<S> <C>
1998........................................................ $30,044
1999........................................................ 17,875
2000........................................................ 6,186
-------
Total............................................. $54,105
=======
</TABLE>
Expense under these operating leases for the period ended December 10, 1997
was $44,493 and is included under selling, general and administrative expenses
in the accompanying statement of operations.
Litigation, Claims and Assessments
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
8. RELATED PARTY TRANSACTIONS
The Company leases two buildings from the stockholder under monthly
operating leases. For the period ended December 10, 1997, rent expense totaled
approximately $56,500 and is included under selling, general and administrative
expenses in the accompanying statement of operations.
9. SUBSEQUENT EVENT
Effective December 11, 1997, substantially all of the Company's operating
assets and liabilities were purchased by NationsRent, Inc., an unrelated third
party, in exchange for cash and debt.
The demand promissory note of $1,523,139 at December 10, 1997 was paid off
by the stockholder of the Company with proceeds from the purchase of the
Company's assets and liabilities.
F-43
<PAGE> 158
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To C & E Rental and Service, Inc.:
We have audited the accompanying balance sheets of C & E Rental and Service,
Inc. (an Indiana S corporation) as of December 31, 1996 and December 22, 1997,
and the related statements of income, stockholder's equity and cash flows for
the year ended December 31, 1996 and the period from January 1, 1997 through
December 22, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of C & E Rental and Service, Inc.
as of December 31, 1996 and December 22, 1997, and the results of its operations
and its cash flows for the year ended December 31, 1996 and the period from
January 1, 1997 through December 22, 1997 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 8, 1998.
F-44
<PAGE> 159
C & E RENTAL AND SERVICE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 22,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 43,390 $ 184,318
Accounts receivable, net of allowances for doubtful accounts
of $81,011 and $109,973 as of December 31, 1996, and
December 22, 1997, respectively........................... 705,695 701,156
Inventories................................................. 134,491 213,934
Due from affiliate.......................................... 372,115 --
Rental equipment, net....................................... 2,202,833 3,022,154
Property and equipment, net................................. 394,665 621,734
Other assets................................................ 30,357 32,543
---------- ----------
Total assets...................................... $3,883,546 $4,775,839
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable.......................................... $ 194,278 $ 205,403
Accrued expenses and other liabilities.................... 198,443 185,087
Debt...................................................... 1,284,908 922,856
---------- ----------
Total liabilities................................. 1,677,629 1,313,346
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 10)
STOCKHOLDER'S EQUITY:
Common stock -- no par value, 1,000 shares authorized,
issued and outstanding................................. 200,000 200,000
Retained earnings......................................... 2,588,781 3,845,357
Less: Treasury stock -- 500 shares at cost................ (582,864) (582,864)
---------- ----------
Total stockholder's equity........................ 2,205,917 3,462,493
---------- ----------
Total liabilities and stockholder's equity........ $3,883,546 $4,775,839
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-45
<PAGE> 160
C & E RENTAL AND SERVICE, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FROM JANUARY 1,
ENDED 1997 TO
DECEMBER 31, DECEMBER 22,
1996 1997
------------ ---------------
<S> <C> <C>
REVENUE:
Equipment rentals......................................... $4,395,313 $4,506,274
Sales of equipment, parts and supplies.................... 1,961,510 2,638,935
Other..................................................... 115,115 128,586
---------- ----------
6,471,938 7,273,795
COST OF REVENUE:
Cost of equipment rentals, excluding depreciation......... 1,752,011 1,846,084
Rental equipment depreciation............................. 637,210 765,518
Cost of sales of equipment, parts and supplies............ 1,352,831 1,791,275
---------- ----------
3,742,052 4,402,877
---------- ----------
Gross profit...................................... 2,729,886 2,870,918
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 1,760,595 1,417,097
NONRENTAL DEPRECIATION AND AMORTIZATION..................... 136,897 157,252
---------- ----------
Operating income.................................. 832,394 1,296,569
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (115,243) (101,218)
Other, net................................................ 51,580 61,225
---------- ----------
Total other income (expense), net................. (63,663) (39,993)
---------- ----------
Net income........................................ 768,731 1,256,576
PRO FORMA PROVISION FOR INCOME TAX.......................... 307,492 502,630
---------- ----------
PRO FORMA NET INCOME........................................ $ 461,239 $ 753,946
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-46
<PAGE> 161
C & E RENTAL AND SERVICE, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE PERIOD FROM JANUARY 1, 1997 TO DECEMBER 22, 1997
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
NUMBER RETAINED TREASURY
OF SHARES AMOUNT EARNINGS STOCK TOTAL
--------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996................. 1,000 $200,000 $1,820,050 $(582,864) $1,437,186
Net income............................. -- -- 768,731 -- 768,731
----- -------- ---------- --------- ----------
BALANCE, December 31, 1996............... 1,000 200,000 2,588,781 (582,864) 2,205,917
Net income............................. -- -- 1,256,576 -- 1,256,576
----- -------- ---------- --------- ----------
BALANCE, December 22, 1997............... 1,000 $200,000 $3,845,357 $(582,864) $3,462,493
===== ======== ========== ========= ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-47
<PAGE> 162
C & E RENTAL AND SERVICE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE YEAR JANUARY 1, 1997
ENDED TO
DECEMBER 31, DECEMBER 22,
1996 1997
------------ ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 768,731 $ 1,256,576
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 774,107 922,770
Gain on sale of assets................................. (473,908) (705,063)
Changes in operating assets and liabilities:
Accounts receivable, net............................. (199,095) 4,539
Inventories.......................................... 15,644 (79,443)
Other assets......................................... 7,146 (2,186)
Accounts payable..................................... 65,384 11,125
Accrued expenses and other liabilities............... (21,052) (13,356)
----------- -----------
Net cash provided by operating activities......... 936,957 1,394,962
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental equipment............................. (1,609,651) (2,848,230)
Proceeds from sale of rental equipment.................... 1,271,362 1,968,454
Purchases of property and equipment....................... (102,209) (384,321)
----------- -----------
Net cash used in investing activities............. (440,498) (1,264,097)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt........................................ 612,000 1,488,000
Repayments of debt........................................ (734,711) (1,850,052)
Payments from (advances to) affiliate..................... (372,115) 372,115
----------- -----------
Net cash provided by (used in) financing
activities...................................... (494,826) 10,063
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 1,633 140,928
CASH AND CASH EQUIVALENTS, beginning of period.............. 41,757 43,390
----------- -----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 43,390 $ 184,318
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 115,243 $ 101,218
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-48
<PAGE> 163
C & E RENTAL AND SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND DECEMBER 22, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
C & E Rental and Service, Inc. ("C & E Rental" or the "Company", formerly
Bob's Rental & Supply, Inc.), was incorporated in the State of Indiana in August
1959 and is engaged in the rental of a broad array of equipment to a diverse
customer base that includes construction industry participants, industrial
companies, homeowners and others. The Company also engages in related activities
such as selling new and used equipment, related merchandise and parts. The
nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying balance sheets are presented
on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. At December 31, 1996
and December 22, 1997, the Company had no cash equivalents.
Inventories
Inventories consist of equipment, tools, parts, fuel and related supply
items. Inventories are stated at the lower of cost (first-in, first-out) or
market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using an accelerated method. The useful life
estimated by management for rental equipment is seven years. Ordinary
maintenance and repair costs are charged to operations as incurred.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using straight-line and accelerated methods. Ordinary
maintenance and repair costs are charged to operations as incurred. The range of
useful lives estimated by management for property and equipment is as follows:
<TABLE>
<CAPTION>
YEARS
-------------
<S> <C>
Machinery and equipment..................................... 5
Furniture and fixtures...................................... 5
Autos and trucks............................................ 5
Buildings................................................... 20 - 30
Leasehold improvements...................................... Life of lease
</TABLE>
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
F-49
<PAGE> 164
C & E RENTAL AND SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair value of financial instruments
The carrying amounts reported in the accompanying balance sheets for cash
and cash equivalents, accounts receivable, accounts payable and accrued expenses
and other liabilities approximate fair value as of December 31, 1996 and
December 22, 1997 and approximates the carrying value of such debt.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Income taxes
The Company is an S corporation for income tax purposes. Accordingly,
income, losses and related temporary differences which arise in the recording of
income and expense items for financial reporting and tax reporting purposes are
included in the individual tax return of the stockholder. Therefore, no
provision or liability for Federal and state income taxes has been included in
the accompanying financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
statements of income is for informational purposes only. The pro forma provision
for income tax has been provided at the estimated effective rate of 40%.
Use of 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 in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base. No single customer represents greater than 10%
of total accounts receivable. The Company controls credit risk through credit
approvals, credit limits and monitoring procedures.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 22,
1996 1997
------------ ------------
<S> <C> <C>
Rental equipment............................................ $ 4,245,254 $ 5,275,468
Less -- accumulated depreciation............................ (2,042,421) (2,253,314)
----------- -----------
Rental equipment, net............................. $ 2,202,833 $ 3,022,154
=========== ===========
</TABLE>
F-50
<PAGE> 165
C & E RENTAL AND SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
A summary of property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 22,
1996 1997
------------ ------------
<S> <C> <C>
Machinery and equipment..................................... $ 26,190 $ 47,614
Furniture and fixtures...................................... 153,241 245,779
Autos and trucks............................................ 406,528 479,348
Buildings................................................... 349,743 349,743
Leasehold improvements...................................... -- 195,351
Land........................................................ 88,566 89,430
---------- ----------
1,024,268 1,407,265
Less -- accumulated depreciation............................ (629,603) (785,531)
---------- ----------
Property and equipment, net....................... $ 394,665 $ 621,734
========== ==========
</TABLE>
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 22,
1996 1997
------------ ------------
<S> <C> <C>
Payroll-related............................................. $100,640 $ 70,069
Sales, property and other taxes............................. 97,803 115,018
-------- --------
Accrued expenses and other liabilities............ $198,443 $185,087
======== ========
</TABLE>
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 22,
1996 1997
------------ ------------
<S> <C> <C>
Line of credit, with borrowings up to $950,000, secured by
substantially all of the Company's business assets,
interest at 9.00% and 8.75%, as of 1996 and 1997,
respectively, payable in monthly installments through
November 1998............................................. $ 227,000 $150,000
Promissory note, secured by substantially all of the
Company's business assets, interest at 8.00%, payable in
monthly installments of $15,775 through July 2001......... 712,908 587,539
Note payable to officer, unsecured, interest at 9.50% and
9.00%, as of 1996 and 1997, respectively, payable in
December 1997............................................. 345,000 65,000
Note payable to bank, secured by certain real property,
interest at 8.75%, payable in monthly installments of
$1,583 through May 2000................................... -- 120,317
---------- --------
Total debt........................................ $1,284,908 $922,856
========== ========
</TABLE>
F-51
<PAGE> 166
C & E RENTAL AND SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of the Company's debt at December 22, 1997, for the years ended
December 22, are as follows:
<TABLE>
<S> <C>
1998........................................................ $371,459
1999........................................................ 169,516
2000........................................................ 275,014
2001........................................................ 106,867
--------
Total............................................. $922,856
========
</TABLE>
7. RELATED-PARTY TRANSACTIONS
In addition to the note payable to officer, described in Note 6, the
Company made a $372,115 advance to an affiliated company during 1996 which is
reflected as due from affiliate in the accompanying balance sheet as of December
31, 1996. The advance was repaid in 1997. During 1997, the Company entered into
a monthly operating lease with the same affiliated company for one of its
buildings. For the period ended December 22, 1997, such rental expense totaled
approximately $40,000.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases real estate under operating leases. Certain leases
require the Company to pay maintenance, insurance, taxes and certain other
expenses in addition to the stated rentals. Future minimum lease payments, by
year and in the aggregate, for noncancelable operating leases with initial or
remaining terms of one year or more are as follows at December 22, 1997:
<TABLE>
<S> <C>
1998........................................................ $54,600
1999........................................................ 28,935
-------
Total............................................. $83,535
=======
</TABLE>
Rent expense under operating leases for the year ended December 31, 1996
and the period ended December 22, 1997 were approximately $46,800 and $94,600,
respectively.
Litigation, Claims and Assessments
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
9. EMPLOYEE BENEFIT PLAN
The Company has a contributory 401(k) profit-sharing plan under which
substantially all full-time employees are eligible to participate. Employer
contributions were approximately $51,000 and $61,000 for 1996 and 1997,
respectively.
10. SUBSEQUENT EVENT
Effective December 23, 1997, substantially all of the Company's operating
assets and liabilities were purchased by NationsRent, Inc., an unaffiliated
third party, in exchange for cash and debt.
F-52
<PAGE> 167
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Titan Rentals, Inc.:
We have audited the accompanying balance sheet of Titan Rentals, Inc. (a West
Virginia corporation) as of December 30, 1997, and the related statements of
income, stockholders' equity and cash flows for the period from January 1, 1997
through December 30, 1997. 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 financial position of Titan Rentals, Inc. as of
December 30, 1997, and the results of its operations and its cash flows for the
period from January 1, 1997 through December 30, 1997 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 6, 1998.
F-53
<PAGE> 168
TITAN RENTALS, INC.
BALANCE SHEET
AS OF DECEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 249,470
Accounts receivable, net of allowance for doubtful accounts
of $37,360................................................ 637,253
Inventories................................................. 93,120
Prepaid expenses and other assets........................... 117,205
Rental equipment, net....................................... 1,132,746
Property and equipment, net................................. 73,305
Income taxes receivable..................................... 70,352
----------
Total assets...................................... $2,373,451
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable.......................................... $ 105,384
Accrued expenses and other liabilities.................... 97,354
Debt...................................................... 501,612
Deferred income taxes..................................... 194,307
----------
Total liabilities................................. 898,657
----------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 11)
STOCKHOLDERS' EQUITY:
Common stock -- $1,000 par value, 1,000 shares authorized,
155 shares issued and outstanding...................... 155,000
Retained earnings......................................... 1,319,794
----------
Total stockholders' equity........................ 1,474,794
----------
Total liabilities and stockholders' equity........ $2,373,451
==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
balance sheet.
F-54
<PAGE> 169
TITAN RENTALS, INC.
STATEMENT OF INCOME
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 30, 1997
<TABLE>
<S> <C>
REVENUE:
Equipment rentals......................................... $1,926,760
Sales of equipment, parts and supplies.................... 2,991,843
Other..................................................... 50,611
----------
4,969,214
COST OF REVENUE:
Cost of equipment rentals, excluding depreciation......... 1,302,454
Rental equipment depreciation............................. 302,271
Cost of sales of equipment, parts and supplies............ 2,043,201
----------
3,647,926
----------
Gross profit...................................... 1,321,288
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 823,906
NONRENTAL DEPRECIATION AND AMORTIZATION..................... 16,048
----------
Operating income.................................. 481,334
----------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (33,579)
Other expense............................................. (7,438)
----------
Total other income (expense), net................. (41,017)
----------
Income before provision for income tax............ 440,317
PROVISION FOR INCOME TAX.................................... 168,085
----------
NET INCOME.................................................. $ 272,232
==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-55
<PAGE> 170
TITAN RENTALS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
NUMBER RETAINED
OF SHARES AMOUNT EARNINGS TOTAL
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1997........................... 155 $155,000 $1,047,562 $1,202,562
Net income....................................... -- -- 272,232 272,232
--- -------- ---------- ----------
BALANCE, December 30, 1997......................... 155 $155,000 $1,319,794 $1,474,794
=== ======== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-56
<PAGE> 171
TITAN RENTALS, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 30, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 272,232
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 318,319
Gain on sale of rental equipment....................... (666,617)
Deferred income taxes.................................. 56,199
Changes in operating assets and liabilities:
Accounts receivable.................................. (72,740)
Inventories.......................................... (5,430)
Prepaid expenses and other assets.................... 49,703
Income taxes receivable.............................. (41,127)
Accounts payable..................................... (184,448)
Accrued expenses and other liabilities............... 49,522
-----------
Net cash used in operating activities............. (224,387)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental equipment............................. (1,063,670)
Purchases of property and equipment....................... (61,822)
Proceeds from sale of rental equipment.................... 1,510,660
-----------
Net cash provided by investing activities......... 385,168
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt........................................ 417,271
Repayments of debt........................................ (578,759)
-----------
Net cash used in financing activities............. (161,488)
-----------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (707)
CASH AND CASH EQUIVALENTS, beginning of period.............. 250,177
-----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 249,470
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 33,579
===========
Cash paid for income taxes................................ $ 154,467
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-57
<PAGE> 172
TITAN RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Titan Rentals, Inc. (the "Company") was incorporated in the state of West
Virginia in January 1990 for the purpose of creating an equipment rental
company. The Company rents a broad array of equipment to a diverse customer base
that includes construction industry participants, industrial companies,
homeowners and others. The Company also engages in related activities such as
selling used equipment, acting as a distributor for certain new equipment and
selling related merchandise and parts. The nature of the Company's business is
such that short-term obligations are typically met by cash flow generated from
long-term assets. Consequently, consistent with industry practice, the
accompanying balance sheet is presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. At December 30,
1997, the Company had no cash equivalents.
Inventories
Inventories consist of equipment, tools, parts, fuel and related supply
items. Inventories are stated at the lower of average cost or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using accelerated and straight-line methods. The
range of useful lives estimated by management for rental equipment is three to
seven years. Rental equipment having a cost of $500 or less is expensed at the
time of purchase. Ordinary maintenance and repair costs are charged to
operations as incurred.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using accelerated and straight-line methods. The range of
useful lives estimated by management for property and equipment is five to seven
years. Ordinary maintenance and repair costs are charged to operations as
incurred.
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
F-58
<PAGE> 173
TITAN RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair value of financial instruments
The carrying amounts reported in the accompanying balance sheet for cash
and cash equivalents, accounts receivable, income taxes receivable, accounts
payable, accrued expenses and other liabilities and debt approximate fair value
as of December 30, 1997 and approximates the carrying value of such debt.
Income taxes
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," which requires, among other things,
recognition of future tax effects measured at enacted rates attributable to
deductible temporary differences between financial statement and income tax
bases of assets and liabilities to the extent that realization of said effects
is more likely than not.
Use of 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 in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base. No single customer represents greater than 10%
of total accounts receivable. The Company controls credit risk through credit
approvals, credit limits and monitoring procedures.
3. RENTAL EQUIPMENT
As of December 30, 1997, rental equipment and related accumulated
depreciation consist of the following:
<TABLE>
<S> <C>
Rental equipment............................................ $1,491,084
Less -- accumulated depreciation............................ (358,338)
----------
Rental equipment, net............................. $1,132,746
==========
</TABLE>
4. PROPERTY AND EQUIPMENT
A summary of property and equipment as of December 30, 1997, is as follows:
<TABLE>
<S> <C>
Furniture, fixtures and office equipment.................... $121,175
Less -- accumulated depreciation............................ (47,870)
--------
Property and equipment, net....................... $ 73,305
========
</TABLE>
F-59
<PAGE> 174
TITAN RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities as of December 30, 1997, consists of
the following:
<TABLE>
<S> <C>
Payroll-related............................................. $12,746
Property and sales tax...................................... 30,469
Other....................................................... 54,139
-------
Accrued expenses and other liabilities............ $97,354
=======
</TABLE>
6. DEBT
As of December 30, 1997, debt consists of the following:
<TABLE>
<S> <C>
Line of credit, secured by accounts receivable and
inventory, interest at prime plus .50% (9.5% at December
30, 1997), payable in monthly installments through
December 2002............................................. $ 33,303
Equipment notes, secured by equipment, interest from 7.90%
to 9.25%, payable in various monthly installments through
January 2000.............................................. 468,309
--------
Total debt........................................ $501,612
========
</TABLE>
Maturities of the Company's debt at December 30, 1997, for the years ended
December 30, are as follows:
<TABLE>
<S> <C>
1998........................................................ $247,731
1999........................................................ 158,804
2000........................................................ 95,077
--------
Total............................................. $501,612
========
</TABLE>
7. INCOME TAXES
The provision for Federal and state income taxes for the period from
January 1, 1997 through December 30, 1997, is as follows:
<TABLE>
<S> <C>
Current..................................................... $111,886
Deferred.................................................... 56,199
--------
$168,085
========
Federal..................................................... $112,552
State....................................................... 55,533
--------
$168,085
========
</TABLE>
A reconciliation of the difference between the expected provision for
income taxes for the period from January 1, 1997 through December 30, 1997,
using the statutory federal income tax rate of 34% and the Company's effective
tax rate is as follows:
<TABLE>
<S> <C>
Provision at statutory tax rate............................. $149,700
State income taxes, net of federal benefit.................. 36,652
Other....................................................... (18,267)
--------
$168,085
========
</TABLE>
F-60
<PAGE> 175
TITAN RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income tax assets and (liabilities) as of
December 30, 1997, are as follows:
<TABLE>
<S> <C>
Accrued liabilities......................................... $ 22,000
Accounts receivable......................................... (36,504)
Prepaid expenses............................................ (13,429)
Property and equipment...................................... (166,374)
---------
Deferred tax liability............................ $(194,307)
=========
</TABLE>
8. RELATED-PARTY TRANSACTIONS
Effective January 1, 1994, the Company entered into a lease with a related
party to lease its office and operating facilities. The minimum annual rental
payments amount to $84,000 per year and are paid on a month-to-month basis.
The accompanying financial statements include revenue of $173,499 for the
period from January 1, 1997 through December 30, 1997 and outstanding accounts
receivable as of December 30, 1997 of $24,117 related to sales to a related
party.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases rental equipment under operating leases. Future minimum
lease payments, by year and in the aggregate, for noncancelable operating leases
with initial or remaining terms of one year or more are as follows at December
30, 1997:
<TABLE>
<S> <C>
1998........................................................ $74,292
1999........................................................ 39,893
</TABLE>
Rental equipment expense under noncancelable operating leases was $74,292
for the period from January 1, 1997 through December 30, 1997.
Litigation, Claims and Assessments
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
10. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution profit-sharing plan under which
employees having worked a minimum of twelve months are eligible to participate.
Employer contributions, which are discretionary and depend on the Company's
profitability, were approximately $49,000 for 1997.
11. SUBSEQUENT EVENT
Effective December 31, 1997, all of the outstanding stock of the Company
was purchased by NationsRent, Inc., an unrelated third party, in exchange for
cash and debt.
F-61
<PAGE> 176
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Bode-Finn Company:
We have audited the accompanying balance sheets of The Bode-Finn Company (an
Ohio corporation) as of December 31, 1996 and 1997, and the related statements
of income, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Bode-Finn Company as of
December 31, 1996 and 1997, and the results of its operations and cash flows for
each of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 12, 1998.
F-62
<PAGE> 177
THE BODE-FINN COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................... $ 244,625 $ 398,042 $ 887,170
Accounts receivable, net of allowance for doubtful
accounts of $770,000, $760,000 and $798,180
(unaudited) for 1996, 1997 and 1998,
respectively...................................... 8,013,745 7,840,930 7,250,208
Inventories, net.................................... 4,635,371 3,823,388 4,855,835
Rental equipment, net............................... 20,438,368 21,560,523 21,920,589
Property and equipment, net......................... 1,041,681 956,768 989,588
Other assets........................................ 879,378 886,487 849,219
----------- ----------- -----------
Total assets.............................. $35,253,168 $35,466,138 $36,752,609
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable.................................. $ 3,951,392 $ 2,350,332 $ 3,921,807
Accrued expenses and other liabilities............ 4,623,823 5,374,820 5,094,374
Debt.............................................. 16,407,989 16,086,500 15,839,363
----------- ----------- -----------
Total liabilities......................... 24,983,204 23,811,652 24,855,544
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 2,500 shares
authorized, 1,250 shares issued and
outstanding.................................... 125,000 125,000 125,000
Retained earnings................................. 10,144,964 11,529,486 11,772,065
----------- ----------- -----------
Total stockholders' equity................ 10,269,964 11,654,486 11,897,065
----------- ----------- -----------
Total liabilities and stockholders'
equity.................................. $35,253,168 $35,466,138 $36,752,609
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-63
<PAGE> 178
THE BODE-FINN COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTH
PERIOD ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Equipment rentals.............. $18,231,447 $19,772,670 $20,211,679 $ 4,742,679 $ 4,687,176
Sales of equipment, parts and
supplies.................... 26,599,122 32,722,336 33,821,681 7,324,630 8,254,837
Service and other.............. 5,468,525 6,251,936 7,216,815 1,753,068 1,768,973
----------- ----------- ----------- ----------- -----------
50,299,094 58,746,942 61,250,175 13,820,377 14,710,986
COST OF REVENUE:
Cost of equipment rentals,
excluding depreciation...... 4,771,698 5,229,390 4,978,411 1,323,300 1,399,440
Rental equipment
depreciation................ 5,436,903 6,515,970 7,265,763 1,745,328 1,832,972
Cost of sales of equipment,
parts and supplies.......... 20,161,831 25,937,735 26,425,012 5,752,417 6,177,680
Other.......................... 2,052,764 1,895,993 2,159,402 589,033 576,602
----------- ----------- ----------- ----------- -----------
32,423,196 39,579,088 40,828,588 9,410,078 9,986,694
----------- ----------- ----------- ----------- -----------
Gross profit........... 17,875,898 19,167,854 20,421,587 4,410,299 4,724,292
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES........ 14,093,787 15,443,249 16,596,595 3,755,319 3,964,404
NONRENTAL DEPRECIATION AND
AMORTIZATION................... 205,564 260,652 256,808 72,853 61,814
----------- ----------- ----------- ----------- -----------
Operating income....... 3,576,547 3,463,953 3,568,184 582,127 698,074
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense............... (1,329,494) (1,494,310) (1,601,831) (349,526) (379,571)
Other income................... 227,106 212,218 347,947 39,326 85,795
----------- ----------- ----------- ----------- -----------
Other income (expense),
net.................. (1,102,388) (1,282,092) (1,253,884) (310,200) (293,776)
----------- ----------- ----------- ----------- -----------
Income before provision
for income taxes..... 2,474,159 2,181,861 2,314,300 271,927 404,298
PROVISION FOR INCOME TAXES....... 1,036,771 936,241 929,778 137,461 161,719
----------- ----------- ----------- ----------- -----------
NET INCOME....................... $ 1,437,388 $ 1,245,620 $ 1,384,522 $ 134,466 $ 242,579
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-64
<PAGE> 179
THE BODE-FINN COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 1997
AND THE THREE MONTH PERIOD ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
NUMBER TOTAL
OF RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
--------- -------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1995.................... 1,250 $125,000 $ 7,461,956 $ 7,586,956
Net income................................ -- -- 1,437,388 1,437,388
----- -------- ----------- -----------
BALANCE, December 31, 1995.................. 1,250 125,000 8,899,344 9,024,344
Net income................................ -- -- 1,245,620 1,245,620
----- -------- ----------- -----------
BALANCE, December 31, 1996.................. 1,250 125,000 10,144,964 10,269,964
Net income................................ -- -- 1,384,522 1,384,522
----- -------- ----------- -----------
BALANCE, December 31, 1997.................. 1,250 125,000 11,529,486 11,654,486
Net income (unaudited).................... -- -- 242,579 242,579
----- -------- ----------- -----------
BALANCE, March 31, 1998 (unaudited)......... 1,250 $125,000 $11,772,065 $11,897,065
===== ======== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-65
<PAGE> 180
THE BODE-FINN COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTH
FOR THE YEAR ENDED DECEMBER 31, PERIOD ENDED MARCH 31,
------------------------------------------ --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................... $ 1,437,388 $ 1,245,620 $ 1,384,522 $ 134,466 $ 242,579
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization..... 5,642,467 6,776,622 7,522,571 1,818,181 1,899,786
Provision for bad debts........... 291,256 413,151 244,184 54,550 57,169
Provision for inventory
obsolescence.................... -- -- 50,000 -- --
Gain on sale of rental
equipment....................... (618,322) (712,961) (800,940) (121,132) (131,185)
(Gain) loss on sale of property
and equipment................... 740 (22,522) (230,537) 1,231 (29,649)
Changes in operating assets and
liabilities:
Accounts receivable............. (220,880) (810,847) (71,369) 390,384 533,553
Inventories..................... (1,359,110) 1,198,655 1,614,587 553,534 (795,309)
Other assets.................... 275,012 140,938 (7,109) (16,922) 37,268
Accounts payable................ 604,748 1,179,194 (1,601,060) (1,008,860) 1,571,475
Accrued expenses and other
liabilities.................. 383,309 (274,895) 750,997 141,046 (280,446)
------------ ------------ ------------ ------------ -----------
Total adjustments............ 4,999,220 7,887,335 7,471,324 1,812,012 2,862,662
------------ ------------ ------------ ------------ -----------
Net cash provided by
operating activities....... 6,436,608 9,132,955 8,855,846 1,946,478 3,105,241
------------ ------------ ------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental equipment... (10,733,785) (10,254,290) (10,364,431) (2,720,488) (2,588,134)
Purchases of property and
equipment.................... (419,435) (702,564) (211,398) (43,803) (101,984)
Proceeds from sale of rental
equipment.................... 1,690,437 1,850,831 1,736,844 283,554 289,142
Proceeds from sale of property
and equipment................ 16,422 42,378 458,045 1,200 32,000
------------ ------------ ------------ ------------ -----------
Net cash used in investing
activities................. (9,446,361) (9,063,645) (8,380,940) (2,479,537) (2,368,976)
------------ ------------ ------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt................ 8,236,990 10,797,136 17,437,380 18,054,160 758,150
Repayments of debt................ (5,331,819) (10,831,673) (17,758,869) (17,066,355) (1,005,287)
------------ ------------ ------------ ------------ -----------
Net cash provided by (used in)
financing activities............ 2,905,171 (34,537) (321,489) 987,805 (247,137)
------------ ------------ ------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... (104,582) 34,773 153,417 454,746 489,128
CASH AND CASH EQUIVALENTS, beginning
of period........................... 314,434 209,852 244,625 244,625 398,042
------------ ------------ ------------ ------------ -----------
CASH AND CASH EQUIVALENTS, end of
period.............................. $ 209,852 $ 244,625 $ 398,042 $ 699,371 $ 887,170
============ ============ ============ ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.............. $ 1,441,462 $ $1,476,730 $ 1,582,877 $ 349,380 $ 373,420
============ ============ ============ ============ ===========
Cash paid for income taxes.......... $ 832,954 $ 915,026 $ 812,481 $ 98,200 $ 88,000
============ ============ ============ ============ ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-66
<PAGE> 181
THE BODE-FINN COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. ORGANIZATION AND BASIS OF PRESENTATION:
The Bode-Finn Company (the "Company") was incorporated in Ohio in January
1938. The Company rents a broad array of equipment to a diverse customer base
that includes construction industry participants, industrial companies and
others in the states of Ohio, Kentucky, West Virginia and Indiana. The Company
also engages in related activities such as selling used equipment, acting as a
distributor for certain new equipment and selling related merchandise and parts.
The nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying audited and unaudited
balance sheets are presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents.
Inventories
Inventories consist of equipment, parts and related supply items. New and
used equipment inventories are stated at the lower of cost (determined using a
first-in, first-out "FIFO" basis) or market. Parts inventories are determined
using a combination of the last-in, first-out "LIFO" and FIFO methods and are
stated at replacement cost which approximates market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using an accelerated method. The range of useful
lives estimated by management for rental equipment is five to seven years.
Rental equipment is depreciated to a salvage value of ten to twenty percent of
cost. Rental equipment having a cost of $2,000 or less is expensed at the time
of purchase. Ordinary maintenance and repair costs are charged to operations as
incurred.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using an accelerated method. The range of useful lives
estimated by management for property and equipment is two to thirty-nine years.
Property and equipment is depreciated to a salvage value of zero to twenty
percent of cost. Ordinary maintenance and repair costs are charged to operations
as incurred.
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
F-67
<PAGE> 182
THE BODE-FINN COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair value of financial instruments
The carrying amounts for accounts receivable, accounts payable and accrued
expenses and other liabilities approximate fair value due to the short-term
nature of these accounts. The fair value of debt is determined using current
interest rates for similar instruments as of December 31, 1996 and 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.
Income taxes
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," which requires, among other things,
recognition of future tax benefits measured at enacted rates attributable to
deductible temporary differences between financial statement and income tax
bases of assets and liabilities and to tax net operating loss carryforwards to
the extent that realization of said benefits is more likely than not.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of geographically diverse
customers make up the Company's customer base. No single customer represents
greater than 10% of total accounts receivable. The Company controls credit risk
through credit approvals, credit limits, and monitoring procedures.
Use of 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 in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Interim financial information
In the opinion of management, the unaudited interim financial information
as of March 31, 1998 and for the three month periods ended March 31, 1997 and
1998 furnished herein reflects all adjustments consisting of normal recurring
accruals that, in the opinion of management, are necessary for a fair
presentation of the results for the interim period. The results of operations
for the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the entire year.
3. INVENTORIES:
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
New and used equipment, FIFO............. $ 2,581,561 $ 1,590,860 $ 2,319,053
Parts, LIFO.............................. 645,076 801,055 747,327
Parts, FIFO.............................. 900,780 901,854 921,799
Work in progress, at cost................ 682,954 754,619 1,092,656
Allowance for obsolete inventory......... (175,000) (225,000) (225,000)
------------ ------------ ------------
Total inventories, net......... $ 4,635,371 $ 3,823,388 $ 4,855,835
============ ============ ============
</TABLE>
F-68
<PAGE> 183
THE BODE-FINN COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The current costs, determined by using the FIFO basis, of LIFO inventories
was $1,122,383, $1,301,380 and $1,247,652 (unaudited) at December 31, 1996 and
1997 and March 31, 1998.
4. RENTAL EQUIPMENT:
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment......................... $ 46,719,676 $ 50,299,100 $ 51,198,041
Less -- accumulated depreciation......... (26,281,308) (28,738,577) (29,277,452)
------------ ------------ ------------
Rental equipment, net.......... $ 20,438,368 $ 21,560,523 $ 21,920,589
============ ============ ============
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture, fixtures and office
equipment.............................. $ 3,728,682 $ 3,588,314 $ 3,621,218
Less -- accumulated depreciation......... (2,687,001) (2,631,546) (2,631,630)
------------ ------------ ------------
Property and equipment, net.... $ 1,041,681 $ 956,768 $ 989,588
============ ============ ============
</TABLE>
6. ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Compensation and payroll-related............... $2,083,332 $2,422,240 $1,723,623
Deferred income-rental and maintenance......... 777,237 955,808 999,391
Taxes.......................................... 532,373 698,314 737,698
Medical insurance reserve...................... 232,256 302,381 302,381
Other.......................................... 998,625 996,077 1,331,281
---------- ---------- ----------
Accrued expenses and other liabilities......... $4,623,823 $5,374,820 $5,094,374
========== ========== ==========
</TABLE>
F-69
<PAGE> 184
THE BODE-FINN COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. DEBT:
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable, unsecured, interest at 6%,
payable on demand......................... $ 28,095 $ 35,525 $ 43,675
Revolving $7,000,000 credit agreement,
secured by rental equipment and inventory,
interest at prime, 8.5% at December 31,
1997 and March 31, 1998 (unaudited), due
1999...................................... -- 2,950,000 3,350,000
Revolving $15,000,000 credit agreement,
secured by rental equipment and inventory,
interest at 9.25%, payable in monthly
installments through February 2003........ -- 12,916,670 12,291,674
Revolving $8,000,000 credit agreement,
secured by rental equipment and inventory,
interest at prime 8.5% at December 31,
1997 and March 31, 1998 (unaudited),
repaid during 1997........................ 6,650,000 -- --
Notes payable, secured by rental equipment
and inventory, interest at prime plus
1/2% (9.0% at December 31, 1997 and March
31, 1998 (unaudited)), payable in monthly
installments, repaid during 1997.......... 9,123,939 -- --
Note payable, secured by property and
equipment, interest at 9.1%, payable in
monthly installments, repaid during
1997...................................... 317,337 -- --
Rental equipment notes, secured by rental
equipment and inventory, interest from
8.5% to 10.5%, payable in various monthly
installments through 2001................. 288,618 184,305 154,014
----------- ----------- -----------
Total debt........................ $16,407,989 $16,086,500 $15,839,363
=========== =========== ===========
</TABLE>
Maturities of the Company's debt at December 31, 1997 for the years ended
December 31, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 2,610,563
1999........................................................ 5,497,943
2000........................................................ 2,536,997
2001........................................................ 2,524,034
2002........................................................ 2,500,297
2003 and thereafter......................................... 416,666
-----------
$16,086,500
===========
</TABLE>
F-70
<PAGE> 185
THE BODE-FINN COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES:
The provision (benefit) for Federal and state income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTH
PERIOD ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -------------------
1995 1996 1997 1997 1998
---------- ---------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current................................... $ 800,518 $1,157,016 $828,793 $128,263 $150,404
Deferred.................................. 236,253 (220,775) 100,985 9,198 11,315
---------- ---------- -------- -------- --------
$1,036,771 $ 936,241 $929,778 $137,461 $161,719
========== ========== ======== ======== ========
Federal................................... $ 888,321 $ 805,329 $789,496 $116,774 $137,462
State and local........................... 148,450 130,912 140,282 20,687 24,257
---------- ---------- -------- -------- --------
$1,036,771 $ 936,241 $929,778 $137,461 $161,719
========== ========== ======== ======== ========
</TABLE>
The deferred income tax results from temporary differences in the
recognition of certain items for tax and financial statement purposes,
principally from differences in depreciation methods, allowance for doubtful
accounts and other expenses not currently deductible for tax purposes. For
financial statement purposes, the credit has been recognized in 1997 as a
deferred tax asset.
A reconciliation of the difference between the expected provision for
income taxes using the statutory federal income tax rate of 34% and the
Company's actual provision is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTH
PERIOD ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1995 1996 1997 1997 1998
---------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Provision at statutory tax rate............. $ 841,214 $741,832 $786,862 $117,225 $137,462
State and local income taxes, net of federal
benefit................................... 97,977 86,402 92,586 13,653 16,010
Other....................................... 97,580 108,007 50,330 6,583 8,247
---------- -------- -------- -------- --------
$1,036,771 $936,241 $929,778 $137,461 $161,719
========== ======== ======== ======== ========
</TABLE>
The components of deferred income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Reserves and accruals not deductible until paid..... $ 945,915 $ 1,103,736 $ 1,116,255
Depreciation........................................ (1,274,973) (1,394,170) (1,320,000)
Alternative minimum tax credit carryforward......... 392,356 252,747 252,747
----------- ----------- -----------
Net deferred tax asset (liability)........ $ 63,298 $ (37,687) $ 49,002
=========== =========== ===========
</TABLE>
Net deferred tax assets and net deferred tax liability are reported in the
accompanying balance sheets as components of other assets and accrued expenses
and other liabilities, respectively.
F-71
<PAGE> 186
THE BODE-FINN COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases rental equipment, real estate and certain office
equipment under noncancelable operating leases. These leases expire at various
dates through September 30, 2010. Certain real estate leases require the Company
to pay maintenance, insurance, taxes and certain other expenses in addition to
the stated rentals. Future minimum lease payments for noncancelable operating
leases with initial or remaining terms of one year or more are as follows at
December 31, 1997:
<TABLE>
<S> <C>
1998..................................................... $1,644,419
1999..................................................... 1,055,192
2000..................................................... 568,309
2001..................................................... 356,649
2002..................................................... 166,289
Thereafter............................................... 1,196,538
----------
$4,987,396
==========
</TABLE>
Rent expense under noncancelable operating leases for the years ended
December 31, 1995, 1996 and 1997 were $1,537,082, $1,598,979 and $1,824,938,
respectively.
Litigation
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying consolidated financial statements.
10. RELATED PARTY TRANSACTIONS:
The Company leases land and buildings used in its operations from its
stockholders and officers. The leases cover several operating locations and
expire at various dates through September 30, 2010. The leases require minimum
monthly payments plus override amounts when certain conditions are met or
exceeded. The total rent expense related to these leases for the years ended
December 31, 1995, 1996 and 1997 was $661,481, $739,781 and $768,716,
respectively.
11. EMPLOYEE BENEFIT PLANS:
401(k) Plan
The Company participates in a 401(k) plan (the "Plan") which covers certain
full-time employees over 21 years old who have worked a minimum of one year for
the Company. The Plan is funded by employee deferrals of income and
discretionary contributions by the Company. The Company's matching contributions
totaled $207,982, $262,267 and $302,769 for the years ended December 31, 1995,
1996 and 1997. No amount was due to the Plan as of December 31, 1997.
Profit Sharing Plan
All full-time employees over 21 years old who have worked a minimum of one
year for the Company may participate in the Company's Profit Sharing Retirement
Plan (the "Profit Sharing Plan"). The Profit Sharing Plan is funded by
contributions made by the Company. The Company's Board of Directors determines
the annual amount of contributions. The Company's Profit Sharing retirement
contributions totaled $550,000, $400,000 and $508,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
F-72
<PAGE> 187
THE BODE-FINN COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Compensation Plan
The Company has deferred compensation agreements with various employees.
Under the terms of the agreements, the Company will pay these employees a
defined amount for ten years subsequent to their retirement from the Company, if
retirement from the Company is after the agreed retirement date. A deferred
compensation accrual of approximately $534,226, $539,585 and $539,585
(unaudited) is included in the accompanying balance sheets in accrued expenses
and other liabilities at December 31, 1996 and 1997 and March 31, 1998.
12. SUBSEQUENT EVENT:
Effective May 5, 1998, substantially all of the outstanding stock of the
Company was purchased by NationsRent, Inc., an unrelated third party, in
exchange for cash and stock.
F-73
<PAGE> 188
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To RFL Enterprises, Inc.:
We have audited the accompanying balance sheet of RFL Enterprises, Inc. (an
Indiana S corporation) as of December 31, 1997, and the related statements of
income, stockholder's 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 financial position of RFL Enterprises, Inc. as of
December 31, 1997, and the results of its operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 8, 1998.
F-74
<PAGE> 189
RFL ENTERPRISES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 50,158 $ 390,055
Accounts receivable, net of allowances for doubtful accounts
of $10,000 and $10,000 (unaudited) as of December 31, 1997
and March 31, 1998, respectively.......................... 215,240 170,300
Inventories................................................. 185,366 180,962
Rental equipment, net....................................... 1,622,404 1,333,136
Property, plant and equipment, net.......................... 199,192 197,592
---------- ----------
Total assets...................................... $2,272,360 $2,272,045
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable.......................................... $ 1,791 $ 1,362
Accrued expenses and other liabilities.................... 58,041 54,940
Debt...................................................... 844,871 742,877
---------- ----------
Total liabilities................................. 904,703 799,179
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
STOCKHOLDER'S EQUITY:
Common stock -- no par value, 1,000 shares authorized, 100
issued and outstanding................................. 10,000 10,000
Retained earnings......................................... 1,357,657 1,462,866
---------- ----------
Total stockholder's equity........................ 1,367,657 1,472,866
---------- ----------
Total liabilities and stockholder's equity........ $2,272,360 $2,272,045
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-75
<PAGE> 190
RFL ENTERPRISES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE FOR THE THREE MONTH
YEAR ENDED PERIOD ENDED MARCH 31,
DECEMBER 31, -------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE:
Equipment rentals........................................ $ 966,277 $241,591 $201,806
Sales of equipment, parts and supplies................... 1,950,382 522,518 473,635
Other.................................................... 126,511 27,454 33,913
---------- -------- --------
3,043,170 791,563 709,354
COST OF REVENUE:
Cost of equipment rentals................................ 463,165 105,353 102,899
Rental equipment depreciation............................ 261,405 58,259 77,144
Cost of sales of equipment, parts and supplies........... 1,471,807 334,783 326,984
---------- -------- --------
2,196,377 498,395 507,027
---------- -------- --------
Gross profit..................................... 846,793 293,168 202,327
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............... 208,694 47,470 46,365
NONRENTAL DEPRECIATION..................................... 23,307 1,600 1,600
---------- -------- --------
Operating income................................. 614,792 244,098 154,362
---------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense......................................... (92,293) (20,654) (16,891)
Interest income.......................................... 14,925 2,356 348
---------- -------- --------
Total other income (expense), net................ (77,368) (18,298) (16,543)
---------- -------- --------
Net income....................................... 537,424 225,800 137,819
PRO FORMA PROVISION FOR INCOME TAXES....................... 214,970 90,320 55,128
---------- -------- --------
PRO FORMA NET INCOME....................................... $ 322,454 $135,480 $ 82,691
========== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-76
<PAGE> 191
RFL ENTERPRISES, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE
THREE MONTH PERIOD ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK
NO PAR VALUE
-------------------
NUMBER RETAINED
OF SHARES AMOUNT EARNINGS TOTAL
--------- ------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1997............................ 100 $10,000 $ 940,484 $ 950,484
Distribution...................................... -- -- (120,251) (120,251)
Net income........................................ -- -- 537,424 537,424
--- ------- ---------- ----------
BALANCE, December 31, 1997.......................... 100 10,000 1,357,657 1,367,657
Distribution (unaudited).......................... -- -- (32,610) (32,610)
Net income (unaudited)............................ -- -- 137,819 137,819
--- ------- ---------- ----------
BALANCE, March 31, 1998 (unaudited)................. 100 $10,000 $1,462,866 $1,472,866
=== ======= ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-77
<PAGE> 192
RFL ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE THREE MONTH
YEAR ENDED PERIOD ENDED MARCH 31,
DECEMBER 31, -------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 537,424 $ 225,800 $ 137,819
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation......................................... 284,712 59,859 78,744
Gain on sale of rental equipment..................... (471,986) (177,803) (150,519)
Changes in operating assets and liabilities:
Accounts receivable, net........................... 56,067 97,997 44,940
Inventories........................................ (29,941) (3,529) 4,404
Accounts payable................................... 968 174,349 (429)
Accrued expenses and other liabilities............. 31,674 (11,446) (3,101)
----------- --------- ---------
Net cash provided by operating activities....... 408,918 365,227 111,858
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental equipment........................... (2,077,859) (616,880) (110,992)
Proceeds from sale of rental equipment.................. 1,914,038 522,518 473,635
----------- --------- ---------
Net cash provided by (used in) investing
activities.................................... (163,821) (94,362) 362,643
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of distributions................................ (120,251) (120,000) (32,610)
Repayments of debt...................................... (133,202) (101,752) (101,994)
----------- --------- ---------
Net cash used in financing activities........... (253,453) (221,752) (134,604)
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (8,356) 49,113 339,897
CASH AND CASH EQUIVALENTS, beginning of period............ 58,514 58,514 50,158
----------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.................. $ 50,158 $ 107,627 $ 390,055
=========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................. $ 87,293 $ 20,654 $ 16,891
=========== ========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-78
<PAGE> 193
RFL ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
RFL Enterprises, Inc. (the "Company") was incorporated in 1983 as an
Indiana S corporation. The Company rents a broad array of equipment to a
customer base that includes principally construction industry participants and
industrial companies. The Company also engages in related activities such as
selling used equipment, acting as a distributor for certain new equipment and
selling related merchandise and parts. The nature of the Company's business is
such that short-term obligations are typically met by cash flow generated from
long-term assets. Consequently, consistent with industry practice, the
accompanying audited and unaudited balance sheets are presented on an
unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. The Company had no
cash equivalents at December 31, 1997 and March 31, 1998 (unaudited).
Inventories
Inventories consist of equipment, tools, parts, fuel and related supply
items and are stated at the lower of average weighted cost or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The range of
useful lives estimated by management for rental equipment is five to ten years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Property, plant and equipment
Property, plant and equipment are recorded at cost and depreciated over
their estimated useful lives using the straight-line method. The range of useful
lives estimated by management for property and equipment is five to thirty-nine
years. Ordinary maintenance and repair costs are charged to operations as
incurred.
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
Fair value of financial instruments
The carrying amounts reported in the accompanying balance sheets for cash
and cash equivalents, accounts receivable, accounts payable and accrued expenses
and other liabilities approximate fair value as of December 31, 1997 and March
31, 1998 (unaudited).
F-79
<PAGE> 194
RFL ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes
The Company is an S corporation for income tax purposes. Accordingly,
income, losses and related temporary differences which arise in the recording of
income and expense items for financial reporting and tax reporting purposes are
included in the individual tax return of the shareholder. Therefore, no
provision or liability for Federal and state income taxes has been included in
the accompanying financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
statements of income is for information purposes only. The pro forma provision
for income tax has been provided at the estimated rate of 40%.
Use of 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 in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Three customers each represent greater than 10%
of total accounts receivable. As of December 31, 1997, these accounts
represented 40% of total accounts receivable. The Company controls credit risk
through credit approvals, credit limits, and monitoring procedures.
Interim financial information
In the opinion of management, the unaudited interim financial information
as of March 31, 1998 and for the three month periods ended March 31, 1997 and
1998 furnished herein reflects all adjustments consisting of normal recurring
accruals that, in the opinion of management, are necessary for a fair
presentation of the results for the interim period. The results of operations
for the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the entire year primarily due to seasonal variations.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment............................................ $2,161,788 $1,880,998
Less -- accumulated depreciation............................ (539,384) (547,862)
---------- ----------
Rental equipment, net............................. $1,622,404 $1,333,136
========== ==========
</TABLE>
F-80
<PAGE> 195
RFL ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Furniture, fixtures and office equipment.................... $ 20,603 $ 20,603
Building.................................................... 140,820 140,820
Land........................................................ 80,000 80,000
-------- --------
241,423 241,423
Less -- accumulated depreciation............................ (42,231) (43,831)
-------- --------
Property and equipment, net....................... $199,192 $197,592
======== ========
</TABLE>
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Deferred revenues........................................... $36,000 $36,000
Sales and property tax...................................... 12,197 13,183
Other....................................................... 9,844 5,757
------- -------
Accrued expenses and other liabilities............ $58,041 $54,940
======= =======
</TABLE>
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Line of credit, interest at 8.75%, payable on demand........ $550,000 $ 64,000
Term loan, secured by accounts receivable, inventories and
equipment, interest at 9.9%, payable in semi annual
installments through December 1999........................ 114,000 500,000
Mortgage, secured by building and land, interest at 9.18%,
payable in monthly installments through June 2009......... 157,871 155,877
Unsecured note payable to stockholder, interest at 10%,
payable on demand......................................... 23,000 23,000
-------- --------
Total debt........................................ $844,871 $742,877
======== ========
</TABLE>
F-81
<PAGE> 196
RFL ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to December 31, 1997, the Company retired the line of credit,
term loan and note payable to stockholder in connection with its purchase by
NationsRent, Inc., an unrelated third party. Maturities of the mortgage at
December 31, 1997, for the years ended December 31, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 12,000
1999........................................................ 12,000
2000........................................................ 12,000
2001........................................................ 12,000
2002........................................................ 12,000
Thereafter.................................................. 97,871
--------
Total............................................. $157,871
========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
8. SUBSEQUENT EVENT
Effective April 15, 1998, substantially all of the Company's operating
assets and liabilities were purchased by NationsRent, Inc. in exchange for cash
and debt.
F-82
<PAGE> 197
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Naples Rent-All & Sales Company, Inc.:
We have audited the accompanying balance sheet of Naples Rent-All & Sales
Company, Inc. (a Florida S corporation) as of December 31, 1997, and the related
statements of income, stockholder's 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 financial position of Naples Rent-All & Sales
Company, Inc. as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 1, 1998.
F-83
<PAGE> 198
NAPLES RENT-ALL & SALES COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 98,660 $ 87,208
Accounts receivable, net of allowances for doubtful accounts
of $34,035 and $24,072 (unaudited) as of December 31, 1997
and March 31, 1998, respectively.......................... 408,579 447,831
Inventories................................................. 816,397 957,373
Rental equipment, net....................................... 913,137 866,056
Property and equipment, net................................. 119,647 144,475
Other assets................................................ 27,259 55,240
---------- ----------
Total assets...................................... $2,383,679 $2,558,183
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable.......................................... $ 428,714 $ 564,619
Accrued expenses and other liabilities.................... 148,452 172,948
Debt...................................................... 176,128 171,420
---------- ----------
Total liabilities................................. 753,294 908,987
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
STOCKHOLDER'S EQUITY:
Common stock -- $10 par value, 5,500 shares authorized,
5,129 shares issued.................................... 51,290 51,290
Additional paid-in capital................................ 6,826 6,826
Retained earnings......................................... 1,901,639 1,920,450
Treasury stock -- 1,709 shares at cost.................... (329,370) (329,370)
---------- ----------
Total stockholder's equity........................ 1,630,385 1,649,196
---------- ----------
Total liabilities and stockholder's equity........ $2,383,679 $2,558,183
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-84
<PAGE> 199
NAPLES RENT-ALL & SALES COMPANY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE FOR THE THREE MONTH
YEAR ENDED PERIOD ENDED MARCH 31,
DECEMBER 31, -------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE:
Equipment rentals....................................... $2,262,014 $ 509,684 $ 512,784
Sales of equipment, parts and supplies.................. 3,747,704 807,151 867,976
Other................................................... 57,121 19,900 24,782
---------- ---------- ----------
6,066,839 1,336,735 1,405,542
COST OF REVENUE:
Cost of equipment rentals, excluding depreciation....... 1,706,311 360,942 394,948
Rental equipment depreciation........................... 440,152 93,437 94,377
Cost of sales of equipment, parts and supplies.......... 2,967,261 627,675 686,811
---------- ---------- ----------
5,113,724 1,082,054 1,176,136
---------- ---------- ----------
Gross profit.................................... 953,115 254,681 229,406
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............. 517,662 109,503 119,820
NONRENTAL DEPRECIATION AND AMORTIZATION................... 44,970 6,981 9,333
---------- ---------- ----------
Operating income................................ 390,483 138,197 100,253
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense........................................ (23,535) (4,976) (3,976)
Other income, net....................................... 52,433 14,907 13,054
---------- ---------- ----------
Total other income (expense), net............... 28,898 9,931 9,078
---------- ---------- ----------
Net income...................................... 419,381 148,128 109,331
PRO FORMA PROVISION FOR INCOME TAX........................ 167,752 59,251 43,732
---------- ---------- ----------
PRO FORMA NET INCOME...................................... $ 251,629 $ 88,877 $ 65,599
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-85
<PAGE> 200
NAPLES RENT-ALL & SALES COMPANY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
NUMBER PAID-IN RETAINED TREASURY
OF SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
--------- ------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997......... 5,129 $51,290 $6,826 $1,810,258 $(329,370) $1,539,004
Stockholder distributions...... -- -- -- (328,000) -- (328,000)
Net income..................... -- -- -- 419,381 -- 419,381
----- ------- ------ ---------- --------- ----------
BALANCE, December 31, 1997....... 5,129 51,290 6,826 1,901,639 (329,370) 1,630,385
Stockholder distributions
(unaudited)................. -- -- -- (90,520) -- (90,520)
Net income (unaudited)......... -- -- -- 109,331 -- 109,331
----- ------- ------ ---------- --------- ----------
BALANCE, March 31, 1998
(unaudited).................... 5,129 $51,290 $6,826 $1,920,450 $(329,370) $1,649,196
===== ======= ====== ========== ========= ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-86
<PAGE> 201
NAPLES RENT-ALL & SALES COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE THREE MONTH
YEAR ENDED PERIOD ENDED MARCH 31,
DECEMBER 31, -------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 419,381 $148,128 $109,331
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 485,122 100,418 103,710
Gain on sale of rental equipment...................... (212,328) (35,288) (69,563)
Gain on sale of property and equipment................ (4,637) -- --
Changes in operating assets and liabilities:
Accounts receivable, net............................ (64,496) (13,733) (39,252)
Inventories......................................... 64,926 (17,837) (140,976)
Other assets........................................ 1,533 (53,435) (27,981)
Accounts payable.................................... (18,273) 29,397 135,905
Accrued expenses and other liabilities.............. 31,964 (12,133) 24,496
--------- -------- --------
Net cash provided by operating activities........ 703,192 145,517 95,670
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental equipment............................ (560,004) (112,088) (85,472)
Purchases of property and equipment...................... (71,997) (2,869) (34,161)
Proceeds from sale of rental equipment................... 393,040 65,646 107,739
Proceeds from sale of property and equipment............. 16,320 -- --
--------- -------- --------
Net cash used in investing activities............ (222,641) (49,311) (11,894)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stockholder distributions................................ (328,000) (72,132) (90,520)
Proceeds from debt....................................... 65,000 10,632 --
Repayments of debt....................................... (188,261) (35,000) (4,708)
--------- -------- --------
Net cash used in financing activities............ (451,261) (96,500) (95,228)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 29,290 (294) (11,452)
CASH AND CASH EQUIVALENTS, beginning of period............. 69,370 69,370 98,660
--------- -------- --------
CASH AND CASH EQUIVALENTS, end of period................... $ 98,660 $ 69,076 $ 87,208
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................... $ 23,535 $ 4,976 $ 3,976
========= ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-87
<PAGE> 202
NAPLES RENT-ALL & SALES COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Naples Rent-All & Sales Company, Inc. (the "Company") was incorporated in
January 1968 to serve as a rental center for homeowners and contractors
equipment, lawn and garden equipment, and golf course and turf maintenance
equipment. The Company also engages in related activities such as selling used
equipment, acting as a distributor for certain new equipment and selling related
merchandise and parts. The nature of the Company's business is such that
short-term obligations are typically met by cash flow generated from long-term
assets. Consequently, consistent with industry practice, the accompanying
audited and unaudited balance sheets are presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. As of December 31,
1997 and March 31, 1998 (unaudited), the Company had no cash equivalents.
Inventories
Inventories consist of equipment, tools, parts, fuel and related supply
items. Inventories are stated at the lower of weighted average cost or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over a five-year life
using accelerated methods. Rental equipment is depreciated to a salvage value of
five percent of cost. Rental equipment having a cost of $500 or less is expensed
at the time of purchase. Ordinary maintenance and repair costs are charged to
operations as incurred.
Property and equipment
Property and equipment are recorded at cost and depreciated over an
estimated useful life of five years using the straight-line method. Ordinary
maintenance and repair costs are charged to operations as incurred. The range of
useful lives estimated by management for property and equipment is as follows:
<TABLE>
<CAPTION>
YEARS
-------------
<S> <C>
Furniture and fixtures...................................... 5
Equipment................................................... 5
Leasehold improvements...................................... Life of lease
</TABLE>
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
F-88
<PAGE> 203
NAPLES RENT-ALL & SALES COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair value of financial instruments
The carrying amounts reported in the accompanying balance sheets for cash
and cash equivalents, accounts receivable, accounts payable, accrued expenses
and other liabilities and debt approximate fair value as of December 31, 1997
and March 31, 1998 (unaudited).
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Income taxes
The Company is an S corporation for tax purposes. Accordingly, income,
losses and related temporary differences which arise in the recording of income
and expense items for financial reporting and tax reporting purposes are
included in the individual tax return of the stockholder. Therefore, no
provision or liability for Federal and state income taxes has been included in
the accompanying financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
statements of income is for informational purposes only. The pro forma provision
for income tax has been provided at the estimated effective tax rate of 40%.
Use of 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 in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of customers make up the
Company's customer base. No single customer represents greater than 10% of total
accounts receivable. The Company controls credit risk through credit approvals,
credit limits, and monitoring procedures.
Interim financial information
In the opinion of management, the unaudited interim financial information
as of March 31, 1998 and for the three month periods ended March 31, 1997 and
1998 furnished herein reflects all adjustments consisting of normal recurring
accruals that, in the opinion of management, are necessary for a fair
presentation of the results for the interim period. The results of operations
for the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the entire year primarily due to seasonal variations.
F-89
<PAGE> 204
NAPLES RENT-ALL & SALES COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment............................................ $ 2,033,651 $ 2,051,524
Less -- accumulated depreciation............................ (1,120,514) (1,185,468)
----------- -----------
Rental equipment, net............................. $ 913,137 $ 866,056
=========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Furniture and fixtures...................................... $ 32,697 $ 32,032
Equipment................................................... 278,072 291,313
Leasehold improvements...................................... 36,847 38,362
--------- ---------
347,616 361,707
Less -- accumulated depreciation............................ (227,969) (217,232)
--------- ---------
Property and equipment, net....................... $ 119,647 $ 144,475
========= =========
</TABLE>
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Payroll-related............................................. $ 55,247 $ 56,988
Accrued dividends payable................................... 45,000 50,429
Accrued property taxes...................................... 15,187 4,978
Other....................................................... 33,018 60,553
-------- --------
Accrued expenses and other liabilities............ $148,452 $172,948
======== ========
</TABLE>
F-90
<PAGE> 205
NAPLES RENT-ALL & SALES COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Revolving line of credit, with borrowings up to $350,000,
secured by substantially all of the Company's receivables,
interest at prime plus .25% (8.75% at December 31, 1997
and March 31, 1998), payable in monthly installments
through November 1998..................................... $ 50,000 $ 50,000
Equipment notes, secured by equipment, interest at rates
averaging approximately 7%, payable in monthly
installments through December 2000........................ 126,128 121,420
-------- --------
Total debt........................................ $176,128 $171,420
======== ========
</TABLE>
Maturities of the Company's debt at December 31, 1997 for the years ended
December 31, are as follows:
<TABLE>
<S> <C>
1998........................................................ $122,090
1999........................................................ 36,168
2000........................................................ 17,870
--------
Total............................................. $176,128
========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases real estate under operating leases. Certain real estate
leases require the Company to pay maintenance, insurance, taxes and certain
other expenses in addition to the stated rentals. Future minimum lease payments,
by year and in the aggregate, for noncancelable operating leases with initial or
remaining terms of one year or more are as follows at December 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $221,710
1999........................................................ 203,234
--------
Total............................................. $424,944
========
</TABLE>
Rent expense under operating leases for the year ended December 31, 1997
and three month periods ended March 31, 1997 and 1998 was approximately
$222,000, $58,000 (unaudited) and $55,000 (unaudited), respectively.
Consulting Agreement
The Company has a consulting agreement with a former stockholder in which
the Company is required to pay the former stockholder $30,000 per year through
November 1, 1999. Consulting fees for the year ended December 31, 1997 under the
terms of this agreement were $30,000. Subsequent to year-end, all future amounts
owed under this agreement were settled in exchange for approximately $40,000.
Litigation, Claims and Assessments
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
F-91
<PAGE> 206
NAPLES RENT-ALL & SALES COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLAN
The Company has a contributory 401(k) profit-sharing plan under which
substantially all full-time employees are eligible to participate. The plan
allows for discretionary employer contributions as determined by the Company.
Employees vest in contributions made by the employer over a seven-year period.
Employer contributions for the year ended December 31, 1997 and three month
periods ended March 31, 1997 and 1998 were approximately $17,000, $0 (unaudited)
and $3,000 (unaudited), respectively.
9. SUBSEQUENT EVENT
Effective April 30, 1998, substantially all of the Company's operating
assets and liabilities were purchased by NationsRent, Inc., an unrelated third
party, in exchange for cash and debt.
F-92
<PAGE> 207
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Raymond Equipment Company, Inc.:
We have audited the accompanying balance sheets of Raymond Equipment Company,
Inc. (a Kentucky S corporation) as of June 30, 1996 and 1997, and the related
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Raymond Equipment Company, Inc.
as of June 30, 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.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 13, 1998.
F-93
<PAGE> 208
RAYMOND EQUIPMENT COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................... $ 749,276 $ 224,684 $ 427,366
Marketable securities at market value................... 1,227,355 777,860 914,335
Accounts receivable..................................... 3,390,079 3,608,443 2,198,061
Inventories............................................. 644,061 586,321 752,124
Rental equipment, net................................... 28,865,568 32,685,787 33,704,468
Property and equipment, net............................. 2,709,715 2,719,656 2,868,278
Other assets............................................ 195,664 399,687 397,243
----------- ----------- -----------
Total assets.................................. $37,781,718 $41,002,438 $41,261,875
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable...................................... $ 974,322 $ 793,087 $ 883,350
Accrued expenses and other liabilities................ 1,059,130 539,020 328,848
Debt.................................................. 24,498,329 25,883,180 23,468,571
----------- ----------- -----------
Total liabilities............................. 26,531,781 27,215,287 24,680,769
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 500,000 shares authorized,
207,650, 209,651 and 210,975 (unaudited) shares
issued and outstanding at June 30, 1996, 1997 and
March 31, 1998, respectively....................... 439,116 544,168 629,513
Retained earnings..................................... 10,461,809 12,969,978 15,442,113
Net unrealized gain on marketable
securities.................................. 349,012 273,005 509,480
----------- ----------- -----------
Total stockholders' equity.................... 11,249,937 13,787,151 16,581,106
----------- ----------- -----------
Total liabilities and stockholders' equity.... $37,781,718 $41,002,438 $41,261,875
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-94
<PAGE> 209
RAYMOND EQUIPMENT COMPANY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIOD
FOR THE YEAR ENDED JUNE 30, ENDED MARCH 31,
--------------------------- -------------------------
1996 1997 1997 1998
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Equipment rentals......................... $10,427,708 $11,997,902 $ 8,082,542 $ 9,113,745
Sales of equipment, parts and supplies.... 8,700,165 9,323,810 7,318,745 6,923,388
----------- ----------- ----------- -----------
19,127,873 21,321,712 15,401,287 16,037,133
COST OF REVENUE:
Cost of equipment rentals, excluding
depreciation........................... 3,172,008 3,329,502 2,506,446 2,291,828
Rental equipment depreciation............. 3,652,589 4,198,076 3,049,772 3,565,429
Cost of sales of equipment, parts and
supplies............................... 5,287,538 5,991,061 4,178,088 4,123,883
----------- ----------- ----------- -----------
12,112,135 13,518,639 9,734,306 9,981,140
----------- ----------- ----------- -----------
Gross profit...................... 7,015,738 7,803,073 5,666,981 6,055,993
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. 2,361,132 2,837,207 1,865,711 1,952,962
NONRENTAL DEPRECIATION AND AMORTIZATION..... 147,637 182,783 150,571 167,226
----------- ----------- ----------- -----------
Operating income.................. 4,506,969 4,783,083 3,650,699 3,935,805
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense.......................... (1,670,707) (1,801,706) (1,303,290) (1,429,917)
Interest income........................... 28,544 23,812 11,619 20,190
Other, net................................ 93,829 121,010 112,418 258,086
----------- ----------- ----------- -----------
Total other expense, net.......... (1,548,334) (1,656,884) (1,179,253) (1,151,641)
----------- ----------- ----------- -----------
Net income........................ 2,958,635 3,126,199 2,471,446 2,784,164
PRO FORMA PROVISION FOR INCOME TAXES........ 1,239,454 1,306,480 1,044,578 1,169,665
----------- ----------- ----------- -----------
PRO FORMA NET INCOME........................ $ 1,719,181 $ 1,819,719 $ 1,426,868 $ 1,614,499
=========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-95
<PAGE> 210
RAYMOND EQUIPMENT COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
COMMON STOCK UNREALIZED
-------------------- GAIN ON TOTAL
NUMBER OF RETAINED MARKETABLE STOCKHOLDERS'
SHARES AMOUNT EARNINGS SECURITIES EQUITY
--------- -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, July 1, 1995................. 202,880 $256,651 $ 8,595,607 $174,455 $ 9,026,713
Issuance of common stock............ 4,770 182,465 -- -- 182,465
Distributions to stockholders....... -- -- (1,092,433) -- (1,092,433)
Net income.......................... -- -- 2,958,635 -- 2,958,635
Net increase in unrealized gain on
marketable securities............ -- -- -- 174,557 174,557
------- -------- ----------- -------- -----------
BALANCE, June 30, 1996................ 207,650 439,116 10,461,809 349,012 11,249,937
Issuance of common stock............ 2,001 105,052 -- -- 105,052
Distributions to stockholders....... -- -- (618,030) -- (618,030)
Net income.......................... -- -- 3,126,199 -- 3,126,199
Net decrease in unrealized gain on
marketable securities............ -- -- -- (76,007) (76,007)
------- -------- ----------- -------- -----------
BALANCE, June 30, 1997................ 209,651 544,168 12,969,978 273,005 13,787,151
Issuance of common stock
(unaudited)...................... 1,324 85,345 -- -- 85,345
Distributions to stockholders
(unaudited)...................... -- -- (312,029) -- (312,029)
Net income (unaudited).............. -- -- 2,784,164 -- 2,784,164
Net increase in unrealized gain on
marketable securities
(unaudited)...................... -- -- -- 236,475 236,475
------- -------- ----------- -------- -----------
BALANCE, March 31, 1998 (unaudited)... 210,975 $629,513 $15,442,113 $509,480 $16,581,106
======= ======== =========== ======== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-96
<PAGE> 211
RAYMOND EQUIPMENT COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIOD
FOR THE YEAR ENDED JUNE 30, ENDED MARCH 31,
--------------------------- --------------------------
1996 1997 1997 1998
------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 2,958,635 $ 3,126,199 $ 2,471,446 $ 2,784,164
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 3,800,226 4,380,859 3,200,343 3,732,655
Gain on sale of rental equipment............... (1,540,076) (1,385,381) (1,195,800) (867,733)
Realized gain on sale of marketable
securities................................... (27,458) (73,615) (73,615) (50,000)
Charitable contribution marketable
securities................................... -- 297,103 -- --
Changes in operating assets and liabilities:
Accounts receivable.......................... (83,880) (218,364) 1,900,804 1,410,382
Inventories.................................. (239,521) 57,740 103,038 (165,803)
Other assets................................. (3,724) (204,023) 29,620 2,444
Accounts payable............................. 497,168 (181,235) 1,210,542 90,263
Accrued expenses and other liabilities....... 48,138 (520,110) (784,978) (210,172)
------------ ------------ ----------- ------------
Net cash provided by operating
activities.............................. 5,409,508 5,279,173 6,861,400 6,726,200
------------ ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities............... (490,000) -- -- --
Proceeds from the sale of marketable
securities..................................... 99,997 150,000 150,000 150,000
Purchases of rental equipment.................... (10,790,192) (11,300,675) (7,291,951) (7,650,313)
Purchases of property and equipment.............. (1,223,457) (217,559) (138,068) (363,494)
Proceeds from sale of rental equipment........... 4,258,338 4,678,959 4,295,084 3,947,732
Proceeds from sale of property and equipment..... 173,075 13,637 13,637 33,850
------------ ------------ ----------- ------------
Net cash used in investing activities..... (7,972,239) (6,675,638) (2,971,298) (3,882,225)
------------ ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of
issuance costs................................. 182,465 105,052 105,052 85,345
Proceeds from debt............................... 15,404,343 15,329,825 4,907,186 9,839,377
Principal payments on debt....................... (11,416,600) (13,944,974) (9,183,049) (12,253,986)
Distributions to stockholders.................... (1,092,433) (618,030) (246,761) (312,029)
------------ ------------ ----------- ------------
Net cash provided by (used in) financing
activities.............................. 3,077,775 871,873 (4,417,572) (2,641,293)
------------ ------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 515,044 (524,592) (527,470) 202,682
CASH AND CASH EQUIVALENTS, beginning of period..... 234,232 749,276 749,276 224,684
------------ ------------ ----------- ------------
CASH AND CASH EQUIVALENTS, end of period........... $ 749,276 $ 224,684 $ 221,806 $ 427,366
============ ============ =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................... $ 1,653,083 $ 1,832,804 $ 1,364,318 $ 1,407,413
============ ============ =========== ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-97
<PAGE> 212
RAYMOND EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND JUNE 30, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Raymond Equipment Company, Inc. (the "Company") was incorporated in the
state of Kentucky in 1955. The Company rents a broad array of equipment to a
diverse customer base that includes construction industry participants,
industrial companies, homeowners and others. The Company also engages in related
activities such as selling used equipment, acting as a distributor for certain
new equipment and selling related merchandise parts and supplies. The nature of
the Company's business is such that short-term obligations are typically met by
cash flow generated from long-term assets. Consequently, consistent with
industry practice, the accompanying audited and unaudited balance sheets are
presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. At June 30, 1996 and
1997 and March 31, 1998 (unaudited), the Company had no cash equivalents.
Marketable securities
In accordance with the provisions of Statement of Financial Accounting
Standards No. 115, unrealized gains and losses on investments available-for-sale
(which are stated at quoted fair value) are included as a separate component of
stockholders' equity. All of the Company's marketable securities are held as
available-for-sale.
Inventories
Inventories consist of equipment, tools, parts, fuel and related supply
items. Inventories are stated at the lower of weighted average cost or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The range of
useful lives estimated by management for rental equipment is two to ten years.
Rental equipment is depreciated to a salvage value of zero to ten percent of
cost. All rental equipment is capitalized at the time of purchase. Ordinary
maintenance and repair costs are charged to operations as incurred.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. The range of useful lives
estimated by management are as follows:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Buildings and improvements.................................. 20 - 25
Automobiles and trucks...................................... 3 - 7
Office furniture and fixtures............................... 5 - 10
</TABLE>
Ordinary maintenance and repair costs are charged to operations as
incurred.
F-98
<PAGE> 213
RAYMOND EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
Fair value of financial instruments
The carrying amount reported in the accompanying balance sheets for cash
and cash equivalents, accounts receivable, accounts payable, accrued expenses
and other liabilities and debt approximates fair value as of June 30, 1996 and
1997 and March 31, 1998 (unaudited).
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Income taxes
The Company is an S corporation for income tax purposes. Accordingly,
income, losses and related temporary differences which arise in the recording of
income and expense items for financial reporting and tax reporting purposes are
proportionally included in the individual tax returns of the stockholders.
Therefore, no provision or liability for Federal and state income taxes has been
included in the accompanying financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
statements of income is for informational purposes only. The pro forma provision
for income tax has been provided at the estimated effective rate of 40% of
taxable net income.
Use of 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 in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments,
marketable securities and accounts receivable. The Company maintains cash and
cash equivalents with high quality financial institutions. Concentrations of
credit risk with respect to accounts receivable are limited because a large
number of diverse customers make up the Company's customer base. No single
customer represents greater than 10% of total accounts receivable. The Company
controls credit risk through credit approvals, credit limits and monitoring
procedures.
Interim financial information
In the opinion of management, the unaudited financial information as of
March 31, 1998 and for the nine month periods ended March 31, 1997 and 1998
furnished herein reflects all adjustments consisting of normal recurring
accruals that are necessary for a fair presentation of the results for the
interim periods. The results of operations for the nine months ended March 31,
1998 are not necessarily indicative of the results to be expected for the entire
year.
F-99
<PAGE> 214
RAYMOND EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. MARKETABLE SECURITIES
The cost and estimated market value of marketable securities are as
follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------- MARCH 31,
1996 1997 1998
---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cost................................................ $ 878,343 $504,855 $404,855
Unrealized gains.................................... 349,012 273,005 509,480
---------- -------- --------
Estimated market value.............................. $1,227,355 $777,860 $914,335
========== ======== ========
</TABLE>
4. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment............................... $35,794,948 $41,753,287 $ 44,188,277
Less -- accumulated depreciation............... (6,929,380) (9,067,500) (10,483,809)
----------- ----------- ------------
Rental equipment, net................ $28,865,568 $32,685,787 $ 33,704,468
=========== =========== ============
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------ MARCH 31,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture, fixtures and office equipment......... $3,615,247 $ 3,740,810 $ 3,994,517
Less -- accumulated depreciation................. (905,532) (1,021,154) (1,126,239)
---------- ----------- -----------
Property and equipment, net............ $2,709,715 $ 2,719,656 $ 2,868,278
========== =========== ===========
</TABLE>
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------- MARCH 31,
1996 1997 1998
---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Payroll-related..................................... $ 769,254 $279,162 $ 39,308
Accrued interest.................................... 129,231 64,308 86,812
Accrued property taxes.............................. 123,830 161,723 200,066
Other............................................... 36,815 33,827 2,662
---------- -------- --------
Accrued expenses and other liabilities.............. $1,059,130 $539,020 $328,848
========== ======== ========
</TABLE>
F-100
<PAGE> 215
RAYMOND EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment notes, secured by equipment, interest
at an average of approximately 8.00% payable
in various monthly installments through March
2002.......................................... $18,977,807 $21,303,549 $19,614,353
Two installment notes with a local bank, secured
by property, interest at 8.00% and 9.00%,
payable in various monthly installments
through December 1998 and June 2006,
respectively.................................. 5,520,522 4,579,631 3,854,218
----------- ----------- -----------
$24,498,329 $25,883,180 $23,468,571
=========== =========== ===========
</TABLE>
Maturities of the Company's debt at June 30, 1997 for the year ended June
30, are as follows:
<TABLE>
<S> <C>
1998........................................................ $10,670,581
1999........................................................ 6,404,076
2000........................................................ 6,489,429
2001........................................................ 1,743,065
2002........................................................ 95,915
Thereafter.................................................. 480,114
-----------
Total............................................. $25,883,180
===========
</TABLE>
8. PROFIT SHARING PLAN
The Company has a profit sharing plan the ("Plan") that covers
substantially all employees. The Plan allows for discretionary employer
contributions as determined by the Company's Board of Directors. Employer
contributions for the years ended June 30, 1996 and 1997 and the nine months
ended March 31, 1997 and 1998 were $150,000, $150,000, $150,000 (unaudited) and
$112,000 (unaudited), respectively.
9. COMMITMENTS AND CONTINGENCIES
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
10. SUBSEQUENT EVENT
Effective May 7, 1998, the Company entered into a definitive agreement for
the sale of all of the outstanding stock of the Company to NationsRent, Inc., an
unrelated third party, in exchange for cash and debt.
F-101
<PAGE> 216
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To General Rental, Inc.:
We have audited the accompanying division balance sheet for the Florida
Panhandle and Southeast Texas Divisions of General Rental, Inc. (a Delaware
corporation) as of December 31, 1997, and the related statements of division
operations, division equity and division cash flows for the year then ended.
These division financial statements are the responsibility of the Divisions'
management. Our responsibility is to express an opinion on these division
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 division financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the division financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall division financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the division financial statements referred to above present
fairly, in all material respects, the financial position of the Florida
Panhandle and Southeast Texas Divisions of General Rental, Inc. as of December
31, 1997, and the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 29, 1998 (except with respect
to the matter referred to in Note 11 as
to which the date is July 10, 1998).
F-102
<PAGE> 217
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
DIVISION BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash........................................................ $ 7,550 $ 10,100
Accounts receivable, net of allowance for doubtful accounts
of $214,626 and $150,000 (unaudited) for December 31, 1997
and June 30, 1998, respectively........................... 1,912,175 1,475,197
Inventories................................................. 381,576 246,764
Rental equipment, net....................................... 11,970,725 11,303,294
Property and equipment, net................................. 392,292 361,013
Goodwill, net............................................... 2,067,955 2,032,317
Non-compete agreements, net................................. 1,390,000 1,232,000
Prepaid expenses and other assets........................... 19,402 20,970
----------- -----------
Total assets...................................... $18,141,675 $16,681,655
=========== ===========
LIABILITIES AND DIVISION EQUITY
LIABILITIES:
Accounts payable.......................................... $ 1,462,325 $ 1,138,944
Accrued expenses and other liabilities.................... 1,837,982 1,811,321
Revolver debt............................................. 4,125,533 4,125,533
Notes payable............................................. 8,648,739 7,750,466
----------- -----------
Total liabilities................................. 16,074,579 14,826,264
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 8, 9 and 11)
DIVISION EQUITY............................................. 2,067,096 1,855,391
----------- -----------
Total liabilities and division equity............. $18,141,675 $16,681,655
=========== ===========
</TABLE>
The accompanying notes to division financial statements are an integral part of
these division balance sheets.
F-103
<PAGE> 218
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
STATEMENTS OF DIVISION OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTH
FOR THE YEAR PERIOD ENDED JUNE 30,
ENDED -------------------------
DECEMBER 31, 1997 1997 1998
----------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE:
Equipment rentals.................................... $7,238,033 $2,172,055 $4,494,090
Sales of equipment, parts and supplies............... 1,875,624 639,036 656,426
---------- ---------- ----------
Total revenue................................ 9,113,657 2,811,091 5,150,516
COST OF REVENUE:
Cost of equipment rentals, excluding depreciation.... 4,017,826 1,077,561 2,721,531
Rental equipment depreciation........................ 941,665 333,806 588,669
Cost of sales of equipment, parts and supplies....... 1,203,840 402,124 370,817
---------- ---------- ----------
Total cost of revenue........................ 6,163,331 1,813,491 3,681,017
---------- ---------- ----------
Gross profit................................. 2,950,326 997,600 1,469,499
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... 1,494,933 505,994 520,828
NONRENTAL DEPRECIATION AND AMORTIZATION................ 407,605 87,086 228,025
---------- ---------- ----------
Operating income............................. 1,047,788 404,520 720,646
INTEREST EXPENSE....................................... 703,775 211,895 585,442
---------- ---------- ----------
Income before provision for income taxes..... 344,013 192,625 135,204
PROVISION FOR INCOME TAXES............................. 137,605 77,050 54,082
---------- ---------- ----------
NET INCOME............................................. $ 206,408 $ 115,575 $ 81,122
========== ========== ==========
</TABLE>
The accompanying notes to division financial statements are an integral part of
these division statements.
F-104
<PAGE> 219
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
STATEMENTS OF DIVISION EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE
SIX MONTH PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
BALANCE, December 31, 1996.................................. $1,326,099
Net income................................................ 206,408
Net transfers from corporate.............................. 534,589
----------
BALANCE, December 31, 1997.................................. 2,067,096
Net income (unaudited).................................... 81,122
Net distributions to corporate (unaudited)................ (292,827)
----------
BALANCE, June 30, 1998 (unaudited).......................... $1,855,391
==========
</TABLE>
The accompanying notes to division financial statements are an integral part of
these division statements.
F-105
<PAGE> 220
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
STATEMENTS OF DIVISION CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTH
FOR THE YEAR PERIOD ENDED JUNE 30,
ENDED --------------------------
DECEMBER 31, 1997 1997 1998
----------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 206,408 $ 115,575 $ 81,122
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization............... 1,349,270 420,892 816,694
Gain on sale of rental equipment............ (221,170) (8,616) (34,877)
Changes in operating assets and liabilities:
Accounts receivable....................... (705,914) (335,340) 436,978
Inventories............................... (91,421) (24,755) 134,812
Prepaid expenses and other assets......... (19,402) (102,552) (1,568)
Accounts payable.......................... 368,097 286,347 (323,381)
Accrued expenses and other liabilities.... 243,240 120,067 (26,661)
----------- ----------- -----------
Total adjustments...................... 922,700 356,043 1,001,997
----------- ----------- -----------
Net cash provided by operating
activities........................... 1,129,108 471,618 1,083,119
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used in acquisitions...................... (4,125,533) (2,535,956) --
Purchases of rental equipment.................. (4,191,992) (2,197,735) (71,362)
Purchases of property and equipment............ (167,407) -- (3,108)
Proceeds from sale of rental equipment......... 695,353 136,616 185,001
----------- ----------- -----------
Net cash provided by (used in) investing
activities................................ (7,789,579) (4,597,075) 110,531
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolver debt.................... 4,125,533 2,535,956 --
Proceeds from notes payable.................... 3,735,697 1,903,638 --
Repayments of notes payable.................... (1,729,748) (334,410) (898,273)
Net transfers from (distributions to)
corporate................................... 534,589 21,623 (292,827)
----------- ----------- -----------
Net cash provided by (used in)
financing activities................. 6,666,071 4,126,807 (1,191,100)
----------- ----------- -----------
NET INCREASE IN CASH............................. 5,600 1,350 2,550
CASH, beginning of period........................ 1,950 1,950 7,550
----------- ----------- -----------
CASH, end of period.............................. $ 7,550 $ 3,300 $ 10,100
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................... $ 703,775 $ 211,895 $ 585,442
=========== =========== ===========
</TABLE>
The accompanying notes to division financial statements are an integral part of
these division statements.
F-106
<PAGE> 221
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
NOTES TO DIVISION FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION
General Rental, Inc. ("General"), a Delaware corporation, was incorporated
in 1996. General operates through various geographical divisions including the
Florida Panhandle and Southeast Texas Divisions (the "Divisions"). The Divisions
consist of six stores in the Florida Panhandle and seven stores in Texas. The
principal business of the Divisions is rental of a broad array of equipment to a
diverse customer base that includes construction industry participants,
industrial companies and others in Florida and Texas. The Divisions also engage
in related activities such as selling used equipment, acting as a distributor
for certain new equipment and selling related merchandise and parts. The nature
of the Divisions' business is such that short-term obligations are typically met
by cash flow generated from long-term assets. Consequently, consistent with
industry practice, the accompanying audited and unaudited division balance
sheets are presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying division financial statements include only the Florida
Panhandle and Southeast Texas Divisions of General. These division financial
statements were carved out of the financial statements of General on a specific
identification basis or by using the following allocations, as required.
Allocations
The accompanying division balance sheets and statements of division
operations include allocations of certain liabilities and expenses where
specific identification is not practicable. Management of the Divisions believes
that the following allocation methods used are reasonable:
<TABLE>
<CAPTION>
FINANCIAL STATEMENT CAPTION ALLOCATION METHOD
- --------------------------- -----------------
<S> <C>
- - Accounts payable - Portion based on the percentage of revenues related to
the Divisions
- - Accrued expenses and - Portion based on the percentage of revenues or debt
other liabilities related to the Divisions
- - Revolver debt - Based on the cash required for acquisitions (see Note 3)
- - Notes payable - Based on the percentage of rental equipment financed
related to the Divisions
- - Selling, general and - Portion based on the percentage of revenues related to
administrative expenses the Divisions
- - Interest expense - Based on the average debt balance allocated to the
Divisions using an average interest rate of 9.5%
- - Provision for income - Provided at an assumed income tax rate of 40%, no
taxes benefit is recorded for losses
</TABLE>
Inventories
Inventories consist of equipment and parts. New equipment and parts
inventories are stated at the lower of average cost or market.
F-107
<PAGE> 222
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
NOTES TO DIVISION FINANCIAL STATEMENTS -- (CONTINUED)
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment on a straight-line basis. The range of useful
lives estimated by management for rental equipment is three to ten years. Rental
equipment is depreciated to a salvage value of 20% of cost. Ordinary maintenance
and repair costs are charged to operations as incurred.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term. Earned but not billed revenue included in accounts receivable was
$221,206 at December 31, 1997 and $269,193 (unaudited) at June 30, 1998,
respectively.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using a straight-line basis. The range of useful lives
estimated by management for property and equipment is three to ten years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Long-lived assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of "
requires that long-lived assets, including certain identifiable intangibles and
the goodwill related to those assets, be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. Management has reviewed the long-lived assets
of the Divisions and has determined that there are no events requiring
impairment loss recognition.
Fair value of financial instruments
The carrying amounts for accounts receivable, accounts payable and accrued
expenses and other liabilities is not significantly different than fair value
due to the short-term nature of these accounts. The fair value of revolver debt
and notes payable is determined using current applicable interest rates for
similar instruments as of December 31, 1997 and June 30, 1998 (unaudited) and is
not significantly different than the carrying value of such debt.
Division equity
Division equity represents the difference between division assets and
division liabilities. Changes in division equity result from operating results
of the Divisions and any net transfers from or net distributions to corporate.
These transfers and distributions to and from corporate consist mainly of
funding for operating losses, funding of purchases of rental equipment and fixed
assets, funding of debt service costs and distributions of excess cash.
Concentrations of credit risk
Financial instruments that potentially subject the Divisions to significant
concentrations of credit risk consist principally of accounts receivable.
Concentrations of credit risk with respect to accounts receivable are limited
because a large number of geographically diverse customers make up the
Divisions' customer base. No
F-108
<PAGE> 223
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
NOTES TO DIVISION FINANCIAL STATEMENTS -- (CONTINUED)
single customer represents greater than 10% of total accounts receivable. The
Divisions control credit risk through credit approvals, credit limits, and
monitoring, generally without requiring collateral.
Use of 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 in the division financial
statements and accompanying notes. Actual results could differ from those
estimates.
Interim financial information
In the opinion of management, the unaudited interim financial information
as of June 30, 1998 and for the six month periods ended June 30, 1997 and 1998
furnished herein reflects all adjustments consisting of normal recurring
accruals that, in the opinion of management, are necessary for a fair
presentation of the results for the interim period. The results of operations
for the three months ended June 30, 1998 are not necessarily indicative of the
results to be expected for the entire year.
3. ACQUISITIONS
During 1997, General purchased the assets and assumed certain liabilities
of stores (the "Acquired Stores") which are included in the division financial
statements beginning on their dates of acquisition. The acquisitions of the
Acquired Stores were accounted for under the purchase method. As a result, the
Divisions recorded approximately $1.0 million of goodwill and $1.4 million of
non-compete agreement costs. The assets and liabilities of the Acquired Stores
at their dates of acquisition are as follows:
<TABLE>
<S> <C>
Accounts receivable, net of allowance for doubtful accounts
of $27,361................................................ $ 932,877
Inventories................................................. 45,000
Prepaid expenses and other assets........................... 100,000
Rental equipment............................................ 6,780,603
Property and equipment...................................... 51,760
Goodwill.................................................... 977,833
Non-compete agreements...................................... 1,430,000
Accounts payable............................................ (348,726)
Accrued expenses and other liabilities...................... (1,386,018)
Notes payable............................................... (4,457,796)
-----------
Cash paid for acquisitions........................ $ 4,125,533
===========
</TABLE>
4. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment.......................................... $12,959,442 $12,771,707
Less -- accumulated depreciation.......................... (988,717) (1,468,413)
----------- -----------
Rental equipment, net........................... $11,970,725 $11,303,294
=========== ===========
</TABLE>
F-109
<PAGE> 224
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
NOTES TO DIVISION FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Property and equipment...................................... $ 507,909 $ 510,975
Less -- accumulated depreciation............................ (115,617) (149,962)
--------- ---------
Property and equipment, net....................... $ 392,292 $ 361,013
========= =========
</TABLE>
6. INTANGIBLE ASSETS
Goodwill and related accumulated amortization consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Goodwill................................................... $2,138,270 $2,138,270
Less -- accumulated amortization........................... (70,315) (105,953)
---------- ----------
Goodwill, net.................................... $2,067,955 $2,032,317
========== ==========
</TABLE>
Goodwill amortization expense was $47,930 for the year ended December 31,
1997 and $31,841 (unaudited) and $35,638 (unaudited) for the six months ended
June 30, 1997 and 1998, respectively.
Non-compete agreements and related accumulated amortization consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Non-compete agreements..................................... $1,580,000 $1,580,000
Less -- accumulated amortization........................... (190,000) (348,000)
---------- ----------
Non-compete agreements, net...................... $1,390,000 $1,232,000
========== ==========
</TABLE>
Non-compete agreements amortization expense was $187,500 for the year ended
December 31, 1997 and $38,333 (unaudited) and $158,000 (unaudited) for the six
months ended June 30, 1997 and 1998, respectively.
Goodwill and non-compete agreements are amortized over their estimated
useful lives of 30 years and 5 years, respectively.
F-110
<PAGE> 225
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
NOTES TO DIVISION FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Payroll-related accrued expenses........................... $ 181,893 $ 179,255
Non-payroll tax-related accrued expenses................... 144,484 142,388
Non-compete agreement liabilities.......................... 1,353,412 1,333,780
Other...................................................... 158,193 155,898
---------- ----------
Accrued expenses and other liabilities........... $1,837,982 $1,811,321
========== ==========
</TABLE>
8. REVOLVER DEBT AND NOTES PAYABLE
The revolver debt and notes payable have been allocated from General as
discussed in Note 2. All assets of the Divisions are pledged as collateral for
General's debt. As a result of cash flow difficulties at General, all such debt
is currently in default and is due on demand. The interest rate on such debt was
at a variable rate for the revolver debt and a fixed rate for the notes payable,
and approximated 9.5% for all periods presented in the accompanying division
financial statements.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Divisions lease rental equipment, real estate, vehicles and certain
office equipment under noncancelable operating leases. These leases expire at
various dates through January 31, 2011. Certain real estate leases require the
Divisions to pay maintenance, insurance, taxes and certain other expenses in
addition to the stated rentals. Future minimum lease payments, by year and in
the aggregate, for noncancelable operating leases with initial or remaining
terms of one year or more are as follows at December 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $ 764,393
1999........................................................ 732,495
2000........................................................ 782,424
2001........................................................ 449,930
2002........................................................ 157,550
Thereafter.................................................. 339,099
----------
$3,225,891
==========
</TABLE>
Rent expense under noncancelable operating leases was $567,163 for the year
ended December 31, 1997 and $149,127 (unaudited) and $365,104 (unaudited) for
the six months ended June 30, 1997 and 1998, respectively.
10. EMPLOYEE BENEFIT PLAN
The Divisions participate in a 401(k) plan (the "Plan") which covers
certain full-time employees over 21 years old who have worked a minimum of one
year for the Divisions. The Plan is funded by employee deferrals of income and
matching contributions by the Divisions of $.50 per $1.00 up to a matching
contribution of 3% of a participant's compensation. The Divisions' matching
contributions totaled $8,000 for the year ended December 31, 1997, and $1,881
(unaudited) and $5,565 (unaudited) for the six months ended June 30, 1997 and
1998, respectively.
F-111
<PAGE> 226
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
NOTES TO DIVISION FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBSEQUENT EVENT
In May 1998, General entered into a definitive agreement to sell the assets
of the Divisions to NationsRent, Inc., an unrelated third party, in exchange for
cash and the assumption of certain accrued liabilities. General's management
intends to utilize the proceeds of the sale to reduce its debt obligations. Such
transaction was completed on July 10, 1998.
F-112
<PAGE> 227
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Associated Rental Equipment Management Company, Inc.:
We have audited the accompanying balance sheets of Associated Rental
Equipment Management Company, Inc. (a Texas Corporation) as of December 31, 1996
and 1997, and the related statements of income, stockholder's equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Associated Rental Equipment
Management Company, Inc. as of December 31, 1996 and 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
June 11, 1998.
F-113
<PAGE> 228
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.............................. $ 337,694 $ 828,345 $ 857,453
Accounts receivable, net of allowances for doubtful
accounts of $553,000, $461,000 and $558,000
(unaudited) for 1996, 1997 and 1998, respectively.... 2,904,093 4,436,887 4,318,353
Due from stockholder................................... 315,000 75,000 75,000
Marketable securities.................................. 2,235,030 2,612,642 2,897,167
Inventories............................................ 1,111,530 1,914,717 --
Prepaid expenses and other assets...................... 251,809 573,934 1,223,658
Rental equipment, net.................................. 35,287,240 59,982,594 77,127,029
Property and equipment, net............................ 2,561,625 4,975,581 6,567,816
----------- ----------- -----------
Total assets................................. $45,004,021 $75,399,700 $93,066,476
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable..................................... $ 1,156,178 $ 2,027,383 $ 1,552,768
Accrued expenses and other liabilities............... 2,362,396 2,915,667 2,974,918
Debt................................................. 36,017,937 61,598,630 78,601,281
----------- ----------- -----------
Total liabilities................................. 39,536,511 66,541,680 83,128,967
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 7, 8 and 11)
STOCKHOLDER'S EQUITY:
Common stock -- no par value; 1,000 shares
authorized, issued and outstanding................ 1,000 1,000 1,000
Paid-in capital...................................... 25,134 25,134 25,134
Unrealized gains on marketable securities............ 27,934 96,677 331,546
Retained earnings.................................... 5,413,442 8,735,209 9,579,829
----------- ----------- -----------
Total stockholder's equity................... 5,467,510 8,858,020 9,937,509
----------- ----------- -----------
Total liabilities and stockholder's equity... $45,004,021 $75,399,700 $93,066,476
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-114
<PAGE> 229
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE SIX-MONTH PERIOD
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Equipment rentals........... $20,726,189 $18,930,099 $24,261,338 $10,095,345 $15,241,684
Sales of equipment.......... 4,167,919 4,827,389 16,527,647 8,809,907 7,431,821
----------- ----------- ----------- ----------- -----------
24,894,108 23,757,488 40,788,985 18,905,252 22,673,505
----------- ----------- ----------- ----------- -----------
COST OF REVENUE:
Cost of equipment rentals,
excluding depreciation... 2,390,006 2,341,976 4,972,991 2,733,388 4,999,032
Rental equipment
depreciation............. 5,867,435 6,369,939 8,625,665 4,604,572 5,815,385
Cost of sales of
equipment................ 3,041,939 4,233,657 13,463,673 6,483,611 5,698,587
----------- ----------- ----------- ----------- -----------
11,299,380 12,945,572 27,062,329 13,821,571 16,513,004
----------- ----------- ----------- ----------- -----------
Gross profit........ 13,594,728 10,811,916 13,726,656 5,083,681 6,160,501
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES..... 8,114,872 6,751,686 6,144,202 1,593,754 2,250,012
NON-RENTAL DEPRECIATION AND
AMORTIZATION................ 300,697 385,806 466,240 213,577 239,523
----------- ----------- ----------- ----------- -----------
Operating income.... 5,179,159 3,674,424 7,116,214 3,276,350 3,670,966
----------- ----------- ----------- ----------- -----------
OTHER (EXPENSE) INCOME:
Investment earnings......... 62,767 227,717 344,301 19,762 71,713
Interest expense............ (2,290,370) (2,803,824) (3,748,335) (1,737,625) (2,803,998)
Other, net.................. (66,316) (14,093) 13,358 16,735 5,939
----------- ----------- ----------- ----------- -----------
Other (expense)
income, net....... (2,293,919) (2,590,200) (3,390,676) (1,701,128) (2,726,346)
----------- ----------- ----------- ----------- -----------
Income before
benefit for income
taxes............. 2,885,240 1,084,224 3,725,538 1,575,222 944,620
BENEFIT FOR INCOME TAXES...... (836,000) -- -- -- --
----------- ----------- ----------- ----------- -----------
NET INCOME.................... 3,721,240 1,084,224 3,725,538 1,575,222 944,620
PRO FORMA PROVISION FOR INCOME
TAXES....................... 1,990,096 433,690 1,490,215 890,088 377,848
----------- ----------- ----------- ----------- -----------
PRO FORMA NET INCOME.......... $ 1,731,144 $ 650,534 $ 2,235,323 $ 685,134 $ 566,772
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-115
<PAGE> 230
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
NO PAR VALUE
------------------ UNREALIZED
NUMBER PAID-IN GAINS ON RETAINED
OF SHARES AMOUNT CAPITAL SECURITIES EARNINGS TOTAL
--------- ------ ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995............................. 1,000 $1,000 $25,134 $ -- $1,144,683 $ 1,170,817
Net income......................................... -- -- -- -- 3,721,240 3,721,240
----- ------ ------- -------- ---------- -----------
BALANCE, December 31, 1995........................... 1,000 1,000 25,134 -- 4,865,923 4,892,057
Unrealized gains on marketable securities.......... -- -- -- 27,934 -- 27,934
Dividends to stockholder........................... -- -- -- -- (536,705) (536,705)
Net income......................................... -- -- -- -- 1,084,224 1,084,224
----- ------ ------- -------- ---------- -----------
BALANCE, December 31, 1996........................... 1,000 1,000 25,134 27,934 5,413,442 5,467,510
Unrealized gains on marketable securities.......... -- -- -- 68,743 -- 68,743
Dividends to stockholder........................... -- -- -- -- (403,771) (403,771)
Net income......................................... -- -- -- -- 3,725,538 3,725,538
----- ------ ------- -------- ---------- -----------
BALANCE, December 31, 1997........................... 1,000 1,000 25,134 96,677 8,735,209 8,858,020
Unrealized gains on marketable securities
(unaudited)...................................... -- -- -- 234,869 -- 234,869
Dividends to stockholder (unaudited)............... -- -- -- -- (100,000) (100,000)
Net income (unaudited)............................. -- -- -- -- 944,620 944,620
----- ------ ------- -------- ---------- -----------
BALANCE, June 30, 1998 (unaudited)................... 1,000 $1,000 $25,134 $331,546 $9,579,829 $ 9,937,509
===== ====== ======= ======== ========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-116
<PAGE> 231
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX-MONTH PERIOD
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 3,721,240 $ 1,084,224 $ 3,725,538 $ 1,575,222 $ 944,620
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization................ 6,168,132 6,755,745 9,091,905 4,818,149 6,054,908
Gain on sale of rental equipment............. (1,125,980) (593,732) (3,063,974) (2,326,296) (1,733,234)
Changes in operating assets and liabilities:
Accounts receivable........................ (259,253) 182,134 (1,532,794) (871,313) 118,534
Prepaid expenses and other assets.......... (117,912) (45,002) (322,125) (257,201) (649,724)
Accounts payable........................... (679,218) 351,343 871,205 (93,614) (474,615)
Accrued expenses and other liabilities..... 199,573 (73,953) 553,271 687,236 59,251
------------ ------------ ------------ ------------ ------------
Net cash provided by operating
activities............................. 7,906,582 7,660,759 9,323,026 3,532,183 4,319,740
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............ (641,045) (1,548,066) (2,880,196) (2,066,946) (1,831,758)
Proceeds from sale of rental equipment......... 4,167,919 4,827,389 16,527,647 8,809,907 7,431,821
Marketable securities.......................... 16,954 (2,207,096) (308,869) (7,481) (49,656)
------------ ------------ ------------ ------------ ------------
Net cash provided by investing activities.... 3,543,828 1,072,227 13,338,582 6,735,480 5,550,407
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt............................. 469,999 1,718,414 12,326,137 2,521,625 4,305,120
Repayments of debt............................. (10,671,000) (11,758,122) (34,333,323) (12,261,899) (14,046,159)
Dividends to stockholder....................... -- (536,705) (403,771) -- (100,000)
Due from stockholder........................... (191,450) 18,133 240,000 -- --
------------ ------------ ------------ ------------ ------------
Net cash used in financing activities.... (10,392,451) (10,558,280) (22,170,957) (9,740,274) (9,841,039)
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 1,057,959 (1,825,294) 490,651 527,389 29,108
CASH AND CASH EQUIVALENTS, beginning of period... 1,105,029 2,162,988 337,694 337,694 828,345
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period......... $ 2,162,988 $ 337,694 $ 828,345 $ 865,083 $ 857,453
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of capitalization
of $150,000 in 1997........................ $ 2,290,405 $ 2,798,349 $ 3,419,630 $ 1,616,841 $ 2,941,867
============ ============ ============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Rental equipment financing with debt......... $ 7,846,334 $ 17,830,405 $ 47,587,879 $ 24,585,645 $ 26,743,690
============ ============ ============ ============ ============
Transfers of rental equipment to (from)
inventory, net............................. $ -- $ 1,111,530 $ 803,187 $ 14,119 $ (1,914,717)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-117
<PAGE> 232
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Associated Rental Equipment Management Company, Inc. (the "Company") was
incorporated on July 28, 1989 in the state of Texas. The Company rents a broad
array of equipment to a diverse customer base that includes construction
industry participants, industrial companies and others in the states of Texas
and Louisiana. The Company also engages in related activities such as selling
used rental equipment. The nature of the Company's business is such that
short-term obligations are typically met by cash flows generated from long-term
assets. Consequently, consistent with industry practice, the accompanying
balance sheets are presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. At December 31, 1996
and 1997 and June 30, 1998 (unaudited), the Company had no cash equivalents.
Marketable Securities
In accordance with the provisions of Statement of Financial Accounting
Standards No. 115, unrealized gains and losses on investments available-for-sale
(which are stated at quoted fair value) are included as a separate component of
stockholder's equity. All of the Company's marketable securities are held as
available-for-sale.
Inventories
Inventories consist of used rental equipment held for resale and are stated
at the lower of cost or market.
Rental Equipment
Rental equipment is recorded at cost and depreciated to zero salvage value
over the estimated useful lives of the equipment on a straight-line basis. The
average useful life estimated by management for rental equipment is seven years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Significant improvements that extend the useful life of rental equipment are
capitalized.
Revenue Recognition
Revenue related to the sale of rental equipment is recognized at the point
of sale. Revenue related to rental equipment is recognized over the contract
term.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using accelerated methods. The range of useful lives
estimated by management for property and equipment is five to forty years.
Property and equipment is depreciated to a salvage value of zero to twenty
percent. Ordinary maintenance and repair costs are charged to operations as
incurred. Interest costs incurred during the construction period are capitalized
in accordance with generally accepted accounting principles.
Impairment of Long-Lived Assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
F-118
<PAGE> 233
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
The carrying amounts reported in the accompanying balance sheets for
accounts receivable, due from stockholder, accounts payable, accrued expenses
and other liabilities approximate fair value due to the short-term nature of
these accounts. The fair value of debt is determined using current interest
rates for similar instruments as of December 31, 1996 and 1997 and June 30, 1998
(unaudited) and approximates the carrying value of these obligations due to the
fact that the underlying instruments bear interest at market rates or include
provisions to adjust note balances and interest rates to approximate fair market
value.
Income Taxes
The Company has been an S corporation for income tax purposes since January
1, 1995. Accordingly, income, losses and related temporary differences which
arise in the recording of income and expense items for financial reporting and
tax reporting purposes are included in the individual tax return of the
stockholder. Therefore, no historical provision or liability for Federal and
state income taxes has been included in the accompanying financial statements
for the years ended December 31, 1996 and 1997.
Included in the accompanying statement of income for the year ended
December 31, 1995 is a benefit for income taxes of $836,000, which represents
the reversal of the deferred income tax liability balance as of December 31,
1994 due to the change in the Company's tax status to an S corporation. The
deferred income tax liability as of December 31, 1994 arose due to the use of
accelerated depreciation methods for income tax reporting purposes.
An enterprise that changes from taxable C corporation status to nontaxable
S corporation status should continue to recognize a deferred tax liability to
the extent that the enterprise would be subject to a corporate-level tax on net
unrecognized built-in gains, as defined by Federal tax rules. At the time of the
change in tax status, the Company determined that it had no net unrecognized
built-in gains.
The pro forma adjustment to reflect income taxes in the accompanying
statements of income is for informational purposes only. The pro forma provision
for income taxes has been provided so that the estimated effective Federal and
state income rate will be 40% for all periods presented.
Use of 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 in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of geographically diverse
customers make up the Company's customer base. No single customer represents
greater than 10% of total accounts receivable. The Company controls credit risk
through credit approvals, credit limits, and monitoring procedures.
Interim Financial Information
In the opinion of management, the unaudited financial information as of
June 30, 1998 and for the six-month periods ended June 30, 1997 and 1998
furnished herein reflects all adjustments, consisting of normal recurring
accruals that are necessary for a fair presentation of the results for the
interim periods. The results of
F-119
<PAGE> 234
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
operations for the six months ended June 30, 1998 are not necessarily indicative
of the results to be expected for the entire year.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). This statement establishes standards for reporting and display of
comprehensive income. Comprehensive income is defined as the change in equity
during the financial reporting period of a business enterprise resulting from
non-owner sources. Comprehensive income was $3,721,240, $1,112,158, $3,794,281,
$1,774,539 (unaudited) and $1,179,489 (unaudited) for the years ended December
31, 1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998,
respectively.
3. MARKETABLE SECURITIES
The cost and estimated fair market value of marketable securities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cost............................................. $2,207,096 $2,515,965 $2,565,621
Unrealized gains................................. 27,934 96,677 331,546
---------- ---------- ----------
Estimated market value........................... $2,235,030 $2,612,642 $2,897,167
========== ========== ==========
</TABLE>
The Company uses the specific identification method to determine cost of
securities upon sale. The net change in unrealized appreciation on the
securities available for sale of $27,934, $68,743 and $234,869 (unaudited) for
the years ended December 31, 1996 and 1997 and the six-month period ended June
30, 1998, respectively, has been reflected in the accompanying statements of
stockholder's equity.
4. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment............................. $ 46,551,847 $ 69,017,032 $ 88,319,802
Less -- accumulated depreciation............. (11,264,607) (9,034,438) (11,192,773)
------------ ------------ ------------
Rental equipment, net.............. $ 35,287,240 $ 59,982,594 $ 77,127,029
============ ============ ============
</TABLE>
Net rental equipment under rental equipment financing obligations was
$27,801,496, $43,501,198 and $63,116,616 (unaudited) as of December 31, 1996 and
1997 and June 30, 1998, respectively.
F-120
<PAGE> 235
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land..................................................... $ -- $ 144,013 $ 144,013
Buildings................................................ 39,244 2,703,212 2,696,472
Leaseholds............................................... 553,616 980,102 963,847
Furniture and fixtures................................... 206,051 383,720 383,720
Machinery and equipment.................................. 120,912 171,876 194,876
Vehicles................................................. 1,915,599 2,175,748 2,650,465
Construction in process.................................. 849,507 -- 1,410,878
---------- ---------- ----------
3,684,929 6,558,671 8,444,271
Less -- accumulated depreciation and amortization........ (1,123,304) (1,583,090) (1,876,455)
---------- ---------- ----------
Property and equipment, net............................ $2,561,625 $4,975,581 $6,567,816
========== ========== ==========
</TABLE>
Buildings include structures and improvements constructed on land that is
leased from the stockholder (see Note 9). Interest costs of $150,000 were
capitalized in 1997.
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and related expenses..................... $ 125,334 $ 161,089 $ 67,086
Interest accrual......................................... 25,440 354,145 216,276
Accrued taxes............................................ 1,621,679 1,293,892 1,229,114
Bank overdrafts.......................................... 584,740 1,096,046 1,435,826
Other.................................................... 5,203 10,495 26,616
---------- ---------- ----------
Total accrued expenses and other liabilities... $2,362,396 $2,915,667 $2,974,918
========== ========== ==========
</TABLE>
F-121
<PAGE> 236
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
LINES OF CREDIT:
Rental equipment financing line of credit from a
financing company with borrowings up to $4,000,000
(increased to $5,484,000 on March 26, 1998); interest
at 1.25% over the greater of prime or commercial
paper rates (changed to 3.25% over the commercial
paper rate effective March 26, 1998) and payable
monthly; collateralized by equipment held for sale
and personally guaranteed by the stockholder......... $ -- $ 2,258,900 $ 55,188
Working capital line of credit from a bank with
borrowings up to $2,000,000; interest at prime plus
1/2% with interest payable monthly; collateralized by
accounts receivable, inventory and property and
equipment and personally guaranteed by the
stockholder; the underlying credit agreement expires
September 1, 1998.................................... 768,207 1,231,407 1,607,907
Working capital line of credit from a financial
services institution with borrowings up to
$2,000,000; interest at 2.40% over the 30-day
commercial paper rate; collateralized by marketable
securities; the underlying credit agreement expires
October 31, 1999..................................... -- -- --
----------- ----------- -----------
Subtotal..................................... 768,207 3,490,307 1,663,095
NOTES PAYABLE:
Various notes payable, secured by equipment, payable in
monthly principal and interest installments; interest
ranging from 3.99% to 7.9%; due between April 1997
and January 2002..................................... 8,055,522 15,364,724 14,480,226
</TABLE>
(CONTINUED)
F-122
<PAGE> 237
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
RENTAL EQUIPMENT FINANCING OBLIGATIONS:
Rental equipment financing obligations, secured by
equipment, payable in monthly installments,
capitalized at the Company's incremental borrowing
rate of approximately 8%, due between January 1998
and October 2002..................................... 27,194,208 42,743,599 62,457,960
----------- ----------- -----------
Total debt................................... $36,017,937 $61,598,630 $78,601,281
=========== =========== ===========
</TABLE>
Maturities of the Company's debt at December 31, 1997 for the years ended
December 31, are as follows:
<TABLE>
<CAPTION>
RENTAL EQUIPMENT
FINANCING
LINES OF CREDIT NOTES PAYABLE OBLIGATIONS TOTAL
--------------- ------------- ---------------- -----------
<S> <C> <C> <C> <C>
1998.................... $ 3,490,307 $ 4,069,770 $30,934,508 $38,494,585
1999.................... -- 5,271,727 6,446,122 11,717,849
2000.................... -- 4,058,990 5,393,486 9,452,476
2001.................... -- 1,951,908 4,114,374 6,066,282
2002.................... -- 12,329 1,863,571 1,875,900
----------- ----------- ----------- -----------
$ 3,490,307 $15,364,724 48,752,061 67,607,092
=========== ===========
Less amount representing interest (6,008,462) (6,008,462)
----------- -----------
$42,743,599 $61,598,630
=========== ===========
</TABLE>
Each of the above lines of credit agreements subject the Company to certain
restrictive covenants including financial ratios, minimum net worth requirements
and payment of dividend restrictions. As of December 31, 1997, the Company was
not in compliance with certain of these restrictive covenants. The existence of
these events of default permits the lenders to take certain actions, including
increasing interest rates and accelerating repayment of the debt obligations.
Although the lenders have not exercised any of these rights, there is no
assurance that they will not do so in the future.
Rental equipment financing obligations include leases and rental purchase
option agreements, both of which meet the criteria for treatment as capital
leases under generally accepted accounting principles. The rental purchase
option agreements are noncancellable and have terms up to one year.
Substantially all rental equipment is purchased during or at the conclusion of
the option period and subsequently refinanced through third party leasing
arrangements with terms up to 60 months.
Interest expense related to rental equipment under rental equipment
financing leases for the years ended December 31, 1995, 1996 and 1997 and for
the six month period ended June 30, 1998 was $1,884,180, $2,142,810, $2,746,663
and $2,219,911 (unaudited), respectively.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases real estate, certain office equipment and vehicles under
noncancelable operating leases. These leases expire at various dates through
September 30, 2002. Certain real estate leases require the Company to pay
maintenance, insurance, taxes and certain other expenses in addition to the
stated rentals.
F-123
<PAGE> 238
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments, by year and in the aggregate, for noncancelable
operating leases with initial or remaining terms of one year or more are as
follows at December 31, 1997:
<TABLE>
<S> <C>
1998............................................. $ 396,813
1999............................................. 414,886
2000............................................. 329,701
2001............................................. 378,199
2002............................................. 295,796
2003 and thereafter.............................. 94,046
----------
$1,909,441
==========
</TABLE>
Rent expense under noncancelable operating leases for the years ended
December 31, 1995, 1996 and 1997 was $312,083, $329,776 and $403,226,
respectively.
Sales and Use Tax Audit
During the three years ended December 31, 1997, various taxing authorities
conducted and completed audits of sales and use tax with respect to the
Company's equipment rental activities. The additional sales and use tax payable
by the Company resulting from the ultimate audit settlements was less than the
amounts accrued during the periods covered by the audits. The Company recorded
these differences in the period in which the settlements were reached. Included
in selling, general and administrative expenses for the year ended December 31,
1997 is a $655,000 credit that arose from the reversal of sales and use tax
provided for in 1995. The Company believes that its remaining sales and use tax
accruals are adequate.
Litigation, Claims and Disputes
The Company is involved in routine litigation, claims and disputes arising
in the normal course of business. Management has reviewed these matters with
legal counsel and believes that the ultimate liability, if any, resulting from
these matters will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
9. RELATED PARTY TRANSACTIONS
The Company leases land and buildings used in its operations from its
stockholder. The leases cover several operating locations and expire annually on
December 31. The total rent paid related to these leases for the years ended
December 31, 1995, 1996 and 1997 was $252,000, $262,500 and $240,000,
respectively.
The Company leases rental equipment from an affiliated company. The total
rent paid for the years ended December 31, 1995, 1996 and 1997 was $322,648,
$361,742 and $288,687, respectively. The Company also guarantees certain debt of
the affiliate. Such debt had a balance of $226,295 at December 31, 1997.
The Company had the following balances due from/payable to affiliated
companies at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- -------
<S> <C> <C>
Due from........................................ $108,861 $62,028
======== =======
Payable to...................................... $ 58,624 $61,684
======== =======
</TABLE>
F-124
<PAGE> 239
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) plan (the "Plan") which covers full-time
employees over 21 years old who have worked a minimum of one year for the
Company. The Plan is funded by employee deferrals of income and discretionary
contributions by the Company. The Company's matching contributions totaled
$20,998, $25,741 and $27,675 for the years ended December 31, 1995, 1996 and
1997, respectively. Amounts due to the Plan at December 31, 1996 and 1997 were
$25,127 and $29,020, respectively.
11. SUBSEQUENT EVENT
In June 1998, the stockholder entered into an asset purchase agreement
whereby substantially all of the Company's operating assets and liabilities,
except for real property and certain equipment, will be purchased by
NationsRent, Inc., an unrelated third party, in exchange for cash and a
convertible promissory note. Completion of this transaction is subject to
customary closing conditions.
F-125
<PAGE> 240
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Revco Equipment Rentals, Inc.:
We have audited the accompanying balance sheet of Revco Equipment Rentals,
Inc. (a Florida corporation) as of December 31, 1997, and the related statements
of income, stockholders' 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 financial position of Revco Equipment Rentals,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
July 11, 1998.
F-126
<PAGE> 241
REVCO EQUIPMENT RENTALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 104,038 $ 70,576
Accounts receivable......................................... 283,747 269,246
Inventories................................................. 42,600 51,527
Other assets................................................ 51,797 50,629
Rental equipment, net....................................... 1,831,082 1,693,161
Property and equipment, net................................. 303,335 302,575
---------- ----------
Total assets...................................... $2,616,599 $2,437,714
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accrued expenses and other liabilities.................... 11,680 11,243
Debt...................................................... 1,525,991 1,336,347
---------- ----------
Total liabilities................................. 1,537,671 1,347,590
COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)
STOCKHOLDERS' EQUITY:
Common stock -- $10 par value, 1,000 shares authorized,
100 issued and outstanding............................. 1,000 1,000
Treasury stock, at cost................................... (150,000) (150,000)
Additional paid-in capital................................ 131,243 131,243
Retained earnings......................................... 1,096,685 1,107,881
---------- ----------
Total stockholders' equity........................ 1,078,928 1,090,124
---------- ----------
Total liabilities and stockholders' equity........ $2,616,599 $2,437,714
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-127
<PAGE> 242
REVCO EQUIPMENT RENTALS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE FOR THE THREE MONTH PERIOD
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, --------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUE:
Equipment rentals...................................... $2,128,701 $566,346 $492,627
Sales of rental equipment, parts and supplies.......... 495,146 154,380 40,314
---------- -------- --------
2,623,847 720,726 532,941
COST OF REVENUE:
Cost of equipment rentals.............................. 1,004,217 240,983 189,115
Rental equipment depreciation.......................... 612,634 133,993 139,390
Cost of sales of rental equipment, parts and
supplies............................................ 222,818 65,172 27,216
---------- -------- --------
1,839,669 440,148 355,721
---------- -------- --------
Gross profit................................... 784,178 280,578 177,220
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................................... 312,470 79,465 79,246
NONRENTAL EQUIPMENT DEPRECIATION......................... 24,743 5,438 760
---------- -------- --------
Operating income............................... 446,965 195,675 97,214
---------- -------- --------
OTHER INCOME (EXPENSE), net:
Interest expense....................................... (122,252) (32,885) (31,010)
Interest income........................................ 3,304 -- --
---------- -------- --------
Total other income (expense), net.............. (118,948) (32,885) (31,010)
---------- -------- --------
Net income..................................... 328,017 162,790 66,204
PRO FORMA PROVISION FOR INCOME TAX....................... 131,207 65,116 26,482
---------- -------- --------
PRO FORMA NET INCOME..................................... $ 196,810 $ 97,674 $ 39,722
========== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-128
<PAGE> 243
REVCO EQUIPMENT RENTALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------
NUMBER TREASURY ADDITIONAL RETAINED
OF SHARES AMOUNT STOCK, AT COST PAID-IN CAPITAL EARNINGS TOTAL
--------- ------ -------------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997..... 100 $1,000 $(150,000) $131,243 $ 932,030 $ 914,273
Distributions.............. -- -- -- -- (163,362) (163,362)
Net income................. -- -- -- -- 328,017 328,017
--- ------ --------- -------- ---------- ----------
BALANCE, December 31, 1997... 100 1,000 (150,000) 131,243 1,096,685 1,078,928
Distributions
(unaudited)............. -- -- -- -- (55,008) (55,008)
Net income (unaudited)..... -- -- -- -- 66,204 66,204
--- ------ --------- -------- ---------- ----------
BALANCE, March 31, 1998
(unaudited)................ 100 $1,000 $(150,000) $131,243 $1,107,881 $1,090,124
=== ====== ========= ======== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-129
<PAGE> 244
REVCO EQUIPMENT RENTALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE THREE MONTH PERIOD
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, ---------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 328,017 $ 162,790 $ 66,204
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation..................................... 637,377 139,431 140,150
Gain on sale of rental equipment................. (229,374) (93,176) (10,584)
Changes in operating assets and liabilities:
Accounts receivable............................ (49,063) (47,463) 14,501
Inventories.................................... (17,942) (21,300) (8,927)
Other assets................................... (714) 26 1,168
Accrued expenses and other liabilities......... 1,372 85 (437)
--------- --------- ---------
Net cash provided by operating activities... 669,673 140,393 202,075
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental equipment....................... (948,004) (140,698) (9,198)
Purchases of property and equipment................. (13,716) -- --
Proceeds from sales of rental equipment............. 458,514 150,034 18,313
--------- --------- ---------
Net cash provided by (used in) investing
activities................................ (503,206) 9,336 9,115
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of distributions............................ (126,792) (60,212) (55,008)
Additional borrowings of debt....................... 716,630 179,158 --
Repayments of debt.................................. (702,694) (256,730) (189,644)
--------- --------- ---------
Net cash used in financing activities....... (112,856) (137,784) (244,652)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... 53,611 11,945 (33,462)
CASH AND CASH EQUIVALENTS, beginning of period........ 50,427 50,427 104,038
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.............. $ 104,038 $ 62,372 $ 70,576
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF
NON-CASH TRANSACTIONS:
Distributions of property and equipment............. $ 36,570 $ 36,570 $ --
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.............................. $ 122,252 $ 32,885 $ 31,010
========= ========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-130
<PAGE> 245
REVCO EQUIPMENT RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Revco Equipment Rentals, Inc. (the "Company") was incorporated on April 15,
1980, as a Florida S Corporation. The Company rents a broad array of equipment
to a customer base that includes principally construction industry participants
and industrial companies. The Company also engages in related activities such as
selling used rental equipment and selling related merchandise and parts. The
nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying audited and unaudited
balance sheets are presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. The Company had no
cash equivalents at December 31, 1997 and March 31, 1998 (unaudited).
Inventories
Inventories consist of equipment, tools, parts, fuel and related supply
items and are stated at the lower of weighted average cost or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using an accelerated method. The range of useful
lives estimated by management for rental equipment is five to ten years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using an accelerated method. The range of useful lives
estimated by management for property and equipment is five to thirty-nine years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Fair value of financial instruments
The carrying amounts reported in the balance sheets for accounts
receivable, accounts payable and accrued expenses and other liabilities
approximate fair value due to the short-term nature of these accounts. The fair
value of debt is determined using current applicable interest rates as of
December 31, 1997 and March 31, 1998 (unaudited) and approximates the carrying
value of such debt.
Income taxes
The Company is an S Corporation for income tax purposes. Accordingly,
income, losses, and related temporary differences which arise in the recording
of income and expense items for financial reporting and tax
F-131
<PAGE> 246
REVCO EQUIPMENT RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
reporting purposes are included in the individual tax returns of the
stockholders. Therefore, no provision or liability for Federal and state income
taxes has been included in the accompanying financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
statements of income is for information purposes only. The pro forma provision
for income tax has been provided at the estimated rate of 40%.
Use of 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 in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment............................................ $ 3,582,745 $ 3,567,215
Less -- accumulated depreciation............................ (1,751,663) (1,874,054)
----------- -----------
Rental equipment, net............................. $ 1,831,082 $ 1,693,161
=========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Furniture, fixtures and office equipment.................... $ 33,396 $ 33,396
Vehicles.................................................... 241,528 241,528
Buildings................................................... 176,810 176,810
Leasehold improvements...................................... 27,750 27,750
Land........................................................ 101,600 101,600
--------- ---------
581,084 581,084
Less -- accumulated depreciation............................ (277,749) (278,509)
--------- ---------
Property and equipment, net....................... $ 303,335 $ 302,575
========= =========
</TABLE>
F-132
<PAGE> 247
REVCO EQUIPMENT RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Term loans, secured by accounts receivable, inventories and
rental equipment, interest at rates ranging from 6.32% to
10.9%, payable in monthly installments.................... $1,322,456 $1,137,672
Mortgage, secured by building and land, interest at 8.25%,
Payable in monthly installments through December 1,
2007...................................................... 120,130 118,167
Unsecured note payable to a former stockholder, interest at
8.5%, payable in monthly installments through August 25,
2003...................................................... 83,405 80,508
---------- ----------
Total debt........................................ $1,525,991 $1,336,347
========== ==========
</TABLE>
Debt maturities at December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 607,270
1999........................................................ 435,368
2000........................................................ 235,259
2001........................................................ 135,976
2002........................................................ 28,051
Thereafter.................................................. 84,067
----------
Total............................................. $1,525,991
==========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment used for rental purposes under a
noncancellable operating lease. Future minimum lease payments, by year and in
the aggregate, for this lease are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 37,740
1999........................................................ 37,740
2000........................................................ 37,740
2001........................................................ 37,740
2002........................................................ 31,422
--------
Total............................................. $182,382
========
</TABLE>
7. SUBSEQUENT EVENT
Effective April 3, 1998, substantially all of the Company's operating
assets and liabilities were purchased by NationsRent, Inc. in exchange for cash
and debt.
F-133
<PAGE> 248
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To High Reach Company, Inc. and
High Reach Leasing Company:
We have audited the accompanying combined balance sheet of High Reach
Company, Inc. (a Florida corporation) and High Reach Leasing Company (an
unincorporated entity wholly owned by Rodger A. Renzulli) as of September 30,
1997 and the related combined statements of income, stockholder's equity and
owner's capital, and cash flows for the year then ended. These financial
statements are the responsibility of the companies' 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 combined financial position of High Reach Company,
Inc. and High Reach Leasing Company as of September 30, 1997 and the combined
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
September 4, 1998.
F-134
<PAGE> 249
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 1,314,872 $ 1,642,254
Accounts receivable, net of allowances for doubtful accounts
of $90,000 and $110,000 (unaudited) at September 30, 1997
and June 30, 1998, respectively........................... 2,630,784 3,315,566
Inventories................................................. 355,128 565,973
Trading securities.......................................... -- 1,986,971
Due from affiliates......................................... 773,043 1,093,982
Rental equipment, net....................................... 33,678,259 40,677,638
Land, property and equipment, net........................... 4,047,129 5,176,161
Other assets................................................ 326,702 166,439
----------- -----------
Total assets...................................... $43,125,917 $54,624,984
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
AND OWNER'S CAPITAL
LIABILITIES:
Accounts payable.......................................... $ 573,521 $ 421,540
Accrued expenses and other liabilities.................... 889,036 870,423
Debt...................................................... 31,071,691 40,663,144
Deferred income taxes..................................... 2,815,780 3,416,855
----------- -----------
Total liabilities................................. 35,350,028 45,371,962
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3, 8 and 11)
STOCKHOLDER'S EQUITY AND OWNER'S CAPITAL:
Common stock - $1 par value; 7,500 shares authorized;
100 shares issued and outstanding.................... 100 100
Additional paid-in capital............................. 41,406 41,406
Retained earnings...................................... 7,734,383 9,211,516
----------- -----------
Total stockholder's equity and owner's capital.... 7,775,889 9,253,022
----------- -----------
Total liabilities and stockholder's equity and
owner's capital................................. $43,125,917 $54,624,984
=========== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined balance sheets.
F-135
<PAGE> 250
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE MONTH PERIOD
ENDED ENDED JUNE 30,
SEPTEMBER 30, -------------------------
1997 1997 1998
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Equipment rentals..................................... $15,138,252 $11,048,680 $14,977,675
Sales of equipment, parts and supplies................ 2,551,688 2,223,083 1,787,415
Other................................................. 532,689 197,831 75,658
----------- ----------- -----------
18,222,629 13,469,594 16,840,748
Cost of revenue:
Cost of equipment rentals, excluding depreciation..... 6,007,162 4,224,494 5,264,014
Rental equipment depreciation......................... 3,152,484 2,313,396 3,021,190
Cost of sales of equipment, parts and supplies........ 1,703,227 1,449,352 1,294,022
----------- ----------- -----------
10,862,873 7,987,242 9,579,226
----------- ----------- -----------
Gross profit....................................... 7,359,756 5,482,352 7,261,522
Selling, general and administrative expenses............ 2,739,286 2,071,330 2,961,852
Nonrental depreciation and amortization................. 343,627 239,627 267,859
----------- ----------- -----------
Operating income................................... 4,276,843 3,171,395 4,031,811
----------- ----------- -----------
Other income (Expense), net:
Interest expense...................................... (2,185,187) (1,563,294) (2,163,455)
Interest income....................................... 13,014 -- 57,042
Net gain on sale of trading securities................ -- -- 152,810
----------- ----------- -----------
(2,172,173) (1,563,294) (1,953,603)
----------- ----------- -----------
Income before provision for income taxes........... 2,104,670 1,608,101 2,078,208
Provision for income taxes.............................. 720,603 456,000 601,075
----------- ----------- -----------
Net income.............................................. 1,384,067 1,152,101 1,477,133
Pro forma provision for income taxes.................... 220,624 198,759 211,867
----------- ----------- -----------
Pro forma net income.................................... $ 1,163,443 $ 953,342 $ 1,265,266
=========== =========== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-136
<PAGE> 251
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
AND OWNER'S CAPITAL
<TABLE>
<CAPTION>
COMMON STOCK RETAINED EARNINGS
------------------ ADDITIONAL -------------------------------
NUMBER PAID-IN HIGH REACH HIGH REACH
OF SHARES AMOUNT CAPITAL COMPANY, INC. LEASING COMPANY TOTAL
--------- ------ ---------- ------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, October 1, 1996.................. 100 $100 $41,406 $5,170,712 $1,179,604 $6,391,822
Net income.............................. -- -- -- 832,508 551,559 1,384,067
--- ---- ------- ---------- ---------- ----------
BALANCE, September 30, 1997............... 100 100 41,406 6,003,220 1,731,163 7,775,889
Net income (unaudited).................. -- -- -- 947,464 529,669 1,477,133
--- ---- ------- ---------- ---------- ----------
BALANCE, June 30, 1998 (unaudited)........ 100 $100 $41,406 $6,950,684 $2,260,832 $9,253,022
=== ==== ======= ========== ========== ==========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined statements.
F-137
<PAGE> 252
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIOD
FOR THE YEAR ENDED ENDED JUNE 30,
SEPTEMBER 30, --------------------------
1997 1997 1998
------------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 1,384,067 $ 1,152,101 $ 1,477,133
Adjustments to reconcile net income to net cash
Provided by operating activities-
Depreciation and amortization............... 3,496,111 2,553,023 3,289,049
Deferred income tax provision............... 720,603 456,000 601,075
Gain on sale of assets...................... (660,854) (605,423) (296,577)
Unrealized loss on trading securities....... -- -- 91,616
Changes in operating assets and liabilities:
Accounts receivable...................... (182,467) (5,544) (684,782)
Inventories.............................. (58,376) (35,065) (210,845)
Other assets............................. (264,762) 19,100 151,448
Accounts payable......................... (1,753) (178,780) (151,981)
Accrued expenses and other liabilities... 206,718 20,441 (18,613)
------------ ----------- ------------
Net cash provided by operating
activities............................. 4,639,287 3,375,853 4,247,523
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of trading securities................ -- -- (2,078,587)
Purchases of property and equipment................ (1,314,334) (715,555) (1,413,134)
Proceeds from sale of property and equipment....... 15,234 1,500 32,250
Purchases of rental equipment...................... (12,222,032) (8,324,695) (10,582,060)
Proceeds from sale of rental equipment............. 1,600,529 1,401,367 861,659
------------ ----------- ------------
Net cash used in investing activities.... (11,920,603) (7,637,383) (13,179,872)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt, net of costs................... 17,288,784 12,817,335 11,545,773
Repayments of debt................................. (8,624,596) (7,638,280) (1,965,103)
Advances to affiliates, net........................ (422,661) (463,369) (320,939)
------------ ----------- ------------
Net cash provided by financing activities... 8,241,527 4,715,686 9,259,731
------------ ----------- ------------
Net increase in cash and cash equivalents.......... 960,211 454,156 327,382
Cash and cash equivalents, beginning of period..... 354,661 354,661 1,314,872
------------ ----------- ------------
Cash and cash equivalents, end of period........... $ 1,314,872 $ 808,817 $ 1,642,254
============ =========== ============
Supplemental disclosure of cash flow information:
Cash paid for interest........................ $ 2,131,616 $ 1,549,882 $ 2,170,418
============ =========== ============
Cash paid for income taxes.................... $ 173,200 $ 127,800 $ 8,400
============ =========== ============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-138
<PAGE> 253
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
September 30, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
High Reach Company, Inc. was incorporated in 1978 in the State of Florida
and High Reach Leasing Company, an unincorporated entity wholly-owned by Rodger
A. Renzulli, was formed in the same year. High Reach Company, Inc. and High
Reach Leasing Company, collectively referred to as the "Companies", do business
in Florida as High Reach, a dealer/distributor of off-road, hydraulic
self-propelled aerial work platforms. The Companies rent, sell and service
self-propelled aerial work platforms. Operations are conducted throughout
Florida from operating facilities in Sanford, Tampa, Jacksonville, and Deerfield
Beach. The customer base includes the construction trades employed in all types
of vertical building. Other customers include those in the business of
maintaining existing residential, commercial and industrial structures,
including Central Florida area attractions and the motion picture and television
industries. Rental periods are generally less than one year and the related
contracts are cancelable at the discretion of the customer. The nature of the
Companies' business is such that short-term obligations are typically met by
cash flow generated from long-term assets. Consequently, consistent with
industry practice, the accompanying combined balance sheets are presented on an
unclassified basis.
The combined financial statements include High Reach Company, Inc. and High
Reach Leasing Company, both of which are wholly owned by the same person. All
significant intercompany accounts and transactions have been eliminated in
combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Companies consider all highly liquid instruments with an original
maturity of three months or less when purchased to be cash equivalents. As of
September 30, 1997 and June 30, 1998, $963,314 and $1,000,990 (unaudited),
respectively, of the total cash and cash equivalents was interest bearing.
Marketable Securities
In accordance with the provisions of Statement Financial Accounting
Standards No. 115, unrealized gains and losses on trading securities (which are
stated at quoted fair value) are included in income. All of the Companies
marketable securities are classified as trading securities.
Inventories
Inventories consist of equipment, tools, parts, fuel and related rental
equipment supplies and accessories. Inventories are stated at the lower of cost,
using the first-in, first-out method, or market.
Rental Equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The useful lives
estimated by management for rental equipment is seven or ten years. Ordinary
maintenance and repair costs are charged to operations as incurred. Betterments
which substantially extend the useful life of rental equipment are capitalized.
F-139
<PAGE> 254
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Land, Property and Equipment
Land is stated at cost. Property and equipment are stated at cost less
accumulated depreciation and are depreciated on the straight-line method using
the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 7-40 years
Transportation equipment.................................... 5-10 years
Office and shop equipment................................... 3-7 years
</TABLE>
The cost of additions and improvements which substantially extend the
useful life of a particular asset are capitalized. Upon sale, the cost and
related accumulated depreciation are removed from the accounts and any gain or
loss is included in other income.
Loan Costs
Loan costs are amortized on a straight-line basis over the term of the
related loan or mortgage, which range from 12 to 120 months.
Impairment of Long-Lived Assets
The Companies periodically review their valuation for long-lived assets
used in operations when indicators of impairment are present. If the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount, the Companies record impairment as required under
generally accepted accounting principles. No such impairment losses were
incurred for the periods presented.
Fair Value of Financial Instruments
The carrying amounts reported in the accompanying combined balance sheets
for cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses approximate fair value as of September 30, 1997 and June 30, 1998
(unaudited) due to the short-term nature of these amounts. The fair value of
debt is determined using current applicable interest rates as of September 30,
1997 and June 30, 1998 (unaudited) and approximates the carrying value of such
debt.
Revenue Recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Equipment rental revenue is recognized as earned over the
respective contract term.
Income Taxes
High Reach Leasing Company, a proprietorship, is not a tax paying entity
for purposes of federal and state income taxes. Accordingly, income, losses and
related temporary differences which arise in the recording of income and expense
items for financial reporting and tax reporting purposes are included in the
individual tax return of the proprietor. Therefore, no provision or liability
for Federal and state income taxes has been included in the accompanying
combined financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
combined statements of income is for informational purposes only. The pro forma
provision for income tax has been provided at the estimated effective rate of
40% on the proprietorship's income only.
F-140
<PAGE> 255
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
High Reach Company, Inc. follows Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires, among other
things, recognition of future tax effects measured at enacted rates attributable
to deductible temporary differences between the financial statement and income
tax bases of assets and liabilities to the extent that realization of said
effects is more likely than not.
Use of 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 in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Companies to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Companies' customer base. No single customer represents greater than 10%
of total accounts receivable. The Companies control credit risk through credit
approvals, credit limits and monitoring procedures.
Interim Financial Information
In the opinion of management, the unaudited interim financial information
as of June 30, 1998 and for the nine month periods ended June 30, 1997 and 1998
furnished herein reflects all adjustments consisting of normal recurring
accruals that, in the opinion of management, are necessary for a fair
presentation of the results for the interim periods. The results of operations
for the nine months ended June 30, 1998 are not necessarily indicative of the
results to be expected for the year ended December 31, 1998.
3. RENTAL EQUIPMENT, NET
Rental equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment, at cost........................... $42,265,893 $51,656,967
Less- Accumulated depreciation...................... (8,587,634) (10,979,329)
----------- -----------
Rental equipment, net............................. $33,678,259 $40,677,638
=========== ===========
</TABLE>
Through September 4, 1998, the Companies had purchased or committed to
purchase approximately $3,000,000 of additional rental equipment.
F-141
<PAGE> 256
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
4. LAND, PROPERTY AND EQUIPMENT, NET
Land, property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Land................................................. $ 977,623 $1,074,485
Buildings and improvements........................... 1,430,499 2,178,503
Transportation equipment............................. 2,019,086 2,151,203
Office and shop equipment............................ 355,274 394,531
Construction in progress............................. 574,371 884,611
----------- ----------
5,356,853 6,683,333
Less - accumulated depreciation...................... (1,309,724) (1,507,172)
----------- ----------
Land, property and equipment, net.................... $ 4,047,129 $5,176,161
=========== ==========
</TABLE>
As of September 30, 1997, the Companies were in the process of expanding
their Sanford operating facility and were obtaining the permits necessary to
begin construction of a Tampa operating facility. The Sanford operating facility
was completed in January, 1998 for a total cost of $785,050, excluding land. The
total cost incurred on the Tampa facility as of September 4, 1998 was
$1,268,969.
Construction in progress includes $13,346 of capitalized interest in
conjunction with the expansion of the Companies' Sanford facilities.
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Personal property taxes............................... $102,547 $282,244
Payroll-related....................................... 212,876 252,310
Interest.............................................. 208,523 224,655
Real estate property taxes............................ 268,470 28,830
Other................................................. 96,620 82,384
-------- --------
Accrued expenses and other liabilities.............. $889,036 $870,423
======== ========
</TABLE>
F-142
<PAGE> 257
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Revolving credit facility with borrowings up to $27,000,000
based on specified assets; collateralized by substantially
all assets of the Companies and the personal guarantee of
the sole owner of the
Companies; interest payable monthly at LIBOR plus 2.25%
(7.97% at September 30, 1997); maturing in June 1999...... $24,065,646 $25,923,660
Equipment obligations with total borrowings up to $7,850,000
and $22,850,000 for 1997 and 1998, respectively;
collateralized by the related equipment and the personal
guarantee of the sole owner of the Companies; interest
payable monthly at rates ranging from 7.97% to 8.50%;
maturing through September 2004........................... 6,632,261 13,969,902
Mortgage loans; collateralized by land, buildings and
improvements; payable in monthly installments of $7,788
and $19,539 as of September 30, 1997 and June 30, 1998,
respectively; interest at LIBOR plus 2.56% (8.28% at
September 30, 1997); maturities to May 2003............... 373,784 769,582
----------- -----------
$31,071,691 $40,663,144
=========== ===========
</TABLE>
A substantial portion of the Companies' rental fleet is financed under the
$27,000,000 revolver. The revolver is renewable annually at the option of the
lender. Should the revolver not be renewed, the loan agreement specifies the
lender may convert the outstanding balance into a five-year term loan at a
mutually agreed upon interest rate.
The Companies were in compliance with all debt covenants as of September
30, 1997 and June 30, 1998 (unaudited).
Maturities of the Companies' debt at September 30, 1997, are as follows:
<TABLE>
<S> <C>
1998........................................................ $25,716,530
1999........................................................ 1,525,887
2000........................................................ 1,399,251
2001........................................................ 1,290,905
2002........................................................ 645,833
2003 and thereafter....................................... 493,285
-----------
$31,071,691
===========
</TABLE>
F-143
<PAGE> 258
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
7. INCOME TAXES
The provision for federal and state income taxes for High Reach Company,
Inc. is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Current..................................................... $ --
Deferred.................................................... 720,603
--------
$720,603
========
Federal..................................................... $629,181
State....................................................... 91,422
--------
$720,603
========
</TABLE>
A reconciliation of the difference between the expected provision for
income taxes using the statutory federal income tax rate of 34% and High Reach
Company, Inc.'s actual provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Income tax at federal statutory rate........................ $715,588
Exclusion of proprietorship income.......................... (187,530)
State income tax............................................ 45,788
Other, net.................................................. 146,757
--------
$720,603
========
</TABLE>
Deferred income taxes arise primarily due to the carryforward of net
operating losses and tax credits, temporary differences in recognizing certain
revenues and expenses for tax purposes and the use of accelerated depreciation
for tax purposes. The components of the deferred income taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 26,341
Accrued expenses.......................................... 29,601
Federal and state net operating loss carryforwards........ 978,382
Alternative minimum tax credit carryforwards.............. 666,726
----------
1,701,050
Deferred tax liability:
Depreciation.............................................. 4,491,953
Other..................................................... 24,877
----------
4,516,830
----------
Net deferred tax liability.................................. $2,815,780
==========
</TABLE>
The Corporation has available federal and state net operating loss
carryforwards of $351,752 and $2,282,189, which expire in 2011 and 2012,
respectively, and federal and state alternative minimum tax credit
F-144
<PAGE> 259
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
carryforwards of $593,022 and $73,704, respectively, which do not expire and
therefore may be carried forward indefinitely, to reduce regular federal and
state income taxes.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Companies lease certain office and service facilities in Tampa and
Jacksonville, Florida under operating leases. The Tampa lease was canceled
during September 1998 as operations were moved to new Company-owned facilities.
Certain real estate leases require the Company to pay maintenance, insurance,
taxes, and certain other expenses in addition to the stated rentals.
Future minimum lease payments to unrelated third parties at September 30,
1997 for the noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1998........................................................ $ 76,860
1999........................................................ 38,340
2000........................................................ 6,390
--------
Total............................................. $121,590
========
</TABLE>
Under the terms of the above operating leases and other short-term,
month-to-month rentals, rent expenses amounted to $71,594 for the year ended
September 30, 1997.
Litigation, Claims and Assessments
From time to time, the Companies may be engaged in routine litigation and
disputes incidental to their business. The Companies do not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying combined financial statements.
Self-Insurance
Due to the rising cost of insurance, the Companies have elected to be
self-insured for a substantial portion of the risk of rental and transportation
equipment damage or loss. As of September 30, 1997, coverage by insurance
companies for such equipment was $8,000,000.
9. RELATED PARTY TRANSACTIONS
Various personal expenses and cash advances are periodically paid to the
shareholder and the employees of the Companies and are included as due from
affiliates in the accompanying combined balance sheets. The receivable from the
shareholder is an interest bearing open credit arrangement. Amounts due from
affiliates consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER JUNE 30,
30, 1997 1998
--------- -----------
(UNAUDITED)
<S> <C> <C>
Shareholder................................................. $728,866 $ 56,063
Employees................................................... 44,177 1,037,919
-------- ----------
$773,043 $1,093,982
======== ==========
</TABLE>
F-145
<PAGE> 260
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
10. EMPLOYEE BENEFIT PLAN
High Reach Company, Inc. has adopted a defined contribution employee
benefit plan under Section 401(k) of the Internal Revenue Code. All employees
who have met minimum age and length of service requirements are qualified to
participate. Employee contributions are voluntary and employer contributions are
made at the discretion of the Board of Directors in an amount not to exceed the
amount deductible for income tax purposes. Plan expense was $68,918 for fiscal
year 1997.
11. SUBSEQUENT EVENT
Effective September 4, 1998, all of the outstanding stock of High Reach
Company, Inc. and substantially all of the operating assets and related
liabilities of High Reach Leasing Company were purchased by NationsRent, Inc.,
an unrelated third party, in exchange for cash.
F-146
<PAGE> 261
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Reliable Rental & Supply Co., Inc.:
We have audited the accompanying balance sheet of Reliable Rental & Supply
Co., Inc. (an Alabama S corporation) as of December 31, 1997, and the related
statements of income, stockholders' 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 financial position of Reliable Rental & Supply
Co., Inc. as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
September 18, 1998.
F-147
<PAGE> 262
RELIABLE RENTAL & SUPPLY CO., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 202,074 $ --
Accounts receivable, net of allowances for doubtful accounts
of $25,000 for both December 31, 1997 and June 30, 1998
(unaudited)............................................... 1,041,815 1,392,179
Inventories................................................. 120,241 191,163
Rental equipment, net....................................... 4,838,244 7,284,873
Property and equipment, net................................. 744,682 917,811
Other assets................................................ 800 78,192
---------- ----------
Total assets...................................... $6,947,856 $9,864,218
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable.......................................... $ 390,661 $ 673,117
Accrued expenses and other liabilities.................... 375,076 455,998
Debt...................................................... 4,602,766 6,859,316
---------- ----------
Total liabilities................................. 5,368,503 7,988,431
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
STOCKHOLDERS' EQUITY:
Common stock $1.00 par value, 5,000 shares authorized,
1,666 shares issued and outstanding.................... 1,666 1,666
Additional paid-in capital................................ 343,333 343,333
Retained earnings......................................... 1,234,354 1,530,788
---------- ----------
Total stockholders' equity........................ 1,579,353 1,875,787
---------- ----------
Total liabilities and stockholders' equity........ $6,947,856 $9,864,218
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-148
<PAGE> 263
RELIABLE RENTAL & SUPPLY CO., INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIOD
FOR THE YEAR ENDED ENDED JUNE 30,
DECEMBER 31, -------------------------
1997 1997 1998
------------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Equipment rentals................................... $8,315,475 $3,896,252 $5,110,775
Sales of equipment, parts and supplies.............. 1,150,832 456,788 552,610
---------- ---------- ----------
9,466,307 4,353,040 5,663,385
Cost of revenue:
Cost of equipment rentals, excluding depreciation... 4,183,338 1,867,855 2,306,355
Rental equipment depreciation....................... 1,291,306 652,543 844,370
Cost of sales of equipment, parts and supplies...... 625,438 222,450 282,461
---------- ---------- ----------
6,100,082 2,742,848 3,433,186
---------- ---------- ----------
Gross profit..................................... 3,366,225 1,610,192 2,230,199
Selling, general and administrative
expenses............................................ 2,040,860 917,709 1,237,401
Nonrental depreciation and amortization............... 297,649 144,000 182,000
---------- ---------- ----------
Operating income................................. 1,027,716 548,483 810,798
---------- ---------- ----------
Other income (expense), net:
Interest expense.................................... (419,379) (196,128) (228,346)
Other, net.......................................... 15,350 12,446 13,982
---------- ---------- ----------
Total other income (expense), net........... (404,029) (183,682) (214,364)
---------- ---------- ----------
Net income............................................ 623,687 364,801 596,434
Pro forma provision for income taxes.................. 249,475 145,920 238,574
---------- ---------- ----------
Pro forma net income.................................. $ 374,212 $ 218,881 $ 357,860
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-149
<PAGE> 264
RELIABLE RENTAL & SUPPLY CO., INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL
NUMBER PAID-IN RETAINED
OF SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996.................. 1,666 $1,666 $343,333 $1,151,489 $1,496,488
Net income................................ -- -- -- 623,687 623,687
Distributions............................. -- -- -- (540,822) (540,822)
----- ------ -------- ---------- ----------
Balance, December 31, 1997.................. 1,666 1,666 343,333 1,234,354 1,579,353
Net income (unaudited).................... -- -- -- 596,434 596,434
Distributions (unaudited)................. -- -- -- (300,000) (300,000)
----- ------ -------- ---------- ----------
Balance, June 30, 1998 (unaudited).......... 1,666 $1,666 $343,333 $1,530,788 $1,875,787
===== ====== ======== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-150
<PAGE> 265
RELIABLE RENTAL & SUPPLY CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIOD
FOR THE YEAR ENDED ENDED JUNE 30,
DECEMBER 31, -------------------------
1997 1997 1998
------------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 623,687 $ 364,801 $ 596,434
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization................ 1,588,955 796,543 1,026,370
(Gain) loss on sale of assets................ (435,347) (280,834) 108,554
Changes in operating assets and liabilities:
Accounts receivable....................... (240,171) (102,542) (350,364)
Inventories............................... (25,404) 3,687 (70,922)
Other assets.............................. 21,045 2,227 (77,392)
Accounts payable.......................... (179,692) (329,188) 607,730
Accrued expenses and other liabilities.... 177,006 (13,712) 80,922
------------------ ----------- -----------
Net cash provided by operating
activities.............................. 1,530,079 440,982 1,921,332
------------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................. (277,061) (89,206) (198,178)
Proceeds from sale of property and equipment........ 124,771 7,507 6,398
Purchases of rental equipment....................... (1,397,815) (1,201,054) (3,875,379)
Proceeds from sale of rental equipment.............. 684,670 293,948 312,477
------------------ ----------- -----------
Net cash used in investing activities..... (865,435) (988,805) (3,754,682)
------------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt.................................. $ 3,037,983 $ 1,246,698 $ 6,032,687
Repayments of debt................................ (2,974,559) (388,935) (4,101,411)
Distributions..................................... (540,822) (245,916) (300,000)
------------------ ----------- -----------
Net cash provided by (used in) financing
activities.............................. (477,398) 611,847 1,631,276
------------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... 187,246 64,024 (202,074)
Cash and cash equivalents, beginning of period...... 14,828 14,828 202,074
------------------ ----------- -----------
Cash and cash equivalents, end of period............ $ 202,074 $ 78,852 $ --
================== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest......................... $ 410,629 $ 192,265 $ 194,124
================== =========== ===========
Supplemental schedule of noncash
investing and financing activities:
Rental equipment acquired under capital lease
obligations.................................. $ 543,517 $ -- $ --
================== =========== ===========
Transfers of property and equipment to rental
equipment.................................... $ 131,044 $ -- $ --
================== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-151
<PAGE> 266
RELIABLE RENTAL & SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Reliable Rental & Supply Co., Inc. (the "Company") was incorporated in
Alabama for the purpose of creating a local diversified equipment rental company
in Birmingham, Alabama. The Company rents a broad array of equipment to a
diverse customer base that includes construction industry participants,
industrial companies, homeowners and others. The Company also engages in related
activities such as selling used rental equipment and related merchandise and
parts. The nature of the Company's business is such that short-term obligations
are typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying balance sheets are presented
on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. At December 31, 1997
and June 30, 1998 (unaudited), the Company had no cash equivalents.
Inventories
Inventory consists of equipment, tools, parts, fuel and related supply
items. Inventories are stated at the lower of cost, using the first-in,
first-out method, or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The range of
useful lives estimated by management for rental equipment is five to seven
years. Ordinary maintenance and repair costs are charged to operations as
incurred.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. The range of useful lives
estimated by management for property and equipment is three to ten years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
Fair value of financial instruments
The carrying amounts reported in the accompanying balance sheets for cash
and cash equivalents, accounts receivable, accounts payable and accrued expenses
and other liabilities approximate fair value as of December 31, 1997 and June
30, 1998 (unaudited) due to the short-term nature of these accounts. The fair
value of debt at December 31,1997 and June 30, 1998 (unaudited) approximate the
carrying value of debt.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
F-152
<PAGE> 267
RELIABLE RENTAL & SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes
The Company is an S Corporation for income tax purposes. Accordingly,
income, losses, and related temporary differences which arise in the recording
of income and expense items for financial reporting and tax reporting purposes
are included in the individual tax returns of the stockholders. Therefore, no
provision or liability for Federal and state income taxes has been included in
the accompanying financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
statements of income is for information purposes only. The pro forma provision
for income taxes has been provided at the estimated rate of 40%.
Use of 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 in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base. No single customer represents greater than 10%
of total accounts receivable. The Company controls credit risk through credit
approvals, credit limits and monitoring procedures.
Interim financial information
In the opinion of management, the unaudited interim financial information
as of June 30, 1998 and for the six months ended June 30, 1997 and 1998
furnished herein reflects all adjustments consisting of normal recurring
accruals that, in the opinion of management, are necessary for a fair
presentation of the results for the interim periods. The results of operations
for the six months ended June 30, 1998 are not necessarily indicative of the
results to be expected for the year ending December 31, 1998.
3. RENTAL EQUIPMENT, NET
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1997 1998
----------------- -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment................................. $8,147,662 $11,068,825
Less - accumulated depreciation.................. (3,309,418) (3,783,952)
---------- -----------
Rental equipment, net.......................... $4,838,244 $ 7,284,873
========== ===========
</TABLE>
F-153
<PAGE> 268
RELIABLE RENTAL & SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1997 1998
----------------- -----------
(UNAUDITED)
<S> <C> <C>
Furniture, fixtures and office equipment.......... $ 636,813 $ 647,647
Vehicles.......................................... 892,451 1,071,109
Less - accumulated depreciation................... (784,582) (800,945)
----------------- ----------
Property and equipment, net..................... $ 744,682 $ 917,811
================= ==========
</TABLE>
5. ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1997 1998
----------------- -----------
(UNAUDITED)
<S> <C> <C>
Personal property taxes............................ $ 155,151 $178,217
Payroll-related.................................... 167,557 200,676
Sales and rental taxes............................. 34,019 42,941
Other.............................................. 18,349 34,164
----------------- --------
Accrued expenses and other liabilities........ $ 375,076 $455,998
================= ========
</TABLE>
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1997 1998
----------------- -----------
(UNAUDITED)
<S> <C> <C>
Notes payable, secured by equipment and vehicles, interest
at 8.50% to 9.67%, payable in various monthly installments
through June 2001......................................... $3,561,932 $5,535,168
Capital lease obligation, secured by equipment, with monthly
payments of $6,728 plus interest at 6.98%, maturing in
January 2006.............................................. 543,517 521,559
Notes payable to related parties, unsecured, interest at 8%
to 10%, payable in annual or semi-annual installments
through December 2000..................................... 497,317 477,315
Bank overdraft.............................................. -- 325,274
---------- ----------
$4,602,766 $6,859,316
========== ==========
</TABLE>
F-154
<PAGE> 269
RELIABLE RENTAL & SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of the Company's debt at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASE
NOTES PAYABLE OBLIGATION TOTAL
------------- ------------- ----------
<S> <C> <C> <C>
1998..................................................... $1,253,623 $ 80,738 $1,334,361
1999..................................................... 892,296 80,738 973,034
2000..................................................... 1,141,969 80,738 1,222,707
2001..................................................... 771,361 80,738 852,099
2002..................................................... -- 80,738 80,738
2003 and thereafter...................................... -- 328,877 328,877
---------- --------- ----------
4,059,249 732,567 4,791,816
Less- amounts representing interest...................... -- (189,050) (189,050)
---------- --------- ----------
$4,059,249 $ 543,517 $4,602,766
========== ========= ==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases real estate for storage and office space and rental
equipment under operating leases. Certain real estate leases require the Company
to pay maintenance, insurance, taxes and certain other expenses in addition to
the stated rentals. The real estate leases cover several operating locations and
expire at various dates through December 2002. The rental equipment leases
expire at various dates through September 2005. Future minimum lease payments to
related and unrelated third parties, by year and in the aggregate, at December
31, 1997 for noncancelable operating leases with initial or remaining terms of
one year or more are as follows:
<TABLE>
<CAPTION>
RELATED UNRELATED
PARTIES THIRD PARTIES TOTAL
---------- ------------- ----------
<S> <C> <C> <C>
1998...................................................... $ 252,000 $ 450,754 $ 702,754
1999...................................................... 252,000 403,969 655,969
2000...................................................... 252,000 403,969 655,969
2001...................................................... 252,000 377,278 629,278
2002...................................................... 252,000 377,278 629,278
2003 and thereafter....................................... -- 571,191 571,191
---------- ---------- ----------
Total........................................... $1,260,000 $2,584,439 $3,844,439
========== ========== ==========
</TABLE>
Rent expense for the storage and office space under noncancellable
operating leases for the year ended December 31, 1997 and for the six months
ended June 30, 1998 (unaudited) is $293,604 and $141,114, respectively. Included
in total rent expense for the year ended December 31, 1997 and for the six
months ended June 30, 1998 (unaudited) is rent to a related party of
approximately $216,000 and $126,000, respectively.
Litigation, Claims and Assessments
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
8. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution profit-sharing plan under
which employees having worked a minimum of twelve months are eligible to
participate. Employer contributions, which are
F-155
<PAGE> 270
RELIABLE RENTAL & SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
discretionary and depend on the Company's profitability, were approximately
$33,882 and $18,145 for the year ended December 31, 1997 and the six months
ended June 30, 1998 (unaudited), respectively.
9. SUBSEQUENT EVENT
Effective September 4, 1998, substantially all of the Company's operating
assets and related liabilities were purchased by NationsRent, Inc., an unrelated
third party, in exchange for cash and debt.
F-156
<PAGE> 271
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Ray L. O'Neal, Inc. and Arenco, LLC:
We have audited the accompanying combined balance sheets of Ray L. O'Neal,
Inc. (a Texas S corporation) and Arenco, LLC (a Texas limited liability company)
as of December 31, 1996 and 1997, and the related combined statements of income,
stockholders' and members' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Companies' 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 Ray L. O'Neal, Inc. and
Arenco, LLC as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
September 4, 1998.
F-157
<PAGE> 272
RAY L. O'NEAL, INC. AND ARENCO, LLC
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1996 1997 1998
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................... $ 2,217,546 $ 2,073,743 $ 252,334
Accounts receivable, net of allowances for doubtful
accounts of $235,000, $300,000 and $384,000
(unaudited) for December 31, 1996, 1997, and September
30, 1998, respectively................................ 3,998,540 5,593,499 7,010,391
Inventories............................................. 2,015,560 1,689,786 2,230,794
Rental equipment, net................................... 23,156,614 30,316,374 38,277,607
Property, plant and equipment, net...................... 2,421,920 2,735,947 2,970,875
Other assets............................................ 461,503 718,131 1,919,802
----------- ----------- -----------
Total assets.................................. $34,271,683 $43,127,480 $52,661,803
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY
LIABILITIES:
Accounts payable...................................... $ 954,419 $ 820,004 $ 920,011
Accrued expenses and other liabilities................ 1,398,433 2,685,278 3,018,734
Debt.................................................. 9,880,862 14,190,466 14,682,708
----------- ----------- -----------
Total liabilities............................. 12,233,714 17,695,748 18,621,453
</TABLE>
<TABLE>
COMMITMENTS AND CONTINGENCIES
(Notes 8 and 10)
<S> <C> <C> <C>
STOCKHOLDERS' AND MEMBERS' EQUITY:
Voting common stock; no par value, 100,000 shares
authorized, 60,200 shares issued in 1996; 10,000
shares authorized, 6,020 shares issued in 1997 and
1998............................................... 62,000 6,200 6,200
Nonvoting common stock; 90,000 shares authorized,
54,180 shares issued in 1997 and 1998.............. -- 55,800 55,800
Members' contributed capital.......................... 200,000 200,000 200,000
Retained earnings..................................... 21,870,944 25,264,707 33,873,325
Less: treasury stock-at cost: Voting common
stock -- 838 shares in 1996 and 84 shares in 1997
and 1998; nonvoting common stock -- 754 shares in
1997 and 1998...................................... (94,975) (94,975) (94,975)
----------- ----------- -----------
Total stockholders' and members' equity....... 22,037,969 25,431,732 34,040,350
----------- ----------- -----------
Total liabilities and stockholders' and
members' equity............................. $34,271,683 $43,127,480 $52,661,803
=========== =========== ===========
</TABLE>
The accompanying notes to combined financial statements are
an integral part of these combined balance sheets.
F-158
<PAGE> 273
RAY L. O'NEAL, INC. AND ARENCO, LLC
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED NINE MONTH PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Equipment rentals....................... $31,388,940 $33,326,317 $40,690,605 $30,141,995 $37,439,537
Sales of equipment, parts and
supplies.............................. 4,799,559 6,784,677 7,390,683 4,928,679 7,166,127
Other................................... 31,615 33,641 159,098 143,555 140,282
----------- ----------- ----------- ----------- -----------
36,220,114 40,144,635 48,240,386 35,214,229 44,745,946
COST OF REVENUE:
Cost of equipment rentals, excluding
depreciation.......................... 9,503,785 10,629,936 14,514,537 10,136,211 12,713,436
Rental equipment depreciation........... 9,732,033 11,383,135 14,740,582 11,115,205 13,761,737
Cost of sales of equipment, parts and
supplies.............................. 2,079,980 3,200,905 3,608,098 2,294,080 1,957,702
----------- ----------- ----------- ----------- -----------
21,315,798 25,213,976 32,863,217 23,545,496 28,432,875
----------- ----------- ----------- ----------- -----------
Gross profit.......................... 14,904,316 14,930,659 15,377,169 11,668,733 16,313,071
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................ 9,942,586 9,806,372 11,241,495 2,935,079 3,744,783
NONRENTAL DEPRECIATION AND AMORTIZATION... 258,507 390,030 372,108 247,659 238,326
----------- ----------- ----------- ----------- -----------
Operating income...................... 4,703,223 4,734,257 3,763,566 8,485,995 12,329,962
OTHER INCOME (EXPENSE), net
Interest expense........................ (602,032) (524,004) (698,175) (550,592) (788,634)
Interest income......................... 163,220 266,681 292,536 117,648 124,929
Other, net.............................. 71,118 113,046 35,836 92,461 172,361
----------- ----------- ----------- ----------- -----------
NET INCOME................................ 4,335,529 4,589,980 3,393,763 8,145,512 11,838,618
PRO FORMA PROVISION FOR INCOME TAXES...... 1,734,212 1,835,992 1,357,505 3,258,205 4,735,447
----------- ----------- ----------- ----------- -----------
PRO FORMA NET INCOME...................... $ 2,601,317 $ 2,753,988 $ 2,036,258 $ 4,887,307 $ 7,103,171
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to combined financial statements are
an integral part of these combined statements.
F-159
<PAGE> 274
RAY L. O'NEAL, INC. AND ARENCO, LLC
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
AND MEMBERS' CAPITAL
<TABLE>
<CAPTION>
COMMON STOCK - NO PAR VALUE
-----------------------------------------
NUMBER OF NUMBER OF
VOTING NONVOTING MEMBERS' RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
--------- ------- --------- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995............ 60,200 $62,000 -- $ - $ - $12,945,435 $(94,975) $12,912,460
Net income........................ -- -- -- -- -- 4,335,529 -- 4,335,529
-------- ------- ------- ------- -------- ----------- -------- -----------
Balance, December 31, 1995.......... 60,200 62,000 -- -- -- 17,280,964 (94,975) 17,247,989
Contributions..................... -- -- -- -- 200,000 -- -- 200,000
Net income........................ -- -- -- -- -- 4,589,980 -- 4,589,980
-------- ------- ------- ------- -------- ----------- -------- -----------
Balance, December 31, 1996.......... 60,200 62,000 -- -- 200,000 21,870,944 (94,975) 22,037,969
Recapitalization.................. (54,180) (55,800) 54,180 55,800 -- -- -- --
Net income........................ -- -- -- -- -- 3,393,763 -- 3,393,763
-------- ------- ------- ------- -------- ----------- -------- -----------
Balance, December 31, 1997.......... 6,020 6,200 54,180 55,800 200,000 25,264,707 (94,975) 25,431,732
Distributions (unaudited)......... -- -- -- -- -- (3,230,000) -- (3,230,000)
Net income (unaudited)............ -- -- -- -- -- 11,838,618 -- 11,838,618
-------- ------- ------- ------- -------- ----------- -------- -----------
Balance, September 30, 1998
(unaudited)....................... 6,020 $ 6,200 54,180 $55,800 $200,000 $33,873,325 $(94,975) $34,040,350
======== ======= ======= ======= ======== =========== ======== ===========
</TABLE>
The accompanying notes to combined financial statements are
an integral part of these combined statements.
F-160
<PAGE> 275
RAY L. O'NEAL, INC. AND ARENCO, LLC
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
NINE MONTH PERIOD ENDED
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------ --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 4,335,529 $ 4,589,980 $ 3,393,763 $ 8,145,512 $11,838,618
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization.................... 9,990,540 11,773,165 15,112,690 11,362,864 14,000,063
(Gain) loss on sale of assets.................... (2,721,534) (3,723,363) (3,640,008) (1,369,650) (4,375,680)
Changes in operating assets and liabilities:
Accounts receivable........................... (957,026) 201,512 (1,594,959) (3,192,318) (1,416,892)
Inventories................................... (95,524) (697,742) 325,774 255,439 (541,008)
Other assets.................................. 22,768 (26,462) (256,628) (241,811) (1,201,671)
Accounts payable.............................. 1,022,092 (635,211) (134,415) (128,828) 100,007
Accrued expenses and other liabilities........ 53,286 100,974 1,286,845 1,864,227 333,456
------------ ------------ ------------ ------------ -----------
Net cash provided by operating activities..... 11,650,131 11,582,853 14,493,062 16,695,435 18,736,893
------------ ------------ ------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............ (391,093) (1,011,024) (630,768) (525,079) (473,254)
Purchases of rental equipment......................... (13,828,294) (15,711,033) (22,853,187) (18,543,953) (23,311,151)
Proceeds from sale of rental equipment................ 2,826,187 4,410,066 4,537,486 2,695,154 5,963,861
------------ ------------ ------------ ------------ -----------
Net cash used in investing activities......... (11,393,200) (12,311,991) (18,946,469) (16,373,878) (17,820,544)
------------ ------------ ------------ ------------ -----------
</TABLE>
(Continued)
F-161
<PAGE> 276
RAY L. O'NEAL, INC. AND ARENCO, LLC
COMBINED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED NINE MONTH PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt........................................ $5,883,634 $5,710,619 $10,354,246 $6,112,025 $23,299,072
Repayments of debt........................................ (4,505,071) (5,575,127) (6,044,642) (4,481,432) (22,806,830)
Capital contribution...................................... -- 200,000 -- -- --
Distributions to owners................................... -- -- -- -- (3,230,000)
---------- ---------- ----------- ---------- -----------
Net cash provided by (used in) financing activities.... 1,378,563 335,492 4,309,604 1,630,593 (2,737,758)
---------- ---------- ----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS...................................... 1,635,494 (393,646) (143,803) 1,952,150 (1,821,409)
CASH AND CASH EQUIVALENTS, beginning of period.............. 975,698 2,611,192 2,217,546 2,217,546 2,073,743
---------- ---------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of period.................... $2,611,192 $2,217,546 $ 2,073,743 $4,169,696 $ 252,334
========== ========== =========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest................................. $ 600,092 $ 519,407 $ 654,503 $ 456,444 $ 532,759
========== ========== =========== ========== ===========
Cash paid for income taxes............................. $ 121,017 $ 211,966 $ 233,772 $ 233,772 $ 207,432
========== ========== =========== ========== ===========
</TABLE>
The accompanying notes to combined financial statements are
an integral part of these combined statements.
F-162
<PAGE> 277
RAY L. O'NEAL, INC. AND ARENCO, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Ray L. O'Neal, Inc. was incorporated on December 23, 1968 in the State of
Texas and Arenco, LLC was formed on August 19, 1996 as a limited liability
corporation in the State of Texas. Ray L. O'Neal, Inc. and Arenco, LLC, do
business collectively as A-1 Rental (the "Company"). The Company operates
thirteen stores in the Dallas/Fort Worth metropolitan area renting a broad array
of equipment to a diverse customer base that includes construction industry
participants, industrial companies, homeowners and others. The Company also
engages in related activities such as selling new and used rental equipment and
related merchandise and parts. Rental periods are generally less than one year
and the related contracts are cancelable at the discretion of the customer. The
nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying combined balance sheets are
presented on an unclassified basis.
The accompanying combined financial statements include Ray L. O'Neal, Inc.
and Arenco, LLC. Ownership of both entities is closely held. All significant
intercompany accounts and transactions have been eliminated in combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. Cash in
interest-bearing accounts was $2,178,170 and $1,254,579 as of December 31, 1996
and 1997 at interest rates in the ranges of 3%-5.07% and 3.18%-5.28%,
respectively. At December 31, 1996 and 1997 and September 30, 1998 (unaudited),
the Company had no cash equivalents.
Inventories
Inventories consist of equipment, tools, parts, fuel and related
merchandise supply items. Inventories are stated at the lower of cost or market.
Cost is determined using the weighted average method.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using an accelerated method. The useful life
estimated by management for rental equipment is five years. Rental equipment
having a cost below a capitalization threshold is charged to rental equipment
depreciation expense at the time of purchase. Ordinary maintenance and repair
costs are charged to operations as incurred.
Property, plant and equipment
Property is stated at cost. Plant and equipment are recorded at cost and
depreciated over their estimated useful lives using an accelerated method. The
range of useful lives estimated by management for plant and equipment is five to
thirty nine years. The cost of additions and improvements which substantially
extend the useful life of a particular asset is capitalized. Upon sale, the cost
and related accumulated depreciation are removed from the accounts and any gain
or loss is included in other income. Ordinary maintenance and repair costs are
charged to expense as incurred.
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than
F-163
<PAGE> 278
RAY L. O'NEAL, INC. AND ARENCO, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the assets' carrying amount, the Company records impairment as required under
generally accepted accounting principles. No such impairment losses were
incurred for the periods presented.
Fair value of financial instruments
The carrying amounts reported in the accompanying combined balance sheets
for cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses and other liabilities approximate fair value as of December 31, 1996
and 1997 and September 30, 1998 (unaudited) due to the short term nature of
these accounts. The carrying amount of the vendor financing debt approximates
fair value due to their short maturity of up to one year. The fair value of
notes payable is determined using current applicable interest rates as of
December 31, 1996 and 1997 and September 30, 1998 (unaudited) and approximates
the carrying value of such debt.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Income taxes
Ray L. O'Neal, Inc. became an S Corporation for tax purposes effective
November 1, 1987. Arenco, LLC is classified as a partnership for income tax
purposes. Accordingly, income, losses and related temporary differences which
arise in the recording of income and expense items for financial reporting and
tax reporting purposes are included in the tax returns of the stockholders of
Ray L. O'Neal, Inc. and the members of Arenco, LLC. Therefore, no provision or
liability for Federal and state income taxes has been included in the
accompanying combined financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
combined statements of income is for informational purposes only. The pro forma
provision for income taxes has been provided at the estimated effective rate of
40%.
Ray L. O'Neal, Inc. was liable for income taxes imposed on any built-in
gain resulting from the disposition, within 10 years, of any asset held on the
first day of the S Corporation election. A built-in gain is the difference
between the net book value and the fair market value of an asset, on hand, as of
the S Corporation election date. The income tax on the built-in gains is
computed at the highest corporate tax rate effective for that year. Provisions
for the built-in gains income tax are made in the accompanying combined balance
sheet in accrued expenses and other liabilities for the year ended December 31,
1996. No further provision is required for disposition of assets after October
31, 1997.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base. No single customer represents greater than 10%
of total accounts receivable. The Company controls credit risk through credit
approvals, credit limits and monitoring procedures.
F-164
<PAGE> 279
RAY L. O'NEAL, INC. AND ARENCO, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Interim Financial Information
In the opinion of management, the unaudited interim financial information
as of September 30, 1998 and for the nine months ended September 30, 1997 and
1998 furnished herein reflects all adjustments consisting of normal recurring
accruals that, in the opinion of management, are necessary for a fair
presentation of the results for the interim periods. The results of operations
for the nine months ended September 30, 1998 are not necessarily indicative of
the results to be expected for the year ending December 31, 1998.
3. RENTAL EQUIPMENT, NET
Rental equipment and related accumulated depreciation consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1996 1997 1998
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment................................ $57,292,733 $71,891,633 $83,834,303
Less -- accumulated depreciation................ 34,136,119 41,575,259 45,556,696
----------- ----------- -----------
Rental equipment, net......................... $23,156,614 $30,316,374 $38,277,607
=========== =========== ===========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1996 1997 1998
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Land.............................................. $ 78,567 $ 78,567 $ 78,567
Building and leasehold Improvements............... 3,961,651 4,363,848 4,686,937
Office equipment.................................. 1,006,514 1,236,742 1,389,294
Less- accumulated depreciation and amortization... 2,624,812 2,943,210 3,183,923
---------- ---------- ----------
Property, plant and equipment, net........... $2,421,920 $2,735,947 $2,970,875
========== ========== ==========
</TABLE>
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1996 1997 1998
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Payroll and related benefits...................... $ 432,952 $ 519,098 $ 428,170
Employee benefit plan............................. 447,817 1,559,100 1,335,846
Sales taxes payable............................... 223,538 276,385 369,410
Accrual for income tax on built-in gains.......... 36,535 -- --
Accrued interest.................................. 18,352 62,024 317,899
Other............................................. 239,239 268,671 567,409
---------- ---------- ----------
Accrued expenses and other liabilities.......... $1,398,433 $2,685,278 $3,018,734
========== ========== ==========
</TABLE>
F-165
<PAGE> 280
RAY L. O'NEAL, INC. AND ARENCO, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1996 1997 1998
---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable, secured by specific equipment,
interest at prime minus 50 basis points (8.0%
at December 31, 1997), payable in monthly
installments ranging from $21,667 to $77,930
through March 2002............................. $4,581,799 $ 8,447,429 $ 2,941,640
Vendor financing, secured by specific equipment,
non-interest bearing, payable within one
year........................................... 1,749,063 2,443,037 2,691,068
Notes payable to a related parties substantially
unsecured, interest at 7.5% and 8.0%, payable
through January 2002........................... 3,550,000 3,300,000 3,500,000
Lines of credit, with borrowings up to $11.5
million, secured by specific equipment,
interest at prime less .50%, payable in monthly
installments through August 1, 1999............ -- -- 5,550,000
---------- ----------- -----------
$9,880,862 $14,190,466 $14,682,708
========== =========== ===========
</TABLE>
The indebtedness with the related party is, in the opinion of management,
at terms not more or less favorable than could have been obtained if the
indebtedness was with an unrelated party.
Maturities of the Company's debt at December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 5,086,558
1999........................................................ 4,456,019
2000........................................................ 2,393,520
2001........................................................ 1,934,719
2002........................................................ 319,650
-----------
Total debt........................................ $14,190,466
===========
</TABLE>
7. RECAPITALIZATION
Effective December 29, 1997, the articles of incorporation for Ray L.
O'Neal, Inc. were amended to authorize the issuance of voting and nonvoting
shares of common stock in lieu of a single class of common stock. The 60,200
common shares issued prior to the amendment were changed and reclassified to
6,020 shares of voting common stock and 54,180 shares of nonvoting common stock.
The stated capital of the corporation was not changed by the amendment.
F-166
<PAGE> 281
RAY L. O'NEAL, INC. AND ARENCO, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases real estate under operating leases from related parties
and from a third party on a month to month basis. Certain real estate leases
require the Company to pay maintenance, insurance, taxes and certain other
expenses in addition to the stated rentals. The leases cover several operating
locations and expire at various dates through July 31, 2005. Future minimum
lease payments to related parties, by year and in the aggregate, at December 31,
1997 for noncancelable operating leases with initial or remaining terms of one
year or more are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 987,616
1999........................................................ 918,684
2000........................................................ 692,684
2001........................................................ 772,116
2002........................................................ 704,066
2003 and thereafter......................................... 741,516
----------
Total............................................. $4,816,682
==========
</TABLE>
Rent expense under noncancellable operating leases for the years ended
December 31, 1995, 1996 and 1997 was $781,400, $804,476 and $1,027,525,
respectively, all of which was paid to related parties, except for $30,000 paid
to an unrelated third party in 1997.
Litigation, Claims and Assessments
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying combined financial statements.
9. EMPLOYEE BENEFIT PLANS
The Company has adopted a defined contribution employee benefit plan under
Section 401(k) of the Internal Revenue Code. All employees who have met minimum
age and length of service requirements are qualified to participate. Employee
contributions are voluntary and employer contributions are made at the
discretion of the Board of Directors in an amount not to exceed the amount
deductible for income tax purposes. Plan expense was $225,000, $250,000 and
$320,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
The Company had a defined benefit pension plan covering substantially all
of its employees which was terminated effective December 31, 1997. The benefits
were based on years of service and compensation of the employee. Payment of
accrued benefits under the plan was only available upon death, disability or
retirement. The Company's policy was to annually expense and contribute a
minimum required contribution as determined by a consulting actuary. Annual
expenses and contributions related to the pension plan were $337,370, $459,768
and $552,796 for the years ended December 31, 1995, 1996 and 1997, respectively.
In addition, the estimated cost of terminating the plan of $906,985 was expensed
in 1997 and is included in accrued expenses and other liabilities on the
accompanying combined balance sheet as of December 31, 1997.
10. SUBSEQUENT EVENT
Effective September 9, 1998, substantially all of the Company's operating
assets and liabilities were purchased by NationsRent, Inc. an unrelated third
party, in exchange for cash and debt.
F-167
<PAGE> 282
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Action Equipment Company, Inc.
and Action Supply Co., Inc.:
We have audited the accompanying combined balance sheet of Action Equipment
Company, Inc. and Action Supply Co., Inc. (the "Companies"), both New Hampshire
S Corporations, as of December 31, 1997 and the related combined statements of
operations, stockholders' deficit and cash flows for the year then ended. These
financial statements are the responsibility of the Companies' 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Action
Equipment Company, Inc. and Action Supply Co., Inc. as of December 31, 1997 and
the combined results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts,
November 13, 1998.
F-168
<PAGE> 283
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS................................... $ 190,171 $ 265,543
ACCOUNTS RECEIVABLE, net of allowances for doubtful accounts
of $435,000 and $329,000 at December 31, 1997 and
September 30, 1998 (unaudited), respectively.............. 2,899,637 2,832,781
INVENTORIES................................................. 1,353,174 1,557,659
DUE FROM AFFILIATES......................................... 27,514 461,444
RENTAL EQUIPMENT, NET....................................... 4,267,389 8,649,446
PROPERTY AND EQUIPMENT, NET................................. 722,989 857,301
OTHER ASSETS, NET........................................... 170,087 404,365
----------- -----------
Total assets...................................... $ 9,630,961 $15,028,539
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
DEBT........................................................ $ 6,642,922 $ 9,398,776
OBLIGATIONS UNDER CAPITAL LEASES............................ 297,484 259,425
ACCOUNTS PAYABLE............................................ 1,574,026 4,162,889
ACCRUED EXPENSES AND OTHER LIABILITIES...................... 291,186 511,585
SUBORDINATED DEBT........................................... 1,229,978 1,247,497
----------- -----------
Total liabilities................................. 10,035,596 15,580,172
COMMITMENTS AND CONTINGENCIES (Notes 7, 8, 9 and 13)
PUT WARRANTS................................................ 278,700 1,875,000
----------- -----------
STOCKHOLDERS' DEFICIT:
Stockholders' investment.................................. 1,529,648 1,633,650
Accumulated deficit....................................... (2,212,983) (4,060,283)
----------- -----------
Total stockholders' deficit....................... (683,335) (2,426,633)
----------- -----------
Total liabilities and stockholders' deficit....... $ 9,630,961 $15,028,539
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-169
<PAGE> 284
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR NINE MONTHS ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------
1997 1997 1998
------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE:
Equipment rentals................................... $ 6,114,187 $4,203,380 $ 5,626,434
Sale of equipment, parts and supplies............... 7,396,734 5,001,628 5,249,394
Service and Other................................... 334,751 196,791 215,029
----------- ---------- -----------
Total Revenue............................... 13,845,672 9,401,799 11,090,857
COST OF REVENUE:
Cost of equipment rentals, excluding depreciation... 3,187,304 2,376,958 2,657,283
Rental equipment depreciation....................... 660,750 314,014 598,236
Cost of sales of equipment, parts and supplies...... 6,315,063 4,224,843 4,689,604
----------- ---------- -----------
Total Cost of Revenue....................... 10,163,117 6,915,815 7,945,123
----------- ---------- -----------
Gross profit................................ 3,682,555 2,485,984 3,145,734
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 3,432,129 2,456,364 2,450,721
NONRENTAL DEPRECIATION AND AMORTIZATION............... 189,636 90,122 153,378
----------- ---------- -----------
Operating income (loss)............................. 60,790 (60,502) 541,635
OTHER INCOME (EXPENSE), NET:
Interest expense.................................... (779,796) (524,745) (2,393,725)
Interest income..................................... 27,608 21,058 4,790
----------- ---------- -----------
Total other expense......................... (752,188) (503,687) (2,388,935)
----------- ---------- -----------
Loss before extraordinary item.............. (691,398) (564,189) (1,847,300)
EXTRAORDINARY ITEM :
Gain on extinguishment of debt...................... 651,354 -- --
----------- ---------- -----------
NET LOSS.............................................. $ (40,044) $ (564,189) $(1,847,300)
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-170
<PAGE> 285
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
COMBINED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS' ACCUMULATED STOCKHOLDERS'
INVESTMENT DEFICIT DEFICIT
------------- ----------- -------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1997.......................... $1,015,163 $(2,172,939) $(1,157,776)
Capital contribution............................ 514,485 -- 514,485
Net loss........................................ -- (40,044) (40,044)
---------- ----------- -----------
BALANCE, DECEMBER 31, 1997........................ 1,529,648 (2,212,983) (683,335)
Capital contribution (unaudited)................ 104,002 -- 104,002
Net loss (unaudited)............................ -- (1,847,300) (1,847,300)
---------- ----------- -----------
BALANCE, SEPTEMBER 30, 1998 (unaudited)........... $1,633,650 $(4,060,283) $(2,426,633)
---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-171
<PAGE> 286
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, -------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $ (40,044) $ (564,189) $(1,847,300)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities --
Depreciation and amortization.................. 850,386 404,136 751,614
Gain on extinguishment of debt................. (651,354) -- --
Accretion of put warrants...................... -- -- 1,596,300
Accretion of subordinated debt................. 8,678 -- 17,519
Changes in assets and liabilities --
Accounts receivable......................... (1,020,433) (331,889) 66,856
Inventories................................. (79,330) 17,841 (204,485)
Due from affiliates......................... 557,788 (117,635) (433,930)
Other assets................................ 33,803 (136,802) (234,278)
Accounts payable............................ (136,172) (498,608) 2,588,863
Accrued expenses and other liabilities...... 91,391 (89,948) 220,399
----------- ----------- -----------
Net cash provided by (used in) operating
activities............................. (385,287) (1,317,094) 2,521,558
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchase of rental equipment.................... (205,215) (156,000) (2,200,000)
Net purchase of property and equipment.............. (66,649) (50,000) (197,432)
----------- ----------- -----------
Net cash used in investing activities..... (271,864) (206,000) (2,397,432)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) of debt................. (719,967) 91,431 (48,754)
Proceeds from subordinated debt issuance............ 1,221,300 1,221,300 --
Issuance of put warrants............................ 278,700 278,700 --
----------- ----------- -----------
Net cash provided by (used in) financing
activities............................. 780,033 1,591,431 (48,754)
----------- ----------- -----------
Net increase in cash and cash
equivalents............................ 122,882 68,337 75,372
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........ 67,289 67,289 190,171
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............. $ 190,171 $ 135,626 $ 265,543
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Acquisition of equipment financed by debt and
capital leases................................... $ 1,061,398 $ 760,188 $ 2,870,551
=========== =========== ===========
Conversion of debt to capital....................... $ 514,485 $ 514,485 $ 104,002
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for taxes................................. $ 14,500 $ 7,107 $ 12,950
=========== =========== ===========
Cash paid for interest.............................. $ 817,485 $ 612,509 $ 712,852
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-172
<PAGE> 287
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION AND BASIS OF PRESENTATION
Action Equipment Company, Inc. was incorporated in 1980 in the state of New
Hampshire. Action Supply Co., Inc. was incorporated in 1985 in the state of New
Hampshire. Action Equipment Company, Inc. and Action Supply Co., Inc.,
collectively referred to hereafter as the "Companies," do business in New
Hampshire, Massachusetts, Vermont and Maine. The Companies rent and sell a broad
array of equipment to a customer base that includes principally construction
industry participants and industrial companies. The nature of the Companies'
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the accompanying audited and unaudited balance sheets are presented on
an unclassified basis.
The combined financial statements include Action Equipment Company, Inc.
and Action Supply Co., Inc., both of which are closely held by the same
shareholder group. All significant intercompany accounts and transactions have
been eliminated in combination.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Interim Financial Information
The accompanying combined financial statements as of September 30, 1998 and
for the nine-month periods ended September 30, 1997 and 1998 are unaudited, but
in the opinion of management, include all adjustments consisting of normal
recurring adjustments necessary for a fair presentation of results for the
interim periods. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted with respect to the interim periods,
although the Companies believe that the disclosures included are adequate to
make the information presented not misleading. Results for the nine months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
(b) Cash and Cash Equivalents
The Companies consider all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. As of December 31,
1997, $82,022 of the total cash and cash equivalents was interest bearing at
approximately 2.5%, of which $51,449 was restricted to comply with loan
covenants (see Note 6).
(c) Inventories
Inventories consist of equipment, tools, parts and related rental equipment
supplies and accessories. Inventories are stated at the lower of cost, using the
specific identification method, or market.
(d) Rental Equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The useful lives
estimated by management for rental equipment are 3 to 12 years. Ordinary
maintenance and repair costs are charged to operations as incurred. Betterments,
which substantially extend the useful life of rental equipment, are capitalized.
Upon sale of rental equipment, the cost and related accumulated depreciation are
removed from the accounts and any gain or loss is included in income.
F-173
<PAGE> 288
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(e) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
are depreciated on the straight-line method using the following estimated useful
lives:
<TABLE>
<S> <C>
3 -- 12
Transportation equipment............................... years
5 -- 12
Furniture and fixtures................................. years
3 -- 5
Computer equipment..................................... years
Leasehold improvements................................. 5 years
</TABLE>
The cost of additions and improvements, which substantially extend the
useful life of a particular asset, is capitalized.
(f) Other Assets
Included in other assets are deferred financing costs and costs incurred in
relation to the possible sale of the Companies (Note 15). Deferred financing
costs are amortized on a straight-line basis over the term of the related loan
or mortgage, which ranges from 24 to 84 months.
(g) Impairment of Long-Lived Assets
The Companies periodically review the valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amounts, the Companies record impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
(h) Fair Value of Financial Instruments
The carrying amounts reported in the accompanying balance sheets for cash
and cash equivalents, accounts receivable, accounts payable, accrued expenses
and other liabilities approximate fair value as of December 31, 1997 and
September 30, 1998 (unaudited) due to the short-term nature of these amounts.
The fair value of debt is determined using current applicable interest rates as
of December 31, 1997 and September 30, 1998 (unaudited) and approximates the
carrying value of such debt.
(i) Revenue Recognition
Revenues from the sales and service of equipment, parts and accessories are
recognized upon shipment or as the services are provided. Rental revenues are
recognized ratably over the contractual periods, which are typically less than
one year. Allowances are established to recognize estimated bad debts and
adjustments to revenues.
(j) Income Taxes
The Companies have elected under the Internal Revenue Code to be S
corporations. For federal income tax purposes, income, losses and other tax
attributes are primarily passed through to the stockholders. Therefore, no
provision or liability for federal income taxes has been included in the
combined financial statements. The Companies have operating facilities in
various states and provide for state income tax liability based upon the
respective taxable income and statutory requirements of each state.
The Companies follow Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes, which requires, among other things,
recognition of future tax effects measured at enacted rates attributable to
deductible temporary differences between the financial statement and income tax
bases of assets and liabilities to the extent that realization of said effects
is more likely than not.
F-174
<PAGE> 289
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1997, the Companies had net operating loss carryforwards
of approximately $300,000 and tax credits of $20,000, which begin to expire in
1998. The deferred tax asset associated with these tax attributes has a 100%
offsetting valuation allowance due to the uncertainty of usage prior to
expiration.
(k) Use of 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(l) Concentrations of Credit Risk
Financial instruments that potentially subject the Companies to significant
concentrations of credit risk consist primarily of cash equivalents and accounts
receivable. The Companies maintain cash and cash equivalents with high-quality
financial institutions. Concentrations of credit risk with respect to accounts
receivable are limited because a large number of diverse customers make up the
Companies' customer base. No single customer represents greater than 10% of
total accounts receivable. The Companies control credit risk through credit
approvals, credit limits and monitoring procedures.
(3) RENTAL EQUIPMENT
Rental equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Rental equipment....................................... $ 6,102,028 $10,790,160
Less accumulated depreciation.......................... (1,834,639) (2,140,714)
----------- -----------
Rental equipment, net.................................. $ 4,267,389 $ 8,649,446
=========== ===========
</TABLE>
(4) PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Transportation equipment............................... $ 921,322 $ 1,091,689
Furniture and fixtures................................. 303,265 303,883
Computer equipment..................................... 48,195 52,956
Leasehold improvements................................. 38,731 123,609
----------- -----------
1,311,513 1,572,137
Less accumulated depreciation.......................... (588,524) (714,836)
----------- -----------
Property and equipment, net............................ $ 722,989 $ 857,301
=========== ===========
</TABLE>
F-175
<PAGE> 290
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(5) ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Interest............................................... $ 39,241 $ 97,617
Professional Fees...................................... 136,181 197,699
Payroll-related........................................ 37,793 21,130
Deferred Taxes......................................... 30,000 30,000
Inventory received, but not invoiced................... 24,604 113,081
Other.................................................. 23,367 52,058
----------- -----------
$ 291,186 $ 511,585
=========== ===========
</TABLE>
(6) DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Lines of credit. Revolving loan with borrowings up to
$2,000,000 ($1,996,780 at December 31, 1997); final
maturity November 1999; variable rate (10% at
December 31, 1997); collateralized by all personal
property; guaranteed by stockholders and Action
Supply Co., Inc...................................... $ 1,996,780 $ 1,985,274
Demand note ($154,000 at December 31, 1997) with
variable rate (10.5% at December 31, 1997);
collateralized by inventories and receivables;
guaranteed by stockholders........................... 154,000 140,000
Equipment obligations; collateralized by the related
equipment and the personal guarantee of the majority
owner of the Companies; interest payable monthly at
rates ranging from 3.21% to 22.91% at December 31,
1997................................................. 3,604,993 6,484,197
Note Payable; interest at prime plus 1.5% (10.0% at
December 31, 1997); monthly payments of $10,000
principal plus interest maturing March 2002;
collateralized by equipment, life insurance policy
and certificate of deposit; guaranteed by stockholder
and affiliated companies............................. 887,149 789,305
----------- -----------
Debt......................................... $ 6,642,922 $ 9,398,776
=========== ===========
</TABLE>
The terms of some of the Companies' debt instruments contain financial
covenants with respect to total net worth, current ratio, debt to equity ratio,
debt service coverage and other debt and capital ratios. As of December 31, 1997
the Companies are not in compliance with such requirements. The Companies have
received waivers from their creditors with respect to compliance with these
covenants.
F-176
<PAGE> 291
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt for each of the next five years as of December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998..................................................... $4,026,469
1999..................................................... 1,244,401
2000..................................................... 696,227
2001..................................................... 497,107
2002..................................................... 178,718
----------
Total.......................................... $6,642,922
==========
</TABLE>
(7) LEASE OBLIGATIONS
(a) Capital Leases
The Companies have entered into long-term capital lease agreements related
to certain revenue-earning equipment. As of December 31, 1997, the present value
of future minimum lease payments under the capital leases was as follows:
<TABLE>
<S> <C>
1998..................................................... $ 79,086
1999..................................................... 79,086
2000..................................................... 79,086
2001..................................................... 79,086
2002..................................................... 58,959
---------
Total future minimum lease payments...................... 375,303
Less amounts representing interest....................... (77,819)
---------
Present value of net minimum capital lease payments...... $ 297,484
=========
</TABLE>
(b) Operating Leases
The Companies have obligations under operating leases primarily for office
space and equipment that expire through August 2001 including obligations to
related parties. Rent expense for 1997 amounted to $251,720, including $184,600
paid to a related party.
Minimum future rental obligations for noncancellable operating leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
EQUIPMENT PROPERTY RELATED
YEAR ENDED LEASES LEASES TOTAL PARTY
---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
1998.................................... $ 497,506 $223,300 $ 720,806 $247,420
1999.................................... 479,526 229,300 708,826 253,420
2000.................................... 411,064 218,100 629,164 242,220
2001.................................... 381,255 107,100 488,355 131,220
2002.................................... 150,374 -- 150,374 20,100
---------- -------- ---------- --------
Total future minimum lease payments....... $1,919,725 $777,800 $2,697,525 $894,380
========== ======== ========== ========
</TABLE>
(8) SUBORDINATED DEBT AND COMMON STOCK PUT WARRANTS
In August 1997, the Company issued 12% subordinated debentures maturing
August 2004 to a venture capital firm. Principal payments, which are subordinate
to all senior debt, are subject to mandatory or optional prepayment under
certain conditions, as defined. In conjunction with the debentures, common stock
purchase warrants were issued for 39,588 shares of common stock for each
company, respectively. Both the exercise price ($10.93 per share for Action
Equipment Company, Inc. and $2.19 per share for Action Supply Co., Inc.)
F-177
<PAGE> 292
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
and the number of shares available are subject to adjustment based upon certain
terms. The warrant certificates fully expire in August 2007.
Under the warrant agreement, the warrant holder may put the warrant back to
the Companies at any time after August 31, 2004, or earlier if the debenture has
been repaid in full. The put feature expires at the earlier of the event of an
initial public offering of stock by the Companies from which the Companies
receive net proceeds in excess of $10,000,000 and in which the price per share
of common stock would yield net proceeds in respect of shares covered by the
warrants in excess of $3,000,000, or the expiration date. The redemption price,
in the event of a put, is equal to the appraised fair market value of the
Companies multiplied by the shares issuable under the warrant, divided by the
total shares outstanding at the time of the put, plus the number of shares
represented by the warrant, or will be based on a formula in which the fair
value of the Companies is determined based on six times EBITDA, less the amount
of outstanding debt at the time of redemption.
The initial allocation of value assigned to the notes and warrants was
determined using the Black-Scholes option valuation model. The assumptions used
were as follows: dividend yield of 0%, risk-free interest rate of 6.13%,
expected warrant life of 10 years, and expected volatility of 25%.
As a result of this valuation of the warrants, the Companies have recorded
a discount on the subordinated note and are accreting this discount using the
effective yield method over the term of the debt. The Companies recognize
changes in the estimated fair value of the warrants in earnings. During the
period ended September 30, 1998 the Company recognized $1,596,300 of interest
related to an increase in the estimated fair value of the warrants.
(9) COMMITMENTS AND CONTINGENCIES
Litigation, Claims and Assessments
From time to time, the Companies may be engaged in routine litigation and
disputes incidental to their business. The Companies do not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying combined financial statements.
(10) RELATED PARTY TRANSACTIONS AND BALANCES
By virtue of common ownership and/or control, the Companies have several
relationships with certain entities. Some entities are involved in services or
sales within the construction industry, while others provide administrative
services or lease real estate. Sales and services charged to related parties
were approximately $1.4 million for 1997, while approximately $3.3 million in
products and services were purchased from related parties in 1997 and included
as cost of equipment rentals. Management believes these to be arm's-length
transactions done at fair market value.
In addition, the Companies hold various notes receivable, a note payable,
and open accounts with related parties, which are included within due to/from
related parties.
(11) CAPITAL STOCK
Common stock consists of the following:
<TABLE>
<CAPTION>
ACTION
EQUIPMENT ACTION SUPPLY
COMPANY, INC. CO., INC.
---------------- ----------------
<S> <C> <C>
Common stock, no par value:
Authorized....................................... 1,000,000 shares 1,000,000 shares
Issued and outstanding........................... 65,000 shares 65,000 shares
</TABLE>
F-178
<PAGE> 293
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1997, both Companies increased their authorized common stock, no
par value, from 300 shares to 1,000,000 shares. In conjunction with the
subordinated debt and common stock warrant issuance (Note 8), the Companies
declared a stock split (303.3 shares for each share held by Action Equipment
Company, Inc. stockholders; 650 shares for each share held by Action Supply,
Inc. stockholders), and each company reserved 39,588 shares for common stock
warrants.
In 1997, the majority stockholder assumed $514,485 of debt owed by the
Companies to related parties. In 1998, the majority stockholder forgave $104,002
of the Companies' debt. Both transactions are recorded as capital contributions
in the combined statements of stockholders' deficit.
(12) EXTRAORDINARY ITEM
In 1997, a settlement of an outstanding note payable was negotiated with
the lender, resulting in a gain of $651,354, included as extraordinary income.
(13) CHAPTER 11 PLAN OF REORGANIZATION
On October 18, 1990, Action Equipment Company, Inc. filed a petition for
relief under Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court for the District of New Hampshire. On January 31, 1992, the
Bankruptcy Court confirmed the Plan of Reorganization, which included provision
for installment payments on certain priority tax claims and equipment
obligations, pro-rata payout on unsecured obligations, and subordinated debt
issuance of $514,485. Future installments of approximately $20,000 for tax
claims are included within accrued expenses at December 31, 1997.
(14) EMPLOYEE BENEFIT PLAN
The Companies have adopted a defined contribution employee benefit plan
under Section 401(k) of the Internal Revenue Code. All employees who have met
minimum age and length of service requirements are qualified to participate.
Employee contributions are voluntary and the Companies do not match employee
contributions.
(15) SUBSEQUENT EVENTS
In August 1998, the Companies purchased certain rental equipment assets
from related parties for approximately $2.5 million. Prior to the acquisition,
the Companies leased the equipment from the sellers which were used in the
Companies' operations. The Companies issued debt to the sellers as
consideration. This asset purchase is subject to a call provision if the
Companies do not enter into an agreement to be acquired by November 15, 1998.
Under the terms of this call provision, the seller has the option to reacquire
these assets in return for the consideration received from the Companies. This
feature is subject to certain requirements and expires on October 31, 1998.
Included in the December 31, 1997 and September 30, 1998 statement of operations
is $1,459,200 and $844,420, respectively, of rent expense related to the
operating leases of these assets.
Effective October 1998, the Companies signed a letter of intent for
substantially all of the Companies' operating assets and liabilities to be
purchased by NationsRent, Inc., an unrelated third party, in exchange for cash
and debt.
F-179
<PAGE> 294
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Logan Equipment Corporation:
We have audited the accompanying balance sheet of Logan Equipment
Corporation (the Company) as of December 31, 1997, and the related statements of
income, changes in stockholders' 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 financial position of Logan Equipment Corporation
at December 31, 1997, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
February 20, 1998,
Boston, Massachusetts.
F-180
<PAGE> 295
LOGAN EQUIPMENT CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------- -------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash........................................................ $ 240 $ 1,760
Accounts receivable, net of allowance for doubtful accounts
of $33 and $274 for December 31, 1997 and September 30,
1998, respectively........................................ 6,068 8,169
Inventories................................................. 2,735 5,871
Other assets................................................ 105 785
Rental equipment inventory, net of accumulated depreciation
of $3,505 and $5,950 for December 31, 1997 and September
30, 1998, respectively.................................... 18,439 35,343
Property and equipment, net of accumulated depreciation of
$380 and $1,109 for December 31, 1997 and September 30,
1998, respectively........................................ 978 2,396
Goodwill, net of accumulated amortization of $31............ -- 1,831
------- -------
Total assets...................................... $28,565 $56,155
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and other accrued expenses................. $ 3,011 $ 8,882
Bank debt and other obligations............................. 22,871 42,359
------- -------
Total liabilities................................. 25,882 51,241
------- -------
Redeemable preferred stock.................................. 200 --
STOCKHOLDERS' EQUITY:
Common stock, no par value; 100 shares authorized, issued
and outstanding........................................ 5 5
Additional paid-in capital................................ 507 507
Retained earnings......................................... 1,971 4,402
------- -------
Total stockholders' equity........................ 2,483 4,914
------- -------
Total liabilities and stockholders' equity........ $28,565 $56,155
======= =======
</TABLE>
See Accompanying Notes.
F-181
<PAGE> 296
LOGAN EQUIPMENT CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -----------------
1997 1997 1998
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Equipment rentals......................................... $ 5,882 $ 4,536 $12,881
Sales of equipment........................................ 7,297 4,419 13,250
Sales of merchandise, parts and service................... 2,335 1,382 4,798
------- ------- -------
Total revenues.................................... 15,514 10,337 30,929
COST OF REVENUES:
Depreciation, equipment rentals........................... 1,297 927 3,253
Cost of sales equipment................................... 6,200 3,659 10,779
Cost of sales of merchandise, parts and service........... 1,018 714 2,709
Cost of equipment rentals, excluding depreciation......... 358 310 360
Direct operating expenses................................. 839 616 1,747
------- ------- -------
Total cost of revenues............................ 9,712 6,226 18,848
------- ------- -------
Gross profit...................................... 5,802 4,111 12,081
Selling, general and administrative expense................. 3,466 2,463 7,518
Nonrental depreciation and amortization..................... 74 52 176
------- ------- -------
Operating income............................................ 2,262 1,596 4,387
Interest expense............................................ 922 606 1,912
------- ------- -------
Income before income taxes.................................. 1,340 990 2,475
Provision for income taxes.................................. -- -- 44
------- ------- -------
Net income........................................ $ 1,340 $ 990 $ 2,431
======= ======= =======
</TABLE>
See Accompanying Notes.
F-182
<PAGE> 297
LOGAN EQUIPMENT CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996........................ 100 $5 $507 $ 631 $1,143
Net income........................................ -- -- -- 1,340 1,340
---- -- ---- ------ ------
Balance at December 31, 1997........................ 100 5 507 1,971 2,483
Net income (unaudited)............................ -- -- -- 2,431 2,431
---- -- ---- ------ ------
Balance at September 30, 1998 (unaudited)........... 100 $5 $507 $4,402 $4,914
==== == ==== ====== ======
</TABLE>
See Accompanying Notes.
F-183
<PAGE> 298
LOGAN EQUIPMENT CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTH
FOR THE PERIOD ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -------------------
1997 1997 1998
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $ 1,340 $ 990 $ 2,431
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization....................... 1,371 979 3,429
Gain on sale of equipment........................... (1,099) (367) (875)
Provision for losses on accounts receivable......... 18 -- --
Changes in operating assets and liabilities, net of
effects of asset acquisition:
Accounts receivable................................. (1,880) (350) (1,341)
Inventories......................................... 321 (6) (2,701)
Other current assets................................ (91) (5) (534)
Accounts payable and other accrued expenses......... 1,291 760 5,571
-------- -------- --------
Net cash provided by operating activities........... 1,271 2,001 5,980
INVESTING ACTIVITIES
Purchases of equipment................................... (10,126) (4,944) (16,361)
Cash acquired from asset acquisition..................... 134 -- 242
Capital expenditures..................................... (187) (133) (749)
Proceeds from sale of equipment.......................... 7,320 1,810 4,818
-------- -------- --------
Net cash used in investing activities.......... (2,859) (3,267) (12,050)
FINANCING ACTIVITIES
Payments to preferred stockholders....................... -- -- (200)
Proceeds from bank debt and long-term obligations........ 1,635 1,343 7,790
-------- -------- --------
Net cash provided by financing activities................ 1,635 1,343 7,590
-------- -------- --------
Net increase in cash and cash equivalents................ 47 77 1,520
Cash and cash equivalents at beginning of year........... 193 193 240
-------- -------- --------
Cash and cash equivalents at end of year................. $ 240 $ 270 $ 1,760
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................ $ 919 $ 606 $ 1,912
======== ======== ========
Income taxes........................................ $ 37 $ -- $ 44
======== ======== ========
Noncash investing and financing activities:
Acquisition of assets, net of cash received............ $ 13,963 $ -- $ 11,757
======== ======== ========
Liabilities incurred as a result of asset acquisition.... $ 14,097 $ -- $ 11,998
======== ======== ========
</TABLE>
See Accompanying Notes.
F-184
<PAGE> 299
LOGAN EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Logan Equipment Corporation (Logan or Company), was founded in 1963. The
Company operates in a single industry segment: the short-term rental and sale of
equipment, including sales of parts, supplies and service through a network of
full service center locations in Massachusetts, Rhode Island, Vermont and Maine.
The nature of the Company's business is such that short-term obligations are
generally met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying balance sheet is presented
on an unclassified basis.
Revenue Recognition
Equipment rental revenue is recorded as earned over the contract term.
Revenue from the sale of equipment, parts and service is recorded at the time of
delivery to or pick-up by the customer.
Inventory and Rental Equipment
Inventory consists of new equipment, parts and accessories held for sale.
Fleet rental equipment inventory is depreciated to a salvage value of 20% of
cost. Depreciation is provided on the fleet rental equipment using the
straight-line method over the estimated useful lives of the assets, generally 5
to 7 years. Inventory is recorded at the lower of cost using the first-in,
first-out (FIFO) method or market.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is provided using
the straightline method over the estimated useful lives of the assets, generally
3 to 10 years.
Income Taxes
The Company uses the liability method of accounting for income taxes as set
forth in the Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under this method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Recognition of deferred tax assets is
limited to amounts considered by management to be more likely than not to be
realized in future periods.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash, accounts
receivable, and accounts payable and other accrued expenses approximate fair
value because of the immediate or short-term maturity of these financial
instruments. The fair value of the revolving credit agreement is determined
using current interest rates as of the balance sheet date and approximates the
carrying value of such debt because the underlying instruments are at variable
rates which are repriced frequently.
Concentrations of Credit Risk
The Company maintains cash with various financial institutions. The Company
performs periodic evaluations of the relative credit standing of these
institutions and limits the amount of exposure with any institution.
F-185
<PAGE> 300
LOGAN EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's customers are located throughout New England and are
concentrated in the construction industry. No single customer accounted for
greater than 10% of the Company's revenues and there were no accounts receivable
from any single customer greater than 10% of total accounts receivable. The
Company reviews a customer's credit history before extending credit. The
Company's allowance for doubtful accounts is based upon factors surrounding the
credit risk of its customers, historical trends and other information.
Collective Bargaining Agreements
At December 31, 1997, the Company had approximately 115 employees.
Approximately 15% of the Company's employees are covered by collective
bargaining agreements negotiated with a local union that is affiliated with an
international union. The Agreement has a three-year term that expires in August
2000. The Company is currently negotiating with the same local union to cover an
additional 15% of its employees. The Company considers its relationship with its
employees and the representatives of the union to be excellent.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in its financial statements and
accompanying notes. Actual results could differ from these estimates.
2. ACQUISITION OF BUSINESS
On January 31, 1998, the Company completed its acquisition of a company
that sells and rents equipment to the construction industry. The effective date
of the acquisition was December 31, 1997.
F-186
<PAGE> 301
LOGAN EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following pro forma balance sheet reflects the purchase accounting
adjustments included in the December 31, 1997 balance sheet. The following pro
forma balance sheet also reflects the borrowings entered into on January 31,
1998 to effect the transaction as more fully described in Note 4:
PRO FORMA BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED
LOGAN ACQUIRED LOGAN PRO FORMA
EQUIPMENT COMPANY EQUIPMENT ADJUSTMENTS PRO FORMA
DECEMBER 31, DECEMBER 31, DECEMBER 31, FOR DECEMBER 31,
1997 1997 1997 REFINANCING 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash..................................... $ 106 $ 134(a) $ 240 $ 240
Accounts receivable, net................. 3,289 2,779(a) 6,068 6,068
Inventories.............................. 1,016 1,719(a) 2,735 2,735
Other current assets..................... 100 5(a) 105 105
Rental equipment, net.................... 9,282 9,157(a) 18,439 18,439
Property and equipment, net.............. 675 303(a) 978 978
------- ------- ------- -------
Total assets..................... $14,468 $14,097(a) $28,565 $28,565
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other accrued
expenses............................... $ 2,411 $ 600(b) $ 3,011 $ (320)(b) $ 2,691
Long-term debt/revolving credit
agreement.............................. 9,374 13,497(c) 22,871 520(c) 23,391
------- ------- ------- ------- -------
Total liabilities................ 11,785 14,097 25,882 200 26,082
Redeemable preferred stock............... 200 200 (200)(d) 0
Stockholder's equity:
Common stock, no par value; 100 shares
authorized, issued and outstanding... 5 5 5
Additional paid-in capital............. 507 507 507
Retained earnings...................... 1,971 1,971 1,971
------- ------- ------- -------
Total stockholders' equity....... 2,483 2,483 2,483
------- ------- ------- -------
Total liabilities and
stockholders' equity........... $14,468 $14,097 $28,565 $28,565
======= ======= ======= =======
</TABLE>
F-187
<PAGE> 302
LOGAN EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following pro forma income statement is intended to reflect the results
of operations of the Company as if the transaction had occurred at the beginning
of the year:
PRO FORMA INCOME STATEMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
LOGAN ACQUIRED
EQUIPMENT COMPANY PRO FORMA
DECEMBER 31, DECEMBER 31, PRO FORMA DECEMBER 31,
1997 1997 ADJUSTMENTS 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Equipment rentals............... $ 5,882 $ 4,848 $10,730
Sales of equipment.............. 7,297 10,177 17,474
Sales of merchandise, parts and
service...................... 2,335 4,367 6,702
------- ------- ------- -------
Total revenues.......... 15,514 19,392 34,906
COST OF REVENUES:
Depreciation, equipment
rentals...................... 1,297 3,141 $(1,786)(e) 2,652
Cost of sales equipment......... 6,200 7,237 13,437
Cost of sales of merchandise,
parts and service............ 1,018 2,944 3,962
Cost of equipment rentals,
excluding depreciation....... 358 358
Direct operating expenses....... 839 841 1,680
------- ------- ------- -------
Total cost of
revenues.............. 9,712 14,163 (1,786) 22,089
------- ------- ------- -------
Gross Profit...................... 5,802 5,229 1,786 12,817
Selling, general and
administrative costs............ 3,466 3,789 7,255
Nonrental depreciation and
amortization.................... 74 114 188
------- ------- ------- -------
Operating income........ 2,262 1,326 1,786 5,374
Interest expense.................. 922 441 717(f) 2,080
------- ------- ------- -------
Income before income taxes........ 1,340 885 1,069(g) 3,294
Provision for income taxes........ -- 250 250
------- ------- ------- -------
Net income.............. $ 1,340 $ 635 $ 1,069 $ 3,044
======= ======= ======= =======
</TABLE>
- ---------------
(a) All current assets were recorded at their respective fair values on the date
of acquisition and the remaining purchase price of $9,157,000 has been
allocated to rental equipment.
(b) Reflects expenses incurred in connection with the purchase of which $320,000
was paid with proceeds from the financing described in Note (c) below.
(c) Reflects payment of $9,273,000 in various debt instruments bearing interest
at rates ranging from 8% to 11.25% payable in various installments through
2001. Adjustment also reflects the issuance of $23,290,000 in new debt in
the form of a revolving credit facility of $21,290,000 bearing interest at
the Prime Rate (currently 8.5%) with payment of interest only until maturity
in February 2001, and $2,000,000 in subordinated debt bearing interest at
the LIBOR rate plus 4% (currently 10%) with payment of interest only until
maturity in February 2000.
(d) Reflects the payment of $200,000 in preferred stock.
F-188
<PAGE> 303
LOGAN EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) Adjustments reflect charges to conform acquired company depreciation
policies to those of Logan Equipment.
(f) Reflects interest expense under the new credit facilities, assuming they had
been in place since January 1, 1997.
(g) There has been no pro forma income tax provision due to the Company's net
operating loss carryforwards.
3. REVOLVING LINE OF CREDIT AGREEMENT
The Company had a $600,000 revolving line of credit agreement with First
Massachusetts Bank, of which $600,000 was outstanding at December 31, 1997.
Under the terms of the agreement, the Company could borrow 80% of accounts
receivable less than 90 days old at the Prime Rate plus 1.5% (10.0% at December
31, 1997). The line is secured by accounts receivable and parts inventory. This
loan was repaid with the initial advance from the revolving credit facility
described in Note 2.
4. BANK DEBT AND LONG-TERM OBLIGATIONS
Prior to the refinancing described in Note 2, the Company had $9,374,000 in
bank debt and other long-term obligations payable to ten lenders and related
parties with interest rates ranging from 0% to 12% and various maturities
through December 2002. Subsequent to December 31, 1997, all of the above loans
were repaid with the initial advance from the line described in Note 2.
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of the long-term debt
approximates its carrying value.
On January 31, 1998, the Company entered into a Credit Facilities Agreement
with Deutsche Financial Services Corp. The total amount of credit available
under the Agreement is limited to the lesser of $25 million or a borrowing base
consisting of eligible receivables, inventory and vehicles. The credit facility
bears interest at the prime rate as defined in the agreement (currently 8.5%).
The Agreement expires on January 31, 2001. The obligation of the lender to make
advances under the Agreements is subject to certain customary conditions. In
addition the Agreement contains financial covenants for the Company regarding
interest coverage, maximum indebtedness, minimum net worth, maximum inventory
and capital expenditures and minimum fleet utilization. Borrowings under the
Agreement are secured by all the real and personal property of the Company. The
Agreement also restricts the Company from making certain distributions,
including cash dividends. on its common stock.
5. PROPERTY AND EQUIPMENT
Fixed assets consist of the following at December 31, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Motor vehicles.............................................. $ 380
Furniture and fixtures...................................... 33
Communications and computer equipment....................... 190
Shop equipment.............................................. 35
Leasehold improvements...................................... 720
------
1,358
Less accumulated depreciation and amortization.............. (380)
------
$ 978
======
</TABLE>
F-189
<PAGE> 304
LOGAN EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain operating premises and equipment under operating
leases. The property leases require the Company to pay maintenance, insurance,
taxes and other expenses in addition to the rental amounts. Rental expense under
such operating leases totaled $306,000 for the year ended December 31, 1997.
Future minimum lease payments, by year and in the aggregate, for noncancellable
operating leases with initial or remaining terms of one year or more are as
follows at December 31, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEAR ENDING AMOUNT
----------- --------------
<S> <C>
1998........................................................ $201
1999........................................................ 183
2000........................................................ 124
2001........................................................ 106
2002........................................................ 30
Thereafter.................................................. 6
----
Total............................................. $650
====
</TABLE>
7. INCOME TAXES
The components of income tax expense for the year ended December 31, 1997
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
AMOUNT
--------------
<S> <C>
Current:
Federal................................................... $ 42
State..................................................... 35
----
Total............................................. 77
Deferred:
Federal................................................... (42)
State..................................................... (35)
----
(77)
----
Income tax expense................................ $ 0
====
</TABLE>
Deferred taxes are principally attributable to temporary differences
relating to basis differences of the rental fleet, resulting in a deferred tax
liability of $1,200,000, and net operating loss carryforwards, resulting in a
deferred tax asset of $1,280,000. The Company has recorded a 100% valuation
allowance on the net deferred tax assets. For federal income tax purposes, the
Company has net operating loss carryforwards of approximately $3,200,000 and tax
credit carryforwards of approximately $200,000 at December 31, 1997.
Accordingly, because of the use of the net operating loss carryforwards, there
is no tax provision recorded for the year ended December 31, 1997. These
carryforwards will expire at various times from 2005 to 2008.
8. RELATED-PARTY TRANSACTIONS
At December 31, 1994, $395,203 of related-party debt was converted to
equity along with $111,600 of loans payable to officers. This amount of $506,803
has been classified in the equity section of the balance sheet at December 31,
1997 as "Additional Paid-In Capital."
Included in long-term debt are $322,689 of notes payable to related parties
of the stockholders of the Company at December 31, 1997 which were paid off as
part of the refinancing described in Notes 2 and 4.
F-190
<PAGE> 305
LOGAN EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company leases its headquarters in Shrewsbury, Massachusetts and a
branch facility in Boston, Massachusetts from one of its stockholders. These
leases are on a "tenant-at-will" arrangement. Real estate taxes and operating
costs are included in the base monthly rent. Rental expense for 1997 was
approximately $101,000,
9. REDEEMABLE PREFERRED STOCK
As part of a debt restructuring with Concord Commercial Corporation, the
Company issued 200 shares of $.01 par value preferred stock on April 27, 1992.
The stock was redeemable upon the termination of the debt with the lender, and
was repaid subsequent to December 31, 1997, with the initial advance from the
revolving credit facility described in Note 2.
10. SUBSEQUENT EVENT
On January 20, 1998, the Articles of Incorporation of the Company were
amended to change the authorized number of shares outstanding from 100 shares of
no par common stock and 200 shares of $.01 preferred stock to 100,000 shares of
no par common stock.
F-191
<PAGE> 306
------------------------------------------------------
------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR
BUY ANY SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN
THIS PROSPECTUS IS CURRENT AS OF DECEMBER 31, 1998, UNLESS OTHERWISE
SPECIFICALLY PROVIDED.
---------------------------------
TABLE OF CONTENTS
---------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information........................... ii
Summary......................................... 1
Risk Factors.................................... 13
The Exchange Offer.............................. 20
Use of Proceeds................................. 27
Capitalization.................................. 28
Selected Consolidated Historical and Pro Forma
Financial Information and Operations Data..... 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 32
Business........................................ 39
Management...................................... 48
Principal Stockholders.......................... 54
Certain Relationships and Transactions.......... 55
Description of Certain Indebtedness............. 57
Description of Notes............................ 59
Registration Rights............................. 91
Book-Entry, Delivery and Form................... 93
Plan of Distribution............................ 95
Certain United States Federal Income
Tax Considerations............................ 95
Legal Matters................................... 99
Experts......................................... 99
Index to Pro Forma Consolidated Financial
Statements.................................... PF-1
Index to Consolidated Financial
Statements.................................... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
NATIONSRENT, INC. LOGO
$175,000,000
10 3/8% SENIOR SUBORDINATED
NOTES DUE 2008
--------------------------------------
PROSPECTUS
--------------------------------------
DECEMBER 31, 1998
------------------------------------------------------
------------------------------------------------------
<PAGE> 307
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation, as amended provides that the Company
shall indemnify to the fullest extent permitted by Section 145 of the DGCL, each
person who is involved in any litigation or other proceeding because such person
is or was a director or officer of the Company, against all expense, loss or
liability reasonably incurred or suffered in connection therewith. The Bylaws,
as amended, provide that a director or officer may be paid expenses incurred in
defending any proceeding in advance of its final disposition upon receipt by the
Company of an undertaking, by or on behalf of the director or officer, to repay
all amounts so advanced if it is ultimately determined that such director or
officer is not entitled to indemnification.
Section 145 of the DGCL permits a corporation to indemnify any director or
officer of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit or proceeding brought by reason of the fact
that such person is or was a director or officer of the corporation, if such
person acted in good faith and in a manner that he reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, if he had no reason to believe his conduct
was unlawful. In a derivative action, (i.e., one brought by or on behalf of the
corporation), indemnification may be made only for expenses, actually and
reasonably incurred by any director or officer in connection with the defense or
settlement of such an action or suit, if such person acted in good faith and in
a manner that he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged to be liable to the corporation, unless and
only to the extent that the court in which the action or suit was brought shall
determine that the defendant is fairly and reasonably entitled to indemnity for
such expenses despite such adjudication of liability.
Pursuant to Section 102(b)(7) of the DGCL, the Certificate eliminates the
liability of a director to the corporation or its stockholders for monetary
damages for such breach of fiduciary duty as a director, except for liabilities
arising (i) from any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) from acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) from any transaction from which the director
derived an improper personal benefit.
The Company has obtained primary and excess insurance policies insuring the
directors and officers of the Company and its subsidiaries against certain
liabilities they may incur in their capacity as directors and officers. Under
such policies, the insurer, on behalf of the Company, may also pay amounts for
which the Company has granted indemnification to the directors or officers.
Insofar as indemnification for liabilities arising under the Securities Act
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 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-1
<PAGE> 308
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
<C> <S>
1.1+ Purchase Agreement dated December 8, 1998, between the
Company and the Initial Purchasers.
3.1** Amended and Restated Certificate of Incorporation of the
Company.
3.2* Amended and Restated By-Laws of the Company.
4.1+ 10 3/8% Global Senior Subordinated Note due 2008.
4.2*** Form of 10 3/8% Senior Subordinated Notes to be issued upon
consummation of the Exchange Offer.
4.3+ Senior Subordinated Guarantee dated December 11, 1998 of the
Guarantors.
4.4+ Indenture dated December 11, 1998, between the Company, the
Guarantors and The Bank of New York, including table of
contents and cross-reference table.
4.5+ Registration Rights Agreement dated December 11, 1998,
between the Company, the Guarantors and the Initial
Purchasers.
4.6**** Second Amended and Restated Revolving Credit Agreement,
dated as of September 24, 1998, by and among the Company,
BankBoston, N.A., LaSalle National Bank, Fleet Bank N.A.,
NationsBank, N.A., BancBoston Securities, Inc. and other
lending institutions named therein.
4.7+ Amendment No. 1 and Consent to Second Amendment and Restated
Revolving Credit and Term Loan Agreement dated as of October
9, 1998 among the Company, its named subsidiaries therein
and BankBoston, N.A., LaSalle National Bank, and other
lending institutions and parties named therein.
4.8+ Second Amendment to the Second Amended and Restated
Revolving Credit Agreement dated as of November 2, 1998 by
and among the Company, its named subsidiaries therein and
Citicorp Del-Lease, Erste Bank Der Oesterreichischen
Sparkassen AG and other lending institutions and parties
named therein.
4.9+ Amendment No. 3 to the Second Amended and Restated Revolving
Credit and Term Loan Agreement dated as of November 4, 1998
among the Company, its subsidiaries named therein and
BankBoston, N.A. and lending institutions and other parties
named therein.
4.10* Security Agreement, dated as of March 18, 1998, between the
Company and Bank Boston, N.A.
4.11* Omnibus Amendment to Security Documents, dated as of June
29, 1998, among the Company, its subsidiaries and Bank
Boston, N.A.
4.12**** Omnibus Amendment No. 2 to Security Documents, dated as of
September 24, 1998, among the Company, its subsidiaries and
Bank Boston, N.A.
5.1+ Opinion of Akerman, Senterfitt & Eidson, P.A.
10.1* Stock Purchase Agreement dated August 15, 1997, among the
Company, Sam's and the shareholders of Sam's, together with
Amendment Nos. 1 - 6.
10.2* Form of Unsecured Subordinated Promissory Notes -- Sam's
10.3* Form of Unsecured Convertible Subordinated Promissory
Note -- Sam's
10.4* Form of Unsecured Contingent Convertible Subordinated
Promissory Notes -- Sam's
10.5* Agreement, dated September 22, 1997, between the Company and
Gary L. Gabriel
10.6* Asset Purchase Agreement dated December 8, 1997 among
NationsRent of Ohio, Inc., R&R and the shareholder of R&R,
together with an Amendment dated December 10, 1997.
</TABLE>
II-2
<PAGE> 309
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
<C> <S>
10.7* Form of Unsecured Subordinated Promissory Note -- R&R
10.8* Asset Purchase Agreement dated December 8, 1997, as amended,
among NationsRent of Indiana, Inc. and C&E, together with an
Amendment dated December 23, 1997.
10.9* Form of Unsecured Convertible Subordinated Promissory
Note -- C&E
10.10* Stock Purchase Agreement dated December 20, 1997, as
amended, among NationsRent of West Virginia, Inc., Titan and
the shareholders of Titan, together with an Amendment dated
December 31, 1997.
10.11* Form of Unsecured Convertible Subordinated Promissory
Notes -- Titan
10.12* Stock Purchase Agreement dated March 24, 1998 among the
Company, Bode-Finn and the shareholders of Bode-Finn,
together with Amendment No. 1 dated April 6, 1998 and
Amendment No. 2 dated April 17, 1998.
10.13* Form of Unsecured Convertible Subordinated Promissory
Notes -- Bode-Finn
10.14* Form of Warrant -- Bode-Finn
10.15* Registration Rights Agreement dated May 5, 1998 among the
Company, Bode-Finn, L.P. and Raymond E. Mason Foundation
10.16* Asset Purchase Agreement dated March 25, 1998 among
NationsRent of Indiana, Inc., RFL and the shareholder of RFL
10.17* Asset Purchase Agreement dated April 21, 1998 among
NationsRent of Florida, Inc. and Naples
10.18* Form of Unsecured Convertible Subordinated Promissory
Note -- Naples
10.19* Stock Purchase Agreement dated May 7, 1998 among the
Company, Jobs and the shareholders of Jobs
10.20* Form of Unsecured Subordinated Promissory Notes -- Jobs
10.21* Form of Unsecured Convertible Subordinated Promissory
Note -- Jobs
10.22* Asset Purchase Agreement dated May 14, 1998 among the
Company and General Rental
10.23* Stock Purchase Agreement dated May 30, 1998 among the
Company, J. Kelly and the shareholders of J. Kelly
10.24* Form of Unsecured Convertible Subordinated Promissory
Note -- J. Kelly
10.25* Form of Registration Rights Agreement among the Company and
the shareholders of J. Kelly
10.26* Asset Purchase Agreement dated June 7, 1998 among the
Company, Associated and the sole shareholder of Associated
10.27* Form of Unsecured Convertible Subordinated Promissory
Note -- Associated
10.28* Form of Registration Rights Agreement -- Associated
10.29* Form of Subscription Agreement, dated May 1998, between the
Company and certain subscribers
10.30* NationsRent 1998 Stock Option Plan
10.31* Form of Stock Option Agreement
10.32***** Amended and Restated Purchase Agreement dated as of
September 9, 1998, by and among NationsRent, Inc., Ray L.
O'Neal, Inc., Arenco, L.L.C., Don R. O'Neal, Elizabeth M.
O'Neal and the O'Neal Revocable Trust dated December 29,
1987.
10.33***** Unsecured Convertible Subordinated Promissory Note dated as
of October 23, 1998 from NationsRent, Inc. to Ray L. O'Neal,
Inc.
12.1+ Statement of Computation of Ratio of Earnings to Fixed
Charges
</TABLE>
II-3
<PAGE> 310
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
<C> <S>
21.1+ Subsidiaries of the Company
23.1+ Consent of Arthur Andersen LLP
23.2+ Consent of Ernst & Young LLP
23.3+ Consent of Akerman, Senterfitt & Eidson, P.A. (included in
Exhibit 5.1 above)
24.1+ Powers of Attorney (included as part of the signature page
hereto)
25.1+ Form T-1 Statement of Eligibility of Trustee
99.1+ Letter of Transmittal relating to the Exchange Offer.
99.2+ Notice of Guaranteed Delivery relating to the Exchange
Offer.
</TABLE>
- ---------------
+ Previously filed with this Registration Statement on Form S-4.
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1, as amended, Commission File No. 333-56233.
** Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1998.
*** Included in Exhibit 4.3 hereto as Exhibit A.2.
**** Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1998.
***** Incorporated by reference to the Company's Current Report on Form 8-K
filed on November 9, 1998.
(B) Financial Statement Schedule. The following financial statement
schedule together with report of independent certified public accountants is
filed on pages S-1 and S-2 herewith:
Financial Statement Schedule II, Valuation and Qualifying Accounts and
Reserves, for the Period Ended December 31, 1997.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value
of the securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
on any material change to such information in the registration
statement;
II-4
<PAGE> 311
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment, any of the securities being registered which remain unsold at
the termination of the offering.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
Insofar as indemnification for liabilities arising under the Securities Act
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 thereof in the
successful defense of any action, suit or proceeding) is asserted by a 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 of 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-5
<PAGE> 312
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
NATIONSRENT, INC.
By: /s/ JAMES L. KIRK
------------------------------------
James L. Kirk
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES L. KIRK Chairman of the Board and December 31, 1998
- --------------------------------------------------- Chief Executive Officer
James L. Kirk
/s/ GENE J. OSTROW Executive Vice President and December 31, 1998
- --------------------------------------------------- Chief Financial Officer
Gene J. Ostrow
* Vice President and December 31, 1998
- --------------------------------------------------- Controller
Kris E. Hansel
* Director December 31, 1998
- ---------------------------------------------------
H. Wayne Huizenga
* Director December 31, 1998
- ---------------------------------------------------
Harris W. Hudson
* Director December 31, 1998
- ---------------------------------------------------
Gary L. Gabriel
* Director December 31, 1998
- ---------------------------------------------------
Thomas H. Bruinooge
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-6
<PAGE> 313
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
A-ACTION RENTAL, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board and December 31, 1998
- --------------------------------------------------- Sole Director (Principal
Gene J. Ostrow Executive Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-7
<PAGE> 314
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
ACME RENTAL, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-8
<PAGE> 315
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
A TO Z RENTS IT, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board and December 31, 1998
- --------------------------------------------------- Sole Director (Principal
Gene J. Ostrow Executive Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-9
<PAGE> 316
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
A TO Z RENTS IT, INC. #2
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board and December 31, 1998
- --------------------------------------------------- Sole Director (Principal
Gene J. Ostrow Executive Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-10
<PAGE> 317
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
CENTRAL ALABAMA RENTAL CENTER, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board and December 31, 1998
- --------------------------------------------------- Sole Director (Principal
Gene J. Ostrow Executive Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-11
<PAGE> 318
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
GABRIEL TRAILER MANUFACTURING
COMPANY, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Executive Vice President, December 31, 1998
- --------------------------------------------------- Chief Financial Officer and
Gene J. Ostrow Sole Director (Principal
Executive Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-12
<PAGE> 319
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
GOLD COAST AERIAL LIFT, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board and December 31, 1998
- --------------------------------------------------- Sole Director (Principal
Gene J. Ostrow Executive Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-13
<PAGE> 320
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
HIGH REACH COMPANY, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board and December 31, 1998
- --------------------------------------------------- Sole Director (Principal
Gene J. Ostrow Executive Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-14
<PAGE> 321
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
NATIONSRENT OF ALABAMA, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-15
<PAGE> 322
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
NATIONSRENT OF CALIFORNIA, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-16
<PAGE> 323
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
NATIONSRENT OF GEORGIA, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-17
<PAGE> 324
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
NATIONSRENT OF FLORIDA, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-18
<PAGE> 325
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
NATIONSRENT OF INDIANA, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-19
<PAGE> 326
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
NATIONSRENT OF KENTUCKY, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-20
<PAGE> 327
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
NATIONSRENT OF LOUISIANA, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-21
<PAGE> 328
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
NATIONSRENT OF MICHIGAN, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-22
<PAGE> 329
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
NATIONSRENT OF NEW HAMPSHIRE, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-23
<PAGE> 330
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
NATIONSRENT OF OHIO, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-24
<PAGE> 331
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
NATIONSRENT OF TENNESSEE, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-25
<PAGE> 332
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
NATIONSRENT OF TEXAS, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-26
<PAGE> 333
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
NATIONSRENT OF WEST VIRGINIA, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-27
<PAGE> 334
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
NRI/LEC MERGER CORP., INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-28
<PAGE> 335
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
RAYMOND EQUIPMENT CO.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-29
<PAGE> 336
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
SAM'S EQUIPMENT RENTAL, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Executive Vice President, December 31, 1998
- --------------------------------------------------- Chief Financial Officer and
Gene J. Ostrow Sole Director (Principal
Executive Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-30
<PAGE> 337
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
SOUTHEAST RENTAL & LEASING, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board and December 31, 1998
- --------------------------------------------------- Sole Director (Principal
Gene J. Ostrow Executive Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-31
<PAGE> 338
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
TENNESSEE TOOL & SUPPLY, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board and December 31, 1998
- --------------------------------------------------- Sole Director (Principal
Gene J. Ostrow Executive Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-32
<PAGE> 339
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
THE BODE-FINN COMPANY
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Executive Vice President, December 31, 1998
- --------------------------------------------------- Chief Financial Officer and
Gene J. Ostrow Sole Director (Principal
Executive Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-33
<PAGE> 340
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
THE J. KELLY CO., INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Sole Director and President December 31, 1998
- --------------------------------------------------- (Principal Executive
Gene J. Ostrow Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-34
<PAGE> 341
SIGNATURES
Pursuant to the requirements of the Securities Act, the Co-Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, State of
Florida, on December 31, 1998.
TITAN RENTALS, INC.
By: /s/ GENE J. OSTROW
------------------------------------
Gene J. Ostrow
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GENE J. OSTROW Chairman of the Board, Sole December 31, 1998
- --------------------------------------------------- Director and President
Gene J. Ostrow (Principal Executive
Officer)
* Vice President -- Controller December 31, 1998
- ---------------------------------------------------
Kris E. Hansel
* Treasurer December 31, 1998
- --------------------------------------------------- (Prinicipal Financial
Pamela K.M. Beall Officer)
*By: /s/ GENE J. OSTROW
- ---------------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-35
<PAGE> 342
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To the Stockholders of NationsRent, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of NationsRent, Inc., and subsidiaries
included in this registration statement and have issued our report thereon dated
June 3, 1998, except with respect to the matters referred to in the third and
fifth paragraphs of Note 10 as to which the date is July 15, 1998. Our audit was
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule included under Item (16)(b) is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
June 3, 1998.
S-1
<PAGE> 343
NATIONSRENT, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO ACCOUNTS BALANCE AT
BEGINNING COSTS AND WRITTEN END
DESCRIPTIONS OF PERIOD(1) EXPENSES OFF OTHER(2) OF YEAR
------------ ------------ ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Period ended December 31, 1997
Allowance for Doubtful Accounts........ $ -- -- (40) 627 $587
</TABLE>
- ---------------
(1) August 14, 1997 (inception).
(2) Represents the historical allowances of the acquired companies.
S-2
