-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KZ1iJTqqFjRGUO9QztCyS7HOXsEQoDlIK1gTNsmrlTB0vYPrtI2j/T2wVCMknGAg fBacOdlfY7XEuX8oEt/8Qg== 0000898430-98-002283.txt : 19980615 0000898430-98-002283.hdr.sgml : 19980615 ACCESSION NUMBER: 0000898430-98-002283 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 21 FILED AS OF DATE: 19980612 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RENTAL SERVICE CORP CENTRAL INDEX KEY: 0001016572 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 330569350 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-56653 FILM NUMBER: 98646824 BUSINESS ADDRESS: STREET 1: 6929 EAST GREENWAY PARKWAY STREET 2: STE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 BUSINESS PHONE: 6029053300 MAIL ADDRESS: STREET 1: 6929 GREENWAY PARKWAY STREET 2: SUITE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RSC ALABAMA INC CENTRAL INDEX KEY: 0001063767 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 631100849 STATE OF INCORPORATION: AL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-56653-01 FILM NUMBER: 98646825 BUSINESS ADDRESS: STREET 1: 6929 EAST GREENWAY PARKWAY STREET 2: STE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 BUSINESS PHONE: 6029053300 MAIL ADDRESS: STREET 1: 6929 GREENWAY PARKWAY STREET 2: SUITE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RSC CENTER INC CENTRAL INDEX KEY: 0001063768 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 741676350 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-56653-02 FILM NUMBER: 98646826 BUSINESS ADDRESS: STREET 1: 6929 EAST GREENWAY PARKWAY STREET 2: STE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 BUSINESS PHONE: 6029053300 MAIL ADDRESS: STREET 1: 6929 GREENWAY PARKWAY STREET 2: SUITE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RSC ACQUISITION CORP CENTRAL INDEX KEY: 0001063769 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 95431989 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-56653-03 FILM NUMBER: 98646827 BUSINESS ADDRESS: STREET 1: 6929 EAST GREENWAY PARKWAY STREET 2: STE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 BUSINESS PHONE: 6029053300 MAIL ADDRESS: STREET 1: 6929 GREENWAY PARKWAY STREET 2: SUITE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALKER JONES EQUIPMENT INC CENTRAL INDEX KEY: 0001063770 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 640373267 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-56653-04 FILM NUMBER: 98646828 BUSINESS ADDRESS: STREET 1: 6929 EAST GREENWAY PARKWAY STREET 2: STE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 BUSINESS PHONE: 6029053300 MAIL ADDRESS: STREET 1: 6929 GREENWAY PARKWAY STREET 2: SUITE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RSC RENTS INC CENTRAL INDEX KEY: 0001063771 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 954013479 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-56653-05 FILM NUMBER: 98646829 BUSINESS ADDRESS: STREET 1: 6929 EAST GREENWAY PARKWAY STREET 2: STE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 BUSINESS PHONE: 6029053300 MAIL ADDRESS: STREET 1: 6929 GREENWAY PARKWAY STREET 2: SUITE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RSC INDUSTRIAL CORP CENTRAL INDEX KEY: 0001063772 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 330378980 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-56653-06 FILM NUMBER: 98646830 BUSINESS ADDRESS: STREET 1: 6929 EAST GREENWAY PARKWAY STREET 2: STE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 BUSINESS PHONE: 6029053300 MAIL ADDRESS: STREET 1: 6929 GREENWAY PARKWAY STREET 2: SUITE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RSC HOLDINGS INC CENTRAL INDEX KEY: 0001063773 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 330378976 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-56653-07 FILM NUMBER: 98646831 BUSINESS ADDRESS: STREET 1: 6929 EAST GREENWAY PARKWAY STREET 2: STE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 BUSINESS PHONE: 6029053300 MAIL ADDRESS: STREET 1: 6929 GREENWAY PARKWAY STREET 2: SUITE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RSC DUVAL INC CENTRAL INDEX KEY: 0001063774 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 330378978 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-56653-08 FILM NUMBER: 98646832 BUSINESS ADDRESS: STREET 1: 6929 EAST GREENWAY PARKWAY STREET 2: STE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 BUSINESS PHONE: 6029053300 MAIL ADDRESS: STREET 1: 6929 GREENWAY PARKWAY STREET 2: SUITE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85254 S-4 1 FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- RENTAL SERVICE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7353 33-0569350 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
-------------- 6929 E. GREENWAY PARKWAY, SUITE 200 SCOTTSDALE, ARIZONA 85254 (602) 905-3300 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANTS PRINCIPAL EXECUTIVE OFFICES) -------------- MARTIN R. REID CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER RENTAL SERVICE CORPORATION 6929 E. GREENWAY PARKWAY, SUITE 200 SCOTTSDALE, ARIZONA 85254 (602) 905-3300 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) -------------- COPIES TO: ELIZABETH A. BLENDELL, ESQ. LATHAM & WATKINS 633 WEST FIFTH STREET, SUITE 4000 LOS ANGELES, CALIFORNIA 90071 (213) 485-1234 -------------- 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 statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED SECURITIES TO BE AMOUNT TO BE PROPOSED OFFERING AGGREGATE AMOUNT OF REGISTERED REGISTERED PRICE PER NOTE OFFERING PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------------------------ 9% Senior Subordinated Notes due 2008........ $200,000,000 100% $200,000,000 $59,000 - ------------------------------------------------------------------------------------------------ Subsidiary Guarantees of the 9% Senior Subordinated Notes due 2008(2)............... N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457. (2) Represents the guarantees of the 9% Senior Subordinated Notes due 2008 to be issued by the Co-Registrants. Pursuant to Rule 457(n), no separate registration fee is payable with respect to the subsidiary guarantees. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CO-REGISTRANTS
STATE OR OTHER PRIMARY STANDARD IRS EMPLOYER JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NAME INCORPORATION CODE NUMBER NUMBER ---- --------------- ------------------------- -------------- RSC Acquisition Corp. .. Delaware 7353 95-4312989 RSC Alabama, Inc. ...... Alabama 7353 63-1100849 RSC Center, Inc. ....... Texas 7353 74-1676350 RSC Duval Inc. ......... Delaware 7353 33-0378978 RSC Holdings, Inc. ..... Delaware 7353 33-0378976 RSC Industrial Corporation............ Delaware 7353 33-0378980 RSC Rents, Inc. ........ California 7353 95-4013479 Walker Jones Equipment, Inc. .................. Mississippi 7353 64-0373267
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE + +WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES + +LAWS OF ANY SUCH JURISDICTION. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JUNE 12, 1998 PROSPECTUS OFFER TO EXCHANGE 9% SENIOR SUBORDINATED NOTES DUE 2008 FOR ALL OUTSTANDING 9% SENIOR SUBORDINATED NOTES DUE 2008 OF RENTAL SERVICE CORPORATION THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON , 1998 UNLESS EXTENDED. ---------- Rental Service Corporation, a Delaware corporation (the "Company" or "RSC"), hereby offers (the "Exchange Offer"), upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount of its 9% Senior Subordinated Notes due 2008 (the "Exchange Notes"), which exchange has been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a registration statement of which this Prospectus is a part, for each $1,000 principal amount of its outstanding 9% Senior Subordinated Notes due 2008 (the "Private Notes"), of which $200,000,000 in aggregate principal amount was issued on May 13, 1998 (the "Offering") are outstanding as of the date hereof. The form and terms of the Exchange Notes are the same as the form and terms of the Private Notes except that (i) the Exchange Notes will have been registered under the Securities Act, and, therefore, will not bear legends restricting the transfer thereof and (ii) holders of the Exchange Notes will not be entitled to certain rights of holders of the Private Notes under the Registration Rights Agreement (as defined), which rights will terminate upon the consummation of the Exchange Offer. The Exchange Notes will evidence the same debt as the Private Notes (which they replace) and will be entitled to the benefits of an indenture dated as of May 13, 1998 governing the Private Notes and the Exchange Notes (the "Indenture"). The Private Notes and the Exchange Notes are sometimes referred to herein collectively as the "Notes." See "The Exchange Offer" and "Description of Exchange Notes." The Exchange Notes will bear interest at the same rate and on the same terms as the Private Notes. Consequently, interest on the Exchange Notes will be payable semi-annually in arrears on May 15 and November 15 of each year, commencing on November 15, 1998, at the rate of 9% per annum. The Exchange Notes will be redeemable, in whole or in part, at the option of the Company on or after May 15, 2001, at the prices set forth herein, together with accrued and unpaid interest to the date of redemption. In addition, at any time prior to May 15, 2001, the Company may, subject to certain requirements, redeem up to 35% of the aggregate principal amount of the Exchange Notes originally issued with the net proceeds of one or more Equity Offerings (as defined), at a redemption price equal to 109% of the aggregate principal amount of the Exchange Notes to be redeemed, together with accrued and unpaid interest to the date of redemption; provided, however, that after giving effect to any such redemption, at least 65% of the aggregate principal amount of the Exchange Notes originally issued under the Indenture remains outstanding. Holders whose Private Notes are accepted for exchange will be deemed to have waived the right to receive any interest accrued on the Private Notes. Upon a Change of Control (as defined), each holder of the Exchange Notes will have the right to require the Company to repurchase such holder's Exchange Notes at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase. In addition, the Company will be obligated to offer to repurchase the Exchange Notes at 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase in the event of certain Asset Sales (as defined). See "Description of Exchange Notes." SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN THE EXCHANGE NOTES. ---------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------- The date of this Prospectus is , 1998 The Exchange Notes will be general unsecured obligations of the Company, subordinated in right of payment to all existing and future Senior Indebtedness (as defined) and will rank pari passu in right of payment with all future senior subordinated indebtedness of the Company. The Exchange Notes will be fully and unconditionally guaranteed, jointly and severally (the "Guarantees"), on a senior subordinated unsecured basis, by all of the Company's domestic subsidiaries (the "Subsidiary Guarantors"). The Guarantees will be general unsecured obligations of the Subsidiary Guarantors, subordinated in right of payment to all existing and future Guarantor Senior Indebtedness (as defined) and will rank pari passu in right of payment with all future senior subordinated indebtedness of the Subsidiary Guarantors. As of March 31, 1998, on a pro forma basis after giving effect to the Offering and the Other Acquisitions (as defined), (i) the Company would have had approximately $537.5 million of indebtedness outstanding, of which $337.5 million would have been Senior Indebtedness ($334.1 million of which would have represented guarantees of borrowings by its subsidiaries under the Bank Facility) and (ii) the Subsidiary Guarantors would have had approximately $337.5 million of indebtedness outstanding, all of which would have been Guarantor Senior Indebtedness and $334.1 million of which would have represented borrowings under the Bank Facility. The Indenture permits the Company and the Subsidiary Guarantors to incur additional Senior Indebtedness and Guarantor Senior Indebtedness under the Bank Facility, as well as (subject to certain limitations) additional indebtedness. The Company will accept for exchange any and all validly tendered Private Notes not withdrawn prior to 5:00 p.m., New York City time, on , 1998, unless the Exchange Offer is extended by the Company in its sole discretion (the "Expiration Date"). Tenders of Private Notes may be withdrawn at any time prior to the Expiration Date. Private Notes may be tendered only in integral multiples of $1,000. The Exchange Offer is subject to certain customary conditions. See "The Exchange Offer--Conditions." Based on an interpretation by the staff of the Securities and Exchange Commission (the "Commission") set forth in no-action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Private Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than (i) a broker-dealer who purchases such Exchange Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act; provided that the holder of Private Notes is acquiring the Exchange Notes in the ordinary course of its business and is not participating, and had no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Holders of Private Notes wishing to accept the Exchange Offer must represent to the Company, as required by the Registration Rights Agreement, that such conditions have been met. Each broker-dealer that receives Exchange Notes for its own account in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Company believes that none of the registered holders of the Private Notes is an affiliate (as such term is defined in Rule 405 under the Securities Act) of the Company. Prior to the Exchange Offer, there has been no public market for the Private Notes. The Company does not intend to list the Exchange Notes on any securities exchange or to seek approval for quotation through any automated quotation system. There can be no assurance that an active market for the Exchange Notes will develop. To the extent that a market for the Exchange Notes does develop, the market value of the Notes will depend on market conditions (such as yields on alternative investments), general economic conditions, the Company's financial condition and certain other factors. Such conditions might cause the Exchange Notes, to the extent that they are traded, to trade at a significant discount from face value. See "Risk Factors--Absence of Prior Public Market." Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a 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 ii be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Private Notes where such Private Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has indicated its intention to make this Prospectus (as it may be amended or supplemented) available to any broker-dealer for use in connection with any such resale for a period of 180 days after the Expiration Date. See "The Exchange Offer--Resale of the Exchange Notes" and "Plan of Distribution." The Company will not receive any proceeds from, and has agreed to bear the expenses of, the Exchange Offer. No underwriter is being used in connection with this Exchange Offer. See "The Exchange Offer--Resale of the Exchange Notes." THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. The Exchange Notes will be available initially only in book-entry form. The Company expects that the Exchange Notes issued pursuant to the Exchange Offer will be issued in the form of one or more fully registered global notes that will be deposited with, or on behalf of, the Depository Trust Company ("DTC" or the "Depositary") and registered in its name or in the name of Cede & Co., as its nominee. Beneficial interests in the global note representing the Exchange Notes will be shown on, and transfers thereof will be effected only through, records maintained by the Depositary and its participants. After the initial issuance of such global note, Exchange Notes in certificated form will be issued in exchange for the global note only in accordance with the terms and conditions set forth in the Indenture. See "The Exchange Offer--Book-Entry Transfer." ---------------- AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-4 (together will all amendments, exhibits and schedules thereto, the "Registration Statement") under the Securities Act with respect to the Exchange Notes offered hereby. This Prospectus omits certain information, exhibits and undertakings contained in the Registration Statement. For further information with respect to the Company and the Exchange Notes offered hereby, reference is hereby made to such Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus, or in any document incorporated by reference herein, as to the contents of any contract or other document are not necessarily complete and, in each instance, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified by such reference. The Company is also subject to the informational requirements of the Exchange Act, and, in accordance therewith, is required to file reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copied at the Public Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of the reports, proxy statements and other information can be obtained from the Public Reference Section of the Commission, Washington, D.C. 20549, at prescribed rates. In addition, all reports filed by the Company via the Commission's Electronic Data Gathering and Retrieval System (EDGAR) can be obtained from the Commission's Internet web site located at http://www.sec.gov. The Common Stock of the Company is currently traded on the New York Stock Exchange (the "NYSE"), and such reports, proxy statements and other information concerning the Company also can be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. iii INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, which the Company has filed with the Commission pursuant to the Exchange Act, are hereby incorporated by reference in, and shall be deemed to be a part of, this Prospectus: (a) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997; (b) The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998; (c) The Company's Proxy Statement dated March 30, 1998 related to the Annual Meeting of Stockholders held on April 29, 1998; (d) The Company's Current Report on Form 8-K filed with the Commission on January 22, 1998; (e) The Company's Current Report on Form 8-K/A filed with the Commission on February 9, 1998; (f) The Company's Current Report on Form 8-K filed with the Commission on February 18, 1998; (g) The Company's Current Report on Form 8-K/A filed with the Commission on April 17, 1998; and (h) The Company's Current Report on Form 8-K filed with the Commission on May 14, 1998. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering made hereby shall be deemed to be incorporated by reference into this Prospectus and to be a part thereof from the respective dates of filing of such documents. Any statement contained in this Prospectus or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is incorporated or deemed to be incorporated by reference in this Prospectus modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed to constitute a part of this Prospectus except as so modified or superseded. This Prospectus incorporates documents by reference which are not presented herein or delivered herewith. The Company will provide without charge to any person to whom this Prospectus is delivered, on the written or oral request of such person, a copy of any or all of the foregoing documents incorporated herein by reference (other than exhibits to such documents unless such exhibits are specifically incorporated by reference therein). Requests should be directed to the attention of Robert M. Wilson, Secretary, Rental Service Corporation, 6929 E. Greenway Parkway, Suite 200, Scottsdale, AZ 85254 (Telephone: (602) 905-3300). CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. The factors discussed under "Risk Factors," among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Prospectus, including, without limitation, in "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Company's press releases and in oral statements made by authorized officers of the Company. When used in this Prospectus, the words "estimate," "project," "anticipate," "expect," "intend," "believe" and similar expressions are intended to identify forward-looking statements. All of these forward-looking statements are based on estimates and assumptions made by management of the Company, which, although believed to be reasonable, are inherently uncertain. Therefore, undue reliance should not be placed upon such estimates and statements. No assurance can be given that any of such statements or estimates will be realized and actual results will differ from those contemplated by such forward-looking statements. iv PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and Consolidated Financial Statements and notes thereto appearing elsewhere in this Prospectus. Certain information contained in this summary and elsewhere in this Prospectus, including information with respect to the Company's plans and strategy for its business, especially RSC's growth strategy, plans to raise additional capital and prospective acquisitions, are forward-looking statements. Holders of the Private Notes should carefully consider the factors set forth herein under the caption "Risk Factors" for a discussion of important factors that could cause actual results to differ materially from results referred to in the forward-looking statements. Capitalized terms used but not defined in this Prospectus Summary have the meanings ascribed to them elsewhere in this Prospectus. THE COMPANY The Company is a leading consolidator in the rapidly-growing equipment rental industry, serving the needs of a wide variety of industrial, manufacturing, construction, government and homeowner markets. As of June 5, 1998, RSC operated the largest equipment rental network in the United States with 203 rental locations in 26 states. RSC rents a broad selection of equipment ranging from small items such as pumps, generators, welders and electric hand tools, to larger equipment such as backhoes, forklifts, air compressors, scissor lifts, aerial manlifts and skid-steer loaders. The Company also sells maintenance, repair and operations ("MRO") supplies, small tools, contractor supplies, parts and used rental equipment, and acts as a distributor for new equipment on behalf of certain national equipment manufacturers. Depending upon market needs, RSC also offers its customers 24 hours-a-day, seven days-a-week support services, including on-site maintenance and repair. The Company has a diverse customer base and rented equipment to over 100,000 customers in 1997, with the top ten customers representing less than 3% of total revenues. The Company's customers include industrial companies (such as manufacturers, petrochemical facilities, large chemical processing companies, paper mills, entertainment companies and public utilities), construction companies (such as contractors), governmental entities and homeowners. RSC's strategy is to expand its presence in existing markets and capitalize on opportunities to enter new geographic markets through a combination of acquisitions and start-up locations. From its formation in July 1992 through June 5, 1998, the Company has acquired 56 businesses consisting of 172 locations and has opened 54 start-up locations. As of June 5, 1998, the Company was party to non-binding letters of intent to acquire three equipment rental businesses with a combined eleven locations in three states. See "--Recent Developments." The Company also focuses on increasing revenues and profitability across its locations through investments in fleet expansion, the implementation of sophisticated information systems designed to improve asset utilization and targeted marketing efforts. For the year ended December 31, 1997, after giving effect to the acquisitions and other pro forma adjustments described in "Unaudited Pro Forma Consolidated Financial Data," the Company would have generated pro forma revenues and operating income of $459.2 million and $65.8 million, respectively. See "Unaudited Pro Forma Consolidated Financial Data." The Company believes the rental equipment industry offers substantial consolidation opportunities for large, well capitalized equipment rental companies such as RSC. The equipment rental industry is highly fragmented and primarily consists of a large number of relatively small, independent businesses typically serving discrete local markets within 30 to 50 miles of the store location, and a small number of multi-location regional or national operators. Relative to smaller companies with only one or two rental locations, the Company believes RSC benefits from several competitive advantages, including sophisticated management information systems, volume purchasing discounts, professional management, a diverse customer base and geographic locations, a modern and well-maintained rental fleet, the ability to transfer equipment among rental locations to satisfy customer demand and national brand identity. Management believes the equipment rental industry benefits from 1 the trend among businesses to outsource non-core operations in order to reduce capital investment and minimize the downtime, maintenance, repair and storage associated with equipment ownership. As a result of consolidation and industry growth, 1997 rental revenues of the top 100 rental equipment companies increased over 1996 rental revenues by approximately 35%, to more than $4.2 billion, according to estimates by the Rental Equipment Register (the "RER"). In spite of this growth, these top 100 companies represented only a small percentage of the estimated $21 billion in industry rental revenues in 1997. BUSINESS STRATEGY The Company's goal is to increase revenues and profitability by taking advantage of its strong market position and pursuing a business strategy that includes the following key elements: Small- to Medium-Sized Market Focus. The Company focuses on operating rental locations in underserved small- to medium-sized rental markets where the Company can capitalize on its competitive advantages relative to the small, local equipment rental businesses and equipment dealers who have traditionally served such markets. In addition, the Company believes small- to medium-sized markets provide an extensive selection of acquisition candidates and attractive start-up locations. The Company believes future acquisitions and start-up locations will provide opportunities to achieve greater geographic and customer diversification. Through its geographic diversification, the Company believes it can more effectively manage economic fluctuations than single-location businesses by transferring equipment to regions with higher demand. See "Business--Locations" and "--Growth Strategy." Cluster Strategy. Under its cluster strategy, RSC establishes a comprehensive pool of rental equipment at a central, readily-accessible "hub" location, and surrounds the hub with smaller "satellite" locations 30 to 150 miles away, which draw on this equipment pool to serve local customers' needs. The hub locations provide full-service rental fleet maintenance and repair operations for the satellite locations. The Company believes this strategy increases fleet utilization and allows RSC to bring the benefits of a large, high-quality and diversified rental equipment fleet to markets with populations as small as 25,000 where a full-scale rental facility might not otherwise be justified. See "Business--Fleet Management." Advanced Information Systems. The Company has made substantial investments in its management information systems in order to improve asset utilization and financial performance. Every rental location has on-line access to a centralized computer system that provides real-time transaction processing, extensive fleet management tools and financial management reports. Use of these systems allows the Company to improve its asset utilization by deploying assets to locations generating higher returns and identifying underperforming assets for disposition. These systems also allow an employee at any location to identify and reserve a specific piece of equipment anywhere in a region, and schedule delivery (generally within 24 hours) to a customer's job site. With the acquisition of Center, the Company obtained Center's proprietary information system, which, among other enhancements, automatically prioritizes equipment for maintenance based on type, age and recent use. The Company believes Center's system is scaleable over a large number of locations, and expects to add it to the Company's existing systems. See "--Recent Developments--Acquisition of Center Rental," "Business--Fleet Management" and "--Information Systems" Decentralized Management. Under the Company's decentralized management structure, RSC's region vice presidents and district managers, who currently average over 20 years of rental experience, are responsible for management, customer service, marketing strategies and business growth, including pursuing acquisitions and identifying start-up locations, in their regions. Each region vice president and district manager is compensated through a stock option program and cash bonus plan tied directly to the region's performance. A small corporate staff at the Company's headquarters focuses on corporate planning, financial reporting and analysis and overseeing execution of the Company's growth strategy. The Company has also centralized its purchasing and equipment disposal functions in order to maximize purchase discounts and sale prices for used rental equipment. 2 Superior Customer Service. The Company believes it differentiates itself from many of its competitors by providing responsive customer service, a broad selection of high-quality rental equipment and "one-stop shopping" for a wide range of supplies, tools, parts and equipment. Depending upon market needs, RSC also offers value-added services to its customers such as a radio-dispatched transportation fleet and 24-hours-a-day, seven-days-a-week support services, including on-site maintenance and repair. The Company believes its rapid response time in delivering, servicing or replacing equipment at job sites generates customer loyalty. A cornerstone to the Company's customer service commitment is its extensive training system, Rental Service University ("RSU"), which provides formal training to Company employees relating to customer service, strategy, finance, information systems, fleet management, safety and risk management and human resources. See "Business--Products" and "--Sales and Marketing." GROWTH STRATEGY RSC's growth strategy is to continue to expand its presence in existing markets and capitalize on opportunities to enter new geographic markets through a combination of acquisitions and start-up locations. The Company is systematic in its selection of new markets for expansion and, together with Arthur D. Little, Inc., has developed a proprietary model to guide future expansion efforts by identifying and ranking desirable locations based on more than 25 demographic characteristics found in the Company's most successful geographic markets. The Company also seeks to increase revenues at new and existing locations through fleet expansion, improved asset utilization and targeted marketing efforts. The Company also has begun to increase revenues across existing locations by cross-selling both equipment rental services and MRO tools and supplies to its industrial customers. Acquisitions. RSC's acquisition efforts focus on acquiring stable, respected businesses in markets the Company believes offer opportunities for additional growth. The Company primarily targets acquisitions of businesses in small- to medium-sized markets where an existing owner has limited resources to expand the rental equipment fleet and/or the owner's decision to sell coincides with the decision to retire. The Company believes it can capitalize in such markets on its competitive advantages relative to the small, local equipment rental businesses and equipment dealers who have traditionally served such markets. Immediately after completing an acquisition, the Company generally integrates the operations of the acquired business into its management information systems, consolidates its equipment purchasing and disposal functions, and centralizes its fleet management, while seeking to provide consistent, high- quality service to the acquired business' customers. The Company has a proven track record in completing and integrating acquisitions. Proprietors of smaller businesses often place significant emphasis on the Company's reputation in these areas, and the Company believes this reputation provides it access to additional acquisition opportunities. Since its formation in 1992, RSC has acquired 56 businesses consisting of 172 locations. See "Business--Business Strategy--Small- to Medium-Sized Market Focus" and "Business--Locations." Start-Up Locations. RSC also enters targeted markets through start-up locations where there is no quality business available for acquisition or where such a business cannot be acquired on terms acceptable to the Company. The Company's decision to open a start-up location is based upon its review of demographic information, business growth projections and the level of existing competition. RSC enhances the flexibility of start-up locations by entering into real estate leases with short initial terms and multiple option periods. In addition, RSC typically minimizes capital expenditures at a start-up location by redeploying and sharing equipment with an existing hub. If a start- up location does not meet expectations, the Company can redeploy the equipment elsewhere. Since the Company opened its first start-up location in October 1994, the Company has opened 53 additional start-up locations. See "Business-- Business Strategy--Cluster Strategy" and "Business--Locations." Internal Growth. The Company focuses on achieving internal growth through an emphasis on disciplined fleet expansion, improved asset utilization and targeted marketing efforts. The Company intends to replace assets 3 in, and increase the breadth and depth of, its existing rental equipment fleet through capital expenditures. In addition, RSC's information systems provide the data necessary to improve asset deployment based upon such factors as price realization, time utilization and individual asset return on investment. Through its national accounts marketing program, the Company targets large petrochemical, industrial and commercial customers. The Company offers these customers In-Plant Maintenance ("IPM") services whereby RSC locates equipment at a customer's facility and assumes complete responsibility for the maintenance of such equipment. The IPM program allows the Company to eliminate operating expenses such as equipment transportation and delivery, and to improve asset utilization rates. In addition, the Company has increased its MRO supply business and its tool room management and small tool trailer business. The Company has also created an Industrial Division, with a dedicated and specially trained sales force focusing exclusively on industrial customers. See "Business--Fleet Management," "--Information Systems" and "--Sales and Marketing." RECENT DEVELOPMENTS ACQUISITION OF CENTER RENTAL On December 2, 1997, the Company acquired all of the outstanding stock of Rent-It-Center, Inc. d/b/a Center Rental & Sales and substantially all of the assets of certain affiliated entities (collectively, "Center") for approximately $100.9 million in cash, 482,315 shares of common stock, par value $.01 per share, of the Company ("Common Stock") (of which 64,544 shares will be issued over seven years, subject to earlier issuance within three years if certain performance objectives are achieved) and the assumption of approximately $16.0 million of Center's debt (the "Center Acquisition"). Center was a leading independent equipment rental company that also sold a variety of equipment ranging from small tools to heavy equipment, including related commodity supplies. Center operated a total of 14 locations in Colorado, New Mexico, Texas, Kansas, Missouri and Nebraska, and had total combined revenues of approximately $49.8 million for its fiscal year ended October 31, 1997. Center operated on a "hub" and "satellite" strategy similar to that employed by the Company. Center's balance sheet was consolidated with the Company's under the purchase method of accounting as of December 2, 1997. Pursuant to the acquisition agreements, the Company assumed effective control of Center's operations on November 1, 1997, and has included Center's revenues, costs and expenses from such date in its consolidated statements of operations, net of related imputed purchase price adjustments. ACQUISITION OF VALLEY RENTALS On February 3, 1998, the Company acquired substantially all of the assets of JDW Enterprises, Inc. d/b/a Valley Rentals ("Valley") for $93.6 million in cash and 435,602 shares of Common Stock (the "Valley Acquisition"). Valley was a leading independent equipment rental company in the Southwest, operating a total of ten locations in Arizona and New Mexico, and had total revenues of approximately $36.7 million for its fiscal year ended December 31, 1997. This acquisition was recorded under the purchase method of accounting as of February 3, 1998. OTHER ACQUISITIONS AND START-UPS On April 1, 1998, the Company acquired all of the outstanding stock of James S. Peterson Enterprises, Inc. d/b/a Metroquip Rental Centers ("Metroquip") for $51.2 million in cash (including the payoff of assumed debt) and 193,090 shares of Common Stock. Up to an additional 95,727 shares of Common Stock may be paid to the seller over a three-year period if certain performance objectives are met. Metroquip rented, sold and supported aerial work platforms and contractors' equipment, operated a total of five locations in Minnesota and Nebraska, and had total revenues of approximately $25.2 million for its fiscal year ended December 31, 1997. Metroquip's balance sheet was consolidated with the Company's as of April 1, 1998. Pursuant to the acquisition agreement, the Company assumed effective control of Metroquip's operations on March 1, 1998 and has included 4 Metroquip's revenues, costs and expenses from such date in its consolidated statements of operations, net of related imputed purchase price adjustments. On April 2, 1998, the Company acquired all of the outstanding stock of T&M Rental, Inc. ("T&M") for $21.9 million in cash (including the payoff of assumed debt). Up to 33,132 shares of Common Stock may be paid to the seller over a three-year period if certain performance objectives are met. T&M was an independent rental company operating one location in Indiana, and had total revenues of approximately $5.8 million for its fiscal year ended February 28, 1998. T&M's balance sheet was consolidated with the Company's as of April 2, 1998. Pursuant to the acquisition agreement, the Company assumed effective control of T&M's operations on March 1, 1998 and has included T&M's revenues, costs and expenses from such date in its consolidated statements of operations, net of related imputed purchase price adjustments. Subsequent to March 31, 1998, the Company has completed three additional acquisitions for a total combined purchase price of approximately $17.1 million (including 53,693 shares of Common Stock). These acquisitions had a combined six locations in Illinois, Missouri, Virginia and Wisconsin. Additionally, the Company opened a total of four new start-up locations in Alabama, Iowa and Nebraska. As of June 5, 1998, the Company was party to non-binding letters of intent to acquire three equipment rental businesses with a combined eleven locations in Illinois, Missouri and Oklahoma for a total combined purchase price of approximately $33.2 million (including the assumption of approximately $7.4 million of debt). These acquisitions are subject to a number of closing conditions, including the execution of definitive purchase agreements, RSC board of directors approval and, in some cases, expiration of early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Furthermore, in view of the fact that these letters of intent are non-binding and that the Company has not completed its due diligence investigations with respect thereto, the Company cannot predict whether these letters of intent will lead to definitive agreements, whether the terms of any such definitive agreements will be the same as the terms contemplated by the letters of intent or whether any transaction contemplated by such letters of intent will be consummated. 5 THE EXCHANGE OFFER The Exchange Offer.............. The Company is offering to exchange $1,000 principal amount of Exchange Notes for each $1,000 principal amount of Private Notes that are properly tendered and accepted. The Company will issue Exchange Notes on or promptly after the Expiration Date. There is $200.0 million aggregate principal amount of Private Notes outstanding. See "The Exchange Offer--Purpose of the Exchange Offer." Based on an interpretation by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Private Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than (i) a broker-dealer who purchases such Exchange Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act; provided that the holder of Private Notes is acquiring Exchange Notes in the ordinary course of its business and is not participating, and had no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account in exchange for Private Notes, where such Private Notes were acquired by such broker- dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "The Exchange Offer-- Resale of the Exchange Notes." Registration Rights Agreement... The Private Notes were sold by the Company on May 13, 1998 to BT Alex. Brown Incorporated, Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and William Blair & Company, L.L.C. (collectively, the "Initial Purchasers") pursuant to a Purchase Agreement, dated May 8, 1998, by and among the Company and the Initial Purchasers (the "Purchase Agreement"). Pursuant to the Purchase Agreement, the Company and the Initial Purchasers entered into a Registration Rights Agreement, dated as of May 13, 1998 (the "Registration Rights Agreement"), which grants the holders of the Private Notes certain exchange and registration rights. The Exchange Offer is intended to satisfy such rights, which will terminate upon the consummation of the Exchange Offer. See "The Exchange Offer--Termination of Certain Rights." 6 Expiration Date................. The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1998, unless the Exchange Offer is extended by the Company in its sole discretion, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. See "The Exchange Offer-- Expiration Date; Extensions; Amendments." Accrued Interest on the Exchange Notes and the Private Notes........................... The Exchange Notes will bear interest from and including the date of issuance of the Private Notes (May 13, 1998). Holders whose Private Notes are accepted for exchange will be deemed to have waived the right to receive any interest accrued on the Private Notes. See "The Exchange Offer--Interest on the Exchange Notes." Conditions to the Exchange The Exchange Offer is subject to certain Offer........................... customary conditions that may be waived by the Company. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Private Notes being tendered for exchange. See "The Exchange Offer--Conditions." Procedures for Tendering Each holder of Private Notes wishing to Private Notes................... accept the Exchange Offer 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 such Private Notes and any other required documentation to Norwest Bank Minnesota, N.A., as exchange agent (the "Exchange Agent"), at the address set forth herein. By executing the Letter of Transmittal, the holder of Private Notes will represent to and agree with the Company that, among other things, (i) the Exchange Notes to be acquired by such holder of Private Notes in connection with the Exchange Offer are being acquired by such holder in the ordinary course of its business, (ii) if such holder is not a broker-dealer, such holder is not currently participating in, does not intend to participate in, and has no arrangement or understanding with any person to participate in a distribution of the Exchange Notes, (iii) if such holder is a broker-dealer registered under the Exchange Act or is participating in the Exchange Offer for the purposes of distributing the Exchange Notes, such holder will comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Commission set forth in no-action letters (see "The Exchange Offer--Resale of Exchange Notes"), (iv) such holder understands that a secondary resale transaction described in clause (iii) above and any resales of Exchange Notes obtained by such holder in exchange for Private Notes 7 acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling securityholder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (v) such holder is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. If the holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Private Notes that were acquired as a result of market-making activities or other trading activities, such holder will be required to acknowledge in the Letter of Transmittal that such holder will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, such holder will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "The Exchange Offer-- Procedures for Tendering." Special Procedures for Any beneficial owner whose Private Notes Beneficial Owners............... are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender such Private Notes in the Exchange Offer should contact such registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Private Notes, either make appropriate arrangements to register ownership of the Private 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. See "The Exchange Offer--Procedures for Tendering." Guaranteed Delivery Holders of Private Notes who wish to Procedures...................... tender their Private Notes and whose Private Notes are not immediately available or who cannot deliver their Private Notes, the Letter of Transmittal or any other documentation required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date must tender their Private Notes according to the guaranteed delivery procedures set forth under "The Exchange Offer-- Guaranteed Delivery Procedures." Acceptance of the Private Notes and Delivery of the Exchange Notes........................... Subject to the satisfaction or waiver of the conditions to the Exchange Offer, the Company will accept for exchange any and all Private Notes that are properly tendered in the Exchange Offer prior to the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered on the earliest practicable date following the Expiration Date. See "The Exchange Offer--Terms of the Exchange Offer." 8 Withdrawal Rights............... Tenders of Private Notes may be withdrawn at any time prior to the Expiration Date. See "The Exchange Offer--Withdrawal of Tenders." Material Federal Income Tax For a discussion of certain material Considerations.................. federal income tax considerations relating to the exchange of the Exchange Notes for the Private Notes, see "Material Federal Income Tax Considerations." Exchange Agent.................. Norwest Bank Minnesota, N.A. is serving as the Exchange Agent in connection with the Exchange Offer. THE EXCHANGE NOTES The Exchange Offer applies to $200.0 million aggregate principal amount of the Private Notes. The form and terms of the Exchange Notes are the same as the form and terms of the Private Notes except that (i) the Exchange Notes will have been registered under the Securities Act and, therefore, the Exchange Notes will not bear legends restricting the transfer thereof and (ii) holders of the Exchange Notes will not be entitled to certain rights of holders of the Private Notes under the Registration Rights Agreement, which rights will terminate upon consummation of the Exchange Offer. The Exchange Notes will evidence the same debt as the Private Notes (which they replace) and will be issued under, and be entitled to the benefits of, the Indenture. For further information and for definitions of certain capitalized terms used below, see "Description of Exchange Notes." Securities Offered.............. $200.0 million aggregate principal amount of the Company's 9% Senior Subordinated Notes due 2008. Company......................... Rental Service Corporation Maturity Date................... May 15, 2008. Interest Payment Dates.......... Interest on the Exchange Notes will accrue from the date of original issuance (the "Issue Date") and will be payable semi-annually in arrears on each May 15 and November 15, commencing November 15, 1998. Optional Redemption............. The Exchange Notes will be redeemable, in whole or in part, at the option of the Company on or after May 15, 2001, at the redemption prices set forth herein, together with accrued and unpaid interest to the date of redemption. In addition, at any time on or prior to May 15, 2001, the Company may, at its option, redeem up to 35% of the aggregate principal amount of the Exchange Notes originally issued with the net cash proceeds of one or more Equity Offerings (as defined), at a redemption price equal to 109% of the aggregate principal amount of the Exchange Notes to be redeemed together with accrued and unpaid interest to the date of redemption; provided, however, that, after giving effect to any such redemption, at least 65% of the aggregate principal amount of the Exchange Notes originally issued under the Indenture remains outstanding. See "Description of Exchange Notes-- Redemption." 9 Change of Control............... Upon the occurrence of a Change of Control (as defined), each holder will have the right, subject to certain conditions, to require the Company to repurchase all or any part of such holder's Exchange Notes at a price equal to 101% of the aggregate principal amount thereof, together with accrued and unpaid interest and Additional Interest, if any, thereon to the date of repurchase. See "Description of Exchange Notes--Change of Control." There can be no assurance that, in the event of a Change of Control, the Company would have sufficient funds to repurchase all Exchange Notes tendered. See "Risk Factors--Purchase of Exchange Notes upon a Change of Control." Ranking......................... The Exchange Notes will be general unsecured obligations of the Company, subordinated in right of payment to all existing and future Senior Indebtedness (as defined) and will rank pari passu in right of payment with all future senior subordinated indebtedness of the Company. As of March 31, 1998, on a pro forma basis after giving effect to the Offering and the Other Acquisitions, the Company would have had approximately $537.5 million of indebtedness outstanding, of which $337.5 million would have been Senior Indebtedness ($334.1 million of which would have represented guarantees of borrowings by its subsidiaries under the Bank Facility). The Indenture permits the Company to incur additional Senior Indebtedness under the Bank Facility, as well as (subject to certain limitations) additional indebtedness. See "Risk Factors--Subordination." Guarantees...................... The Exchange Notes will be fully and unconditionally guaranteed, jointly and severally, on a senior subordinated unsecured basis by the Subsidiary Guarantors. The Guarantees will be general unsecured obligations of the Subsidiary Guarantors, subordinated in right of payment to all existing and future Guarantor Senior Indebtedness and will rank pari passu in right of payment with all future senior subordinated indebtedness of the Subsidiary Guarantors. As of March 31, 1998, on a pro forma basis after giving effect to the Offering and the Other Acquisitions, the Subsidiary Guarantors would have had approximately $337.5 million of indebtedness outstanding, all of which would have been Guarantor Senior Indebtedness and $334.1 million of which would have represented borrowings under the Bank Facility. The Indenture permits the Subsidiary Guarantors to incur additional Guarantor Senior Indebtedness under the Bank Facility, as well as (subject to certain limitations) additional indebtedness. See "Description of Exchange Notes--Subsidiary Guarantees." Certain Covenants............... The Indenture contains certain covenants that limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, pay dividends or make investments and certain other restricted payments, consummate 10 certain asset sales, enter into certain transactions with affiliates, incur liens, permit payment or dividend restrictions to apply to subsidiaries of the Company, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. In addition, under certain circumstances, the Company will be required to offer to purchase the Exchange Notes, in whole or in part, at a purchase price equal to 100% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase, with the proceeds of certain Asset Sales (as defined). All of such covenants are subject to significant qualifications and exceptions. See "Description of Exchange Notes--Certain Covenants." RISK FACTORS For a discussion of certain factors that should be considered in evaluating an investment in the Exchange Notes, see "Risk Factors" beginning on page 15. 11 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA The following summary consolidated statement of operations data for the years ended December 31, 1995, 1996 and 1997, and summary consolidated balance sheet data as of December 31, 1996 and 1997, have been derived from the audited consolidated financial statements of the Company appearing elsewhere in this Prospectus. The selected consolidated financial data with respect to the Company's balance sheet as of December 31, 1995 has been derived from audited financial statements of the Company not included in this Prospectus. The summary consolidated financial data with respect to the Company's statements of operations for the three months ended March 31, 1997 and 1998, and with respect to the balance sheet as of March 31, 1998, has been derived from the unaudited consolidated financial statements of the Company, 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 dates and for such periods. The results for the three months ended March 31, 1998 are not necessarily indicative of the results which may be expected for future periods, including for the year ending December 31, 1998. The selected operating data presented has not been audited. The summary consolidated financial and operating data presented should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto, "Unaudited Pro Forma Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus. 12 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, --------------------------------------- ----------------------------- PRO FORMA PRO FORMA AS ADJUSTED AS ADJUSTED 1995 1996 1997 1997(1) 1997 1998 1998(1) ------- ------- -------- ----------- ------- ------- ----------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA(2): Revenues: Equipment rentals...... $47,170 $94,218 $170,704 $297,663 $27,527 $70,179 $79,197 Sales of parts, supplies and new equipment............. 14,621 21,919 70,957 161,508 9,165 27,227 43,268 Sales of used equipment(3).......... 4,126 12,217 19,602 N/A 4,617 11,257 N/A ------- ------- -------- -------- ------- ------- ------- Total revenues......... 65,917 128,354 261,263 459,171 41,309 108,663 122,465 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation.......... 27,854 55,202 87,552 140,788 14,316 37,073 40,892 Depreciation, equipment rentals............... 7,691 17,840 37,413 61,178 6,306 15,461 17,088 Cost of sales of parts, supplies and new equipment............. 10,439 15,582 54,739 118,338 6,737 21,249 32,194 Cost of sales of used equipment(3).......... 2,178 8,488 12,927 N/A 2,972 7,944 N/A ------- ------- -------- -------- ------- ------- ------- Total cost of revenues.............. 48,162 97,112 192,631 320,304 30,331 81,727 90,174 ------- ------- -------- -------- ------- ------- ------- Gross profit............ 17,755 31,242 68,632 138,867 10,978 26,936 32,291 Selling, general and administrative expense................ 6,421 12,254 20,996 54,408 3,784 5,659 8,204 Depreciation and amortization, excluding equipment rental depreciation........... 1,186 2,835 5,373 8,064 1,068 2,024 2,208 Amortization of intangibles............ 718 2,379 3,907 10,560 624 2,085 2,600 ------- ------- -------- -------- ------- ------- ------- Operating income........ 9,430 13,774 38,356 65,835 5,502 17,168 19,279 Interest expense, net... 3,314 7,063 14,877 39,198 1,597 7,583 10,459 ------- ------- -------- -------- ------- ------- ------- Income before income taxes and extraordinary items.................. 6,116 6,711 23,479 26,637 3,905 9,585 8,820 Provision for income taxes.................. 2,401 2,722 10,330 11,720 1,722 4,101 3,775 ------- ------- -------- -------- ------- ------- ------- Income before extraordinary items.... 3,715 3,989 13,149 $ 14,917 2,183 5,484 $ 5,045 ======== ======= Extraordinary items(4).. (478) (1,269) (534) (534) -- ------- ------- -------- ------- ------- Net income.............. 3,237 2,720 12,615 1,649 5,484 Redeemable preferred stock accretion........ 1,717 1,643 -- -- -- ------- ------- -------- ------- ------- Net income available to common stockholders.... $ 1,520 $ 1,077 $ 12,615 $ 1,649 $ 5,484 ======= ======= ======== ======= ======= Income (loss) before extraordinary items per common share........... $ .50 $ .34 $ .96 $ .72 $ .19 $ .27 $ .24 Income (loss) before extraordinary items per common share, assuming dilution............... $ .49 $ .33 $ .94 $ .71 $ .19 $ .27 $ .24 SELECTED OPERATING DATA: Beginning locations..... 25 50 94 94 165 Locations acquired...... 26 25 64 12 22 Locations opened........ 10 19 16 -- 2 Locations closed, sold or held for sale(5).... (11) -- (9) -- (2) ------- ------- -------- ------- ------- Ending locations........ 50 94 165 106 187 ======= ======= ======== ======= =======
AS OF DECEMBER 31, AS OF MARCH 31, 1998 -------------------------- ----------------------- PRO FORMA 1995 1996 1997 ACTUAL AS ADJUSTED(1) -------- -------- -------- -------- -------------- BALANCE SHEET DATA: Net book value of rental equipment................. $ 52,818 $116,921 $314,696 $403,266 $434,605 Total assets............... 137,832 218,933 699,326 864,876 980,842 Total debt................. 68,555 68,594 306,975 433,140 537,472 Redeemable preferred stock (net of treasury stock)... 28,401 -- -- -- -- Common stockholders' equity.................... 46 95,072 290,781 307,240 312,690
13 - -------- (1) The unaudited pro forma as adjusted consolidated statement of operations data for the year ended December 31, 1997 gives effect to the 1997 Pro Forma Combined Acquisitions, the 1998 Pro Forma Combined Acquisitions, the 1997 Pro Forma Acquisition Adjustments, the 1998 Pro Forma Acquisition Adjustments and the 1997 Pro Forma Offering Adjustments, as described in "Unaudited Pro Forma Consolidated Financial Data," as if such transactions had occurred on January 1, 1997. The unaudited pro forma as adjusted consolidated statement of operations data for the three months ended March 31, 1998 gives effect to the 1998 Pro Forma Combined Acquisitions, the 1998 Pro Forma Acquisition Adjustments and the 1998 Pro Forma Offering Adjustments, as described in "Unaudited Pro Forma Consolidated Financial Data," as if such transactions had occurred on January 1, 1998. The unaudited pro forma as adjusted balance sheet at March 31, 1998 gives effect to the Other Acquisitions and the 1998 Pro Forma Offering Adjustments as if they had occurred on March 31, 1998. See "Unaudited Pro Forma Consolidated Financial Data." (2) The Company's acquisitions have been accounted for as purchases and, accordingly, the operations of the acquired businesses are included in the statements of operations data from the date of effective control of each such acquisition. See Note 2 to the Company's Consolidated Financial Statements. (3) Sales of used equipment and cost of sales of used equipment are included with sales of parts, supplies and new equipment and cost of sales of parts, supplies and new equipment, respectively, on a pro forma as adjusted basis for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998. (4) The extraordinary item in the year ended December 31, 1995 represents the loss on extinguishment of debt related to the Company's $30.0 million revolving credit facility (the "Old Revolver") paid off September 12, 1995. The extraordinary item in the year ended December 31, 1996 represents the loss on extinguishment of debt related to the amendment to the Revolver in September 1996. The extraordinary item in the year ended December 31, 1997 represents the loss on extinguishment of debt related to the amendment to the Revolver in January 1997. (5) In 1996, the Company closed or disposed of its California locations, which were previously classified as "assets held for sale" in the Company's Consolidated Financial Statements. ---------------- The Company operates through subsidiaries and, unless the context otherwise requires, references in this Prospectus to the "Company" or "RSC" include Rental Service Corporation, a Delaware corporation, and its direct and indirect subsidiaries. The Company's principal executive offices are located at 6929 E. Greenway Parkway, Suite 200, Scottsdale, Arizona 85254, and its telephone number is (602) 905-3300. 14 RISK FACTORS Certain information contained in this Prospectus, including information with respect to the Company's plans and strategy for its business, are forward- looking statements. Holders of Private Notes considering participating in this Exchange Offer should carefully consider, in addition to the other information contained in this Prospectus, the factors set forth below for a discussion of important factors that could cause actual results to differ materially from the results referred to in forward-looking statements contained in this Prospectus. ABILITY TO SERVICE DEBT; SIGNIFICANT LEVERAGE The Company's leverage is significant in relation to its equity. As of March 31, 1998, on a pro forma basis after giving effect to the Offering and the completion of the Other Acquisitions, the Company and its subsidiaries would have had $537.5 million of indebtedness, $337.5 million of which would have been Senior Indebtedness or Guarantor Senior Indebtedness and $312.7 million of stockholders' equity. In addition, the Company would have been entitled to borrow up to an additional $247.8 million in Senior Indebtedness under the Revolver and, subject to the restrictions in the Indenture, to incur substantial additional indebtedness. The level of the Company's indebtedness could have important consequences to the holders of the Exchange Notes, including the following: (i) the ability of the Company to obtain any necessary financing in the future for capital expenditures, working capital, debt service requirements, acquisitions or other purposes may be limited; (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of principal of and interest on its indebtedness and other obligations; (iii) the Company's level of indebtedness could limit its flexibility in planning for, or reacting to changes in, its business; (iv) the Company will be more highly leveraged than some of its competitors; (v) the Company's high degree of indebtedness will make it more vulnerable to a default and the consequences thereof (such as a bankruptcy or workout) in the event of a downturn in its business; and (vi) the Bank Facility accrues interest at variable rates, which will cause the Company to be vulnerable to fluctuations in interest rates. See "--Risks Relating to Growth Strategy," "--Need for Additional Capital for Future Growth; Restrictions Imposed by Debt Covenants," "--Seasonality and Quarterly Fluctuations," "--RHI's Bankruptcy; Increase in Indebtedness," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of the Bank Facility" and "Description of Exchange Notes." The ability of the Company to meet its debt service requirements will be dependent upon the successful implementation of the Company's strategy, among other things. In addition, the Company's ability to satisfy its debt service obligations will be dependent upon the Company's future performance, which is subject to a number of factors that are beyond the Company's control. The Company's revenues and operating results are subject to seasonality and quarterly fluctuations. There can be no assurance that the Company will generate sufficient cash flow from operating activities to meet its debt service and working capital requirements. Any failure or delay in meeting these debt service requirements could have a material adverse effect upon the Company and the value of the Exchange Notes. SUBORDINATION The Exchange Notes and the Guarantees will be unsecured obligations of the Company and the Subsidiary Guarantors and will be subordinated in right of payment to all existing and future Senior Indebtedness and Guarantor Senior Indebtedness, which will include borrowings under the Bank Facility and guarantees thereof. The Exchange Notes and the Guarantees will rank pari passu in right of payment with all future senior subordinated indebtedness of the Company and the Guarantors, respectively, and will rank senior to other indebtedness that expressly provides that it is subordinated in right of payment to the Exchange Notes or the Guarantees. In the event of bankruptcy, liquidation or reorganization of the Company, the assets of the Company and the Guarantors will be available to pay obligations on the Exchange Notes and the Guarantees only after all Senior Indebtedness and Guarantor Senior Indebtedness has been paid in full, and there may not be sufficient 15 assets remaining to pay amounts due on any or all of the Exchange Notes and Guarantees outstanding. The Company may not pay principal of, premium (if any) on, or interest on the Exchange Notes, make any deposit pursuant to defeasance provisions or repurchase or redeem or otherwise retire any Exchange Notes (i) if any Senior Indebtedness is not paid when due or (ii) if any other default on Designated Senior Indebtedness (as defined) occurs that permits the holders of such Designated Senior Indebtedness to accelerate maturity of such Designated Senior Indebtedness, in accordance with its terms, and the Trustee (as defined) receives a notice of such default unless, in either case, the default has been cured or waived, any such acceleration has been rescinded or such Designated Senior Indebtedness has been paid in full or, in the case of any default other than a payment default, 179 days have passed since the default notice is given. As of March 31, 1998, on a pro forma basis after giving effect to the Offering and the Other Acquisitions, (i) the Company would have had approximately $537.5 million of indebtedness outstanding, of which $337.5 million would have been Senior Indebtedness ($334.1 million of which would have represented guarantees of borrowings by its subsidiaries under the Bank Facility) and (ii) the Subsidiary Guarantors would have had approximately $337.5 million of indebtedness outstanding, all of which would have been Guarantor Senior Indebtedness and $334.1 million of which would have represented borrowings under the Bank Facility. Additional Senior Indebtedness and Guarantor Senior Indebtedness may be incurred by the Company and its subsidiaries from time to time, subject to certain restrictions imposed by the Indenture and the Bank Facility. Additional Indebtedness also may be incurred by foreign subsidiaries of the Company, which are not required to guarantee the Exchange Notes. See "--Need for Additional Capital for Future Growth; Restrictions Imposed by Debt Covenants," "Description of the Bank Facility" and "Description of Exchange Notes--Subordination." RISKS RELATING TO GROWTH STRATEGY The ability of the Company to meet its debt service requirements will be dependent upon the successful implementation of the Company's strategy, among other things. A principal component of the Company's growth strategy is to continue to expand through additional acquisitions and start-up locations that complement the Company's business in new or existing markets. From its formation in 1992 through June 5, 1998, the Company, through its aggressive expansion strategy, has acquired 56 businesses comprised of 172 locations and has opened 54 start-up locations. At June 5, 1998, the Company was party to non-binding letters of intent to acquire three equipment rental businesses with a combined eleven locations in Illinois, Missouri and Oklahoma for a total combined purchase price of approximately $33.2 million (including the assumption of approximately $7.4 million of debt). The Company's future growth will be dependent upon a number of factors including, among others, the Company's ability to identify acceptable acquisition candidates and suitable start-up locations, consummate acquisitions and obtain sites for start-up locations on favorable terms, promptly and successfully integrate acquired businesses and start-up locations with the Company's existing operations, expand its customer base and obtain financing to support expansion. There can be no assurance that the Company will successfully expand or that any expansion will result in profitability. The failure to effectively identify, evaluate and integrate acquired businesses and start-up locations could adversely affect the Company's operating results, possibly causing adverse effects on the value of the Exchange Notes. Through several recent acquisitions (including Valley and Center), the Company began operating in the Rocky Mountain area, the Mid-Atlantic regions and the Southwest, areas in which it has no experience. The results achieved to date by the Company may not be indicative of its prospects or ability to succeed in these or other new markets, many of which may have different competitive conditions, seasonality and demographic characteristics than the Company's current markets. The Company has substantially increased its presence in the MRO supply business, which generally requires maintenance of higher levels of inventory, is more dependent on industrial customers and has lower operating margins than the Company's rental equipment business. In connection with prospective acquisitions and start-up locations, the Company expects to increase the number of its employees, the scope of its operating and financial systems and the geographic area of its operations. The Company believes this growth will increase the operating complexity of the Company and the level of responsibility for both existing and new management personnel. To manage this expected growth, the Company intends to increase its investment in its operating and financial systems and to continue to expand, 16 train and manage its employee base. There can be no assurance that the Company will be able to attract and retain qualified management and employees or that the Company's current operating and financial systems and controls will be adequate as the Company grows or that any steps taken to improve such systems and controls will be sufficient. See "--Need for Additional Capital for Future Growth; Restrictions Imposed by Debt Covenants" and "Business--Growth Strategy." NEED FOR ADDITIONAL CAPITAL FOR FUTURE GROWTH; RESTRICTIONS IMPOSED BY DEBT COVENANTS Expansion of the Company through acquisitions, start-up locations and internal growth will require significant capital expenditures. The Company made capital expenditures of $86.8 million, $165.1 million and $70.7 million in the years ended December 31, 1996 and 1997 and the three months ended March 31, 1998, respectively, and completed acquisitions for $27.3 million, $278.9 million and $107.8 million in the aggregate, respectively, during such periods. The Company's capital expenditures have principally been discretionary expenditures to finance growth of its rental fleet. The Company must continue to reinvest in ongoing capital expenditures to maintain the condition of its rental equipment fleet in order to remain competitive and provide its customers with high-quality equipment. The Company historically has financed capital expenditures, acquisitions and start-up locations primarily through the issuance of equity securities, secured bank borrowings and internally generated cash flow. The Company offered the Private Notes to implement its growth strategy and meet its capital needs and may in the future issue additional equity securities or may incur additional indebtedness. Such additional indebtedness may increase RSC's leverage, may make the Company more vulnerable to economic downturns and may limit its ability to withstand competitive pressures. There can be no assurance that additional capital, if and when required, will be available on terms acceptable to the Company, or at all. Failure by the Company to obtain sufficient additional capital in the future could force the Company to curtail its growth or delay capital expenditures, which would have a material adverse effect on the Company and could have a material adverse effect on its ability to make payments on the Exchange Notes. The Company's ability to finance future acquisitions, start-ups and internal growth will be limited by the covenants contained in the Bank Facility and the Indenture. The Bank Facility contains a number of significant covenants that, among other things, restrict the ability of the Company to dispose of assets or merge, incur debt, pay dividends, repurchase or redeem capital stock, create liens, make capital expenditures and make certain investments or acquisitions and otherwise restrict corporate activities. The Bank Facility also contains, among other covenants, requirements that the Company maintain specified financial ratios, including minimum cash flow levels and interest coverage and debt coverage ratios, and prohibits the Company and its subsidiaries from prepaying, redeeming or defeasing the Company's other indebtedness (including the Exchange Notes). Furthermore, the Indenture relating to the Exchange Notes contains, and any additional financing agreements are likely to contain, certain restrictive covenants. The restrictions contained in the Indenture and such other agreements affect, and in some cases significantly limits or prohibits, among other things, the ability of the Company to incur indebtedness, make prepayments of certain indebtedness, pay dividends, make investments, engage in transactions with affiliates, create liens, sell assets and engage in mergers and consolidations. If the Company fails to comply with the restrictive covenants in the Indenture, the Company's obligation to repay such obligations may be accelerated. The ability of the Company to comply with such provisions may be affected by events that are beyond the Company's control. The breach of any of these covenants could result in a default under the Bank Facility. In the event of any such default, the lenders under the Bank Facility could elect to declare all amounts borrowed under the Bank Facility, together with accrued interest and other fees, to be due and payable. If the indebtedness under the Bank Facility were to be accelerated, all indebtedness outstanding under such Bank Facility would be required to be paid in full before the subsidiaries of the Company that are parties to the Bank Facility would be permitted to distribute any assets or cash to the Company. There can be no assurance that the assets of the Company and its subsidiaries would be sufficient to repay all borrowings under the Bank Facility, the other creditors of such subsidiaries and the Exchange Notes in full. In addition, as a result of these covenants, the ability of the Company and its subsidiaries to respond to changing business and economic conditions and to secure additional financing, if needed, may be significantly restricted, and the Company may be prevented from 17 engaging in transactions, including acquisitions, that might otherwise be considered important to the Company's growth strategy or otherwise beneficial to the Company. See "Description of the Bank Facility," "Business--Growth Strategy" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." HOLDING COMPANY STRUCTURE; EFFECTS OF ASSET ENCUMBRANCES Substantially all of the Company's operating income is generated by its subsidiaries. As a result, the Company will rely on cash received from its subsidiaries to provide substantially all of the funds necessary to meet its debt service obligations, including the payment of principal and interest on the Exchange Notes. The Subsidiary Guarantors will guarantee the Company's obligations under the Bank Facility on a senior secured basis, and the capital stock of, and substantially all of the assets of, the Subsidiary Guarantors will be pledged to secure the obligations of the Company and such subsidiaries under the Bank Facility and other secured obligations. In addition, the Bank Facility will prohibit the payment of dividends or other similar distributions to the Company from its subsidiaries in the event of a default thereunder. The Exchange Notes are guaranteed on a senior subordinated unsecured basis by the Subsidiary Guarantors, and therefore, should the Company fail to satisfy any payment obligation under the Exchange Notes, the holders would have a direct claim therefor against the Subsidiary Guarantors pursuant to such Guarantees. The Indenture will limit, but not prohibit, the ability of the Company and its subsidiaries to incur additional indebtedness, including Senior Indebtedness. In the event of a default under the Bank Facility (or any other Senior Indebtedness), the lenders thereunder would be entitled to a claim on the assets securing such indebtedness which is prior to any claim of the holders of the Exchange Notes. Accordingly, there may be insufficient assets remaining after payment of prior secured claims (including claims of lenders under the Bank Facility) to pay amounts due on the Exchange Notes. The Indenture also limits the ability of the Company and its subsidiaries to incur additional indebtedness. However, these limitations are subject to certain exceptions. See "--Fraudulent Conveyance Risks" and "Description of Exchange Notes." COMPETITION The equipment rental industry is highly fragmented and competitive. The Company's competitors include: large national companies (such as Hertz Equipment Rental Corporation, Prime Service, Inc., U.S. Rentals, Inc., BET Plant Services U.S.A. and United Rentals, Inc.); regional competitors that operate in a few states; small, independent businesses with one or two rental locations; and equipment vendors and dealers who both sell and rent equipment directly to customers. Fragmentation has attracted new competitors. Through its acquisition of Prime Services, Inc., Atlas Copco North America Inc., a subsidiary of Sweden-based Atlas Copco AB ("Atlas Copco"), has entered into the equipment rental business, and the Company believes that equipment manufacturers such as Caterpillar Inc. ("Caterpillar"), John Deere Capital Corporation, a wholly owned subsidiary of Deere & Company ("John Deere"), and equipment dealers such as Neff Corp., a John Deere dealer in which GE Capital Corp. has an equity investment ("Neff"), have or may enter into the business as well. The Company also competes against MRO suppliers, including large companies (such as W.W. Grainger and McMaster Carr), as well as regional and independent competitors. These competitors of the Company, as well as some others, have greater financial resources, are more geographically diverse and have greater name recognition than the Company. There can be no assurance that the Company will not encounter increased competition from existing competitors or new market entrants that may be significantly larger and have greater financial and marketing resources. In addition, to the extent existing or future competitors seek to gain or retain market share by reducing prices, the Company may be required to lower its prices, thereby impacting operating results. Existing or future competitors also may seek to compete with the Company for acquisition candidates that could have the effect of increasing the price for acquisitions or reducing the already limited number of suitable acquisition candidates. Management believes that such competition has increased the prices obtained by businesses acquired by the Company and its competitors. In addition, such competitors may also compete with the Company for start-up locations, thereby limiting the number of attractive locations for expansion. Competition in the rental or MRO business and competition in making acquisitions could have a material adverse effect on the Company. See "Business--Competition." 18 GENERAL ECONOMIC CONDITIONS The Company's business is sensitive to economic and competitive conditions, including national, regional and local slowdowns in construction, petrochemical or other industrial activity. As of June 5, 1998, the Company operated 203 locations in 26 states (Alabama, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and Wisconsin). As of June 5, 1998, the Company was party to non- binding letters of intent to acquire three equipment rental businesses with a combined eleven locations in three states (Illinois, Missouri and Oklahoma). The Company's operating results may be adversely affected by events or conditions in a particular area, such as regional economic slowdowns, adverse weather and other factors. In addition, the Company's operating results may be adversely affected by increases in interest rates that may lead to a decline in economic activity, while simultaneously resulting in higher interest payments by the Company under its variable rate credit facilities. There can be no assurance that economic slowdowns, a decline in the petrochemical industry or adverse economic or competitive conditions will not have a material adverse effect on the Company's operating results and financial condition. See "Business--Locations." SEASONALITY AND QUARTERLY FLUCTUATIONS Historically, the Company's revenues and operating results have varied from quarter to quarter and are expected to continue to fluctuate in the future. These fluctuations have been due to a number of factors, including: general economic conditions in the Company's markets; the timing and cost of acquisitions and start-up locations; the effectiveness of integrating acquired businesses and start-up locations; the timing of fleet expansion capital expenditures; the realization of targeted equipment utilization rates; seasonal rental and purchasing patterns of the Company's customers; and price changes in response to competitive factors. The Company incurs various costs in establishing or integrating newly acquired locations or start-ups, and the profitability of a new location is generally expected to be lower in the initial period of its operation than in subsequent periods. These factors, among others, make it likely that in some future quarter the Company's results of operations may be below the expectations of securities analysts and investors, which could have a material adverse effect on the value of the Exchange Notes. In addition, operating results historically have been seasonally lower during the first and fourth fiscal quarters than during the other quarters of the fiscal year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Seasonality and Selected Quarterly Operating Results." DEPENDENCE ON KEY PERSONNEL The Company's future performance and development will depend, in large part, upon the efforts and abilities of certain members of senior management, particularly Martin R. Reid, Chairman of the Board and Chief Executive Officer, Robert M. Wilson, Senior Vice President and Chief Financial Officer, and Douglas A. Waugaman, Ronald Halchishak, David G. Ledlow and John Markle, each a Senior Vice President of Operations. The loss of service of one or more members of senior management could have a material adverse effect on the Company's business. The Company's future success also will depend on its ability to attract, train and retain skilled personnel in all areas of its business. See "Management." GOVERNMENT AND ENVIRONMENTAL REGULATION The Company and its operations are subject to various federal, state and local laws and regulations governing, among other things, worker safety, air emissions, water discharge and the generation, handling, storage, transportation, treatment and disposal of hazardous substances and wastes. Under such laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as related costs of investigation and property damage. Such laws often impose such liability without regard to whether the owner or lessee knew of, or was responsible for, the presence of such hazardous or toxic substances. There can be no assurance that acquired or leased locations have been operated in compliance with environmental laws and regulations or that 19 future uses or conditions will not result in the imposition of environmental liability upon the Company or expose the Company to third-party actions such as tort suits. The Company uses hazardous materials such as solvents to clean and maintain its rental equipment fleet. In addition, the Company generates and disposes waste such as used motor oil, radiator fluid and solvents, and may be liable under various federal, state and local laws for environmental contamination at facilities where its waste is or has been disposed. In addition, the Company dispenses petroleum products from underground and above- ground storage tanks located at certain rental locations that it owns or leases. The Company maintains an environmental compliance program that includes the implementation of required technical and operational activities designed to minimize the potential for leaks and spills, maintenance of records and the regular testing and monitoring of tank systems for tightness. There can be no assurance, however, that these tank systems have been or will at all times remain free from leaks or that the use of these tanks has not or will not result in spills or other releases. The Company incurs ongoing expenses associated with the removal of older underground storage tanks and other activities to come into compliance with environmental laws, and the performance of appropriate remediation at certain of its locations. See "Business--Government and Environmental Regulation." LIABILITY AND INSURANCE The Company's business exposes it to possible claims for personal injury or death resulting from the use of equipment rented or sold by the Company and from injuries caused in motor vehicle accidents in which Company delivery or service personnel are involved. The Company carries comprehensive insurance subject to a deductible. There can be no assurance that existing or future claims will not exceed the level of the Company's insurance, or that such insurance will continue to be available on economically reasonable terms, if at all. In addition, certain types of claims, such as claims for punitive damages or for damages arising from intentional misconduct, are generally not covered by the Company's insurance. RHI'S BANKRUPTCY; INCREASE IN INDEBTEDNESS In September 1995, the Company acquired Acme Holdings Inc. ("RHI") an equipment rental business with 22 locations, primarily serving Florida, the Texas/Louisiana Gulf Coast and California. Between 1986 and 1990, RHI had acquired nine equipment rental businesses financed primarily with debt. In 1993, RHI refinanced its debt through the public sale of $78.0 million of senior notes (the "Retired Notes"). In 1994, due to a downturn in business conditions, combined with RHI's highly leveraged capital structure, RHI faced liquidity constraints and was unable to service its debt. In response, RHI brought in a new management team and hired Martin R. Reid, the Company's current Chief Executive Officer, as RHI's Chief Executive Officer in June 1994. This new management team initiated restructuring discussions with the holders of the Retired Notes in August 1994, culminating in the prepackaged bankruptcy of RHI and its subsidiaries. On September 12, 1995, the effective date of the prepackaged bankruptcy plan, the holders of the Retired Notes received an aggregate of $35.4 million in cash from the Company in exchange for the surrender of the Retired Notes and the release of all claims against RHI. In addition, in exchange for providing the financing necessary for the consummation of RHI's prepackaged bankruptcy plan, the Company acquired RHI through a stock merger. Prior to such acquisition, the Company and RHI shared certain common stockholders, including members of RHI's management and affiliates of Brentwood Associates. In addition, from July 1992 to September 1995, RHI provided executive management services to the Company pursuant to a Management Agreement. RHI currently operates as a subsidiary of the Company under the name RSC Holdings Inc. The Company's growth strategy has increased and is expected to continue to increase the Company's indebtedness. As a result of such increased levels of indebtedness, a downturn in business could have a material adverse effect on the Company. See "Capitalization," "Unaudited Pro Forma Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Management." FAILURE TO EXCHANGE PRIVATE NOTES The Exchange Notes will be issued in exchange for Private Notes only after timely receipt by the Exchange Agent of such Private Notes, a properly completed and duly executed Letter of Transmittal and all other required 20 documentation. Therefore, holders of Private Notes desiring to tender such Private Notes in exchange for Exchange Notes 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 tenders of Private Notes for exchange. Private Notes that are not tendered or are tendered but not accepted will, following consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof. In addition, any holder of Private Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Notes for its own accounts in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market-making activities or any other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. To the extent that Private Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Private Notes could be adversely affected due to the limited amount, or "float," of the Private Notes that are expected to remain outstanding following the Exchange Offer. Generally, a lower "float" of a security could result in less demand to purchase such security and could, therefore, result in lower prices for such security. For the same reason, to the extent that a large amount of Private Notes are not tendered or are tendered and not accepted in the Exchange Offer, the trading market for the Exchange Notes could be adversely affected. See "Plan of Distribution" and "The Exchange Offer." ABSENCE OF PRIOR PUBLIC MARKET The Private Notes have not been registered under the Securities Act and are subject to significant restrictions on resale. The Exchange Notes are new securities and have no established trading market. The Company does not intend to apply for listing of the Exchange Notes on any exchange or to seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System. The Initial Purchasers have advised the Company that they currently intend to make a market in the Exchange Notes. However, the Initial Purchasers are not obligated to do so and any market making may be discontinued at any time without notice. In addition, such market making activity will be subject to the limits imposed by the Securities Act and the Exchange Act, and may be limited during the Exchange Offer. No assurance can be given as to the liquidity of any trading market for the Exchange Notes or that any such trading market will develop. If an active public market for the Exchange Notes does not develop, their value and liquidity may be adversely affected. If a market for the Exchange Notes develops, any such market may be discontinued at any time. If a public trading market develops for the Exchange Notes, future trading prices of the Exchange Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's results of operations and the market for similar securities. PURCHASE OF EXCHANGE NOTES UPON A CHANGE OF CONTROL Upon the occurrence of a Change of Control, the Company is required to make an offer to purchase all outstanding Exchange Notes at a purchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase. There can be no assurance that the Company will have available funds sufficient to purchase the Exchange Notes upon a Change of Control. In addition, any Change of Control, and any repurchase of the Exchange Notes required under the Indenture upon a Change of Control, would constitute an event of default under the Bank Facility, with the result that the obligations of the borrowers thereunder could be declared due and payable by the lenders. Any acceleration of the obligations under the Indenture or the Bank Facility would make it unlikely that the Company could service the Exchange Notes and, accordingly, that the Company could effect a purchase of the Exchange Notes upon a Change of Control. See "Description of the Bank Facility" and "Description of Exchange Notes--Change of Control." FRAUDULENT CONVEYANCE RISKS Management of the Company believes that the indebtedness represented by the Exchange Notes is being incurred for proper purposes and in good faith, and that after the consummation of the Exchange Offer, based on 21 present forecasts, asset valuations and other financial information, the Company will be solvent, will have sufficient capital for carrying on its business and will be able to pay its debts as they mature. See "--Ability to Service Debt; Significant Leverage." Notwithstanding management's belief, however, if a court of competent jurisdiction in a suit by an unpaid creditor or a representative of creditors (such as a trustee in a bankruptcy or a debtor-in-possession) were to find that, at the time of incurrence of such indebtedness, the Company was rendered insolvent, was rendered insolvent by reason of such incurrence, was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital, intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, or intended to hinder, delay or defraud its creditors, and that the indebtedness was incurred for less than reasonably equivalent value, then such court could, among other things, (i) void all or a portion of the Company's obligations to the holders of Exchange Notes, the result of which would be that such holders might not be repaid in full and/or (ii) subordinate the Company's obligations to the holders of Exchange Notes to other existing or future indebtedness of the Company to a greater extent than would otherwise be the case, the effect of which would be to entitle other creditors to be paid in full before any payment could be made on the Exchange Notes. In addition, the Guarantees may be subject to review under relevant federal and state fraudulent conveyance and similar statues in a bankruptcy case or a lawsuit by or on behalf of creditors of any of the Subsidiary Guarantors. In such a case, the analysis set forth above would generally apply, except that the Guarantees could also be subject to the claim that, since the Guarantees were incurred for the benefit of the Company (and only indirectly for the benefit of the Subsidiary Guarantors), the obligations of the Subsidiary Guarantors thereunder were incurred for less than reasonably equivalent value or fair consideration. A court could avoid a Subsidiary Guarantor's obligation under its Guarantee, subordinate the Guarantee to other indebtedness of a Subsidiary Guarantor or take other action detrimental to the holders of the Exchange Notes. RISKS RELATED TO INTERNATIONAL OPERATIONS The Company is considering operations in Canada and may consider operations elsewhere outside of the United States in the near future. These operations are subject to risks normally associated with international operations, including currency conversion risks, slower and more difficult accounts receivable collection, greater difficulty and expense in administering business abroad and complying with foreign laws. In addition, if the Company conducts such operations through foreign subsidiaries, such subsidiaries will not be required to become guarantors of the Exchange Notes. YEAR 2000 The Company is aware of the issues associated with the programming code in existing computer and software systems as the Year 2000 approaches. The Year 2000 problem is pervasive and complex, as virtually every computer operation could be affected in some way by the rollover of the two-digit year value to "00." The issue is whether systems will properly recognize date sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or cause complete system failures. The Company has received confirmation from all of its current systems' vendors that each of their systems will properly handle the rollover to the Year 2000. FORWARD-LOOKING STATEMENTS This Prospectus contains certain forward-looking statements, including without limitation, statements concerning the Company's operations, economic performance and financial condition, including in particular, the integration of acquisitions and start-up locations into the Company's existing operations. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "anticipate" and other similar expressions generally identify forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based largely on the Company's current expectations and are subject to a number of risks and uncertainties, including without limitation, those identified 22 under "Risk Factors" and elsewhere in this Prospectus and other risks and uncertainties indicated from time to time in the Company's filings with the Commission. Actual results could differ materially from results referred to in the forward-looking statements. In addition, important factors to consider in evaluating such forward-looking statements include changes in external market factors, changes in the Company's business or growth strategy or an inability to execute its strategy due to changes in its industry or the economy generally, the emergence of new or growing competitors and various other competitive factors. In light of these risks and uncertainties, there can be no assurance that the results referred to in the forward-looking statements contained in this Prospectus will in fact occur. 23 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER The Private Notes were sold by the Company on May 13, 1998 (the "Closing Date") to the Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers subsequently sold the Private Notes (i) to "qualified institutional buyers" ("QIBs"), as defined in Rule 144A under the Securities Act ("Rule 144A"), in reliance on Rule 144A and (ii) in offshore transactions in reliance on Regulation S under the Securities Act. As a condition to the sale of the Private Notes, the Company and the Initial Purchasers entered into the Registration Rights Agreement on May 13, 1998. Pursuant to the Registration Rights Agreement, the Company agreed that, unless the Exchange Offer is not permitted by applicable law or Commission policy, it would (i) file with the Commission a Registration Statement under the Securities Act with respect to the Exchange Notes within 90 days after the Closing Date, (ii) cause such Registration Statement to become effective under the Securities Act within 150 days after the Closing Date (iii) keep the Exchange Offer open for at least 20 business days (or longer if required by applicable law) after the date that notice thereof is mailed to holders of the Private Notes and (iv) commence the Exchange Offer and use its best efforts to issue, on or prior to 45 days after the date on which the Registration Statement was declared effective by the Commission, Exchange Notes in exchange for all Private Notes tendered prior thereto in the Exchange Offer. A copy of the Registration Rights Agreement has been filed as an exhibit to the Registration Statement. The Registration Statement is intended to satisfy certain of the Company's obligations under the Registration Rights Agreement and the Purchase Agreement. RESALE OF THE EXCHANGE NOTES With respect to the Exchange Notes, based upon an interpretation by the staff of the Commission set forth in certain no-action letters issued to third parties, the Company believes that a holder (other than (i) a broker-dealer who purchases such Exchange Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who exchanges Private Notes for Exchange Notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement with any person to participate, in a distribution of the Exchange Notes, will be allowed to resell Exchange Notes to the public without further registration under the Securities Act and without delivering to the purchasers of the Exchange Notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder of Private Notes acquires Exchange Notes in the Exchange Offer for the purpose of distributing or participating in the distribution of the Exchange Notes or is a broker-dealer, such holder cannot rely on the position of the staff of the Commission enumerated in certain no- action letters issued to third parties and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Each broker-dealer that receives Exchange Notes for its own account in exchange for Private Notes, where such Private Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. 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 Exchange Notes received in exchange for Private Notes where such Private Notes were acquired by such broker-dealer as a result of market-making or other trading activities. Pursuant to the Registration Rights Agreement, the Company has agreed to make this Prospectus, as it may be amended or supplemented from time to time, available to broker-dealers for use in connection with any resale for a period of 180 days after the Expiration Date. See "Plan of Distribution." TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Private Notes validly tendered and not withdrawn prior to the Expiration 24 Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of outstanding Private Notes surrendered pursuant to the Exchange Offer. Private Notes may be tendered only in integral multiples of $1,000. The form and terms of the Exchange Notes are the same as the form and terms of the Private Notes except that (i) the exchange will be registered under the Securities Act and, therefore, the Exchange Notes will not bear legends restricting the transfer thereof and (ii) holders of the Exchange Notes will not be entitled to any of the rights of holders of Private Notes under the Registration Rights Agreement, which rights will terminate upon the consummation of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as the Private Notes (which they replace) and will be issued under, and be entitled to the benefits of, the Indenture, which also authorized the issuance of the Private Notes, such that both series of Notes will be treated as a single class of debt securities under the Indenture. As of the date of this Prospectus, $200.0 million in aggregate principal amount of the Private Notes are outstanding. Only a registered holder of the Private Notes (or such holder's legal representative or attorney-in-fact) as reflected on the records of the Trustee under the Indenture may participate in the Exchange Offer. There will be no fixed record date for determining registered holders of the Private Notes entitled to participate in the Exchange Offer. Holders of the Private Notes do not have any appraisal or dissenters' rights under the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the provisions of the Registration Rights Agreement and the applicable requirements of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations of the Commission thereunder. The Company shall be deemed to have accepted validly tendered Private Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of Private Notes for the purposes of receiving the Exchange Notes from the Company. Holders who tender Private Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Private Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes described below, in connection with the Exchange Offer. See "--Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time on , 1998, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will (i) notify the Exchange Agent of any extension by oral or written notice, and (ii) mail to the registered holders of Private Notes an announcement thereof which shall include disclosure of the approximate number of Private Notes deposited to date, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. The Company reserves the right, in its reasonable discretion, (i) to delay accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any conditions set forth below under "--Conditions" shall not have been satisfied, to terminate the Exchange Offer by giving oral or written notice of such delay, extension or termination to the Exchange Agent. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders of Private Notes. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders of Private Notes, and the Company will extend the Exchange Offer for a period of five 25 to ten business days, depending upon the significance of the amendment and the manner of disclosure to the registered holders of Private Notes, if the Exchange Offer would otherwise expire during such five to ten business day period. INTEREST ON THE EXCHANGE NOTES The Exchange Notes will bear interest at a rate equal to 9% per annum. Interest on the Exchange Notes will be payable semi-annually in arrears on each May 15 and November 15, commencing November 15, 1998. Holders of Exchange Notes will receive interest on November 15, 1998 from the date of initial issuance of the Private Notes. Holders of Private Notes that are accepted for exchange will be deemed to have waived the right to receive any interest accrued on the Private Notes. PROCEDURES FOR TENDERING Only a registered holder of Private Notes may tender such Private Notes in the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile to the Exchange Agent at the address set forth below under "-- Exchange Agent" for receipt prior to the Expiration Date. In addition, either (i) certificates for such Private Notes must be received by the Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation of a book- entry transfer (a "Book-Entry Confirmation") of such Private Notes, if such procedure is available, into the Exchange Agent's account at the Depositary pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date or (iii) the holder must comply with the guaranteed delivery procedures described below. The tender by a holder of Private Notes that is not withdrawn prior to the Expiration Date will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner(s) of the Private Notes whose Private Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Private Notes, either make appropriate arrangements to register ownership of the Private 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. Signatures on a Letter of Transmittal or a notice of withdrawal described below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Private Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box titled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be made by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having 26 an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of the recognized signature guarantee programs identified in the Letter of Transmittal (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Private Notes listed therein, such Private Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Private Notes. If the Letter of Transmittal or any Private Notes or bond powers 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, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. The Exchange Agent and the Depositary have confirmed that any financial institution that is a participant in the Depositary's system may utilize the Depositary's Automated Tender Offer Program to tender Private Notes. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Private Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Private Notes not properly tendered or any Private Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Private Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Private Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Private Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Private Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. While the Company has no present plan to acquire any Private Notes that are not tendered in the Exchange Offer or to file a registration statement to permit resales of any Private Notes that are not tendered pursuant to the Exchange Offer, the Company reserves the right in its sole discretion to purchase or make offers for any Private Notes that remain outstanding subsequent to the Expiration Date or, as set forth below under "--Conditions," to terminate the Exchange Offer and, to the extent permitted by applicable law, purchase Private Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. By tendering, each holder of Private Notes will represent to the Company that, among other things, (i) Exchange Notes to be acquired by such holder of Private Notes in connection with the Exchange Offer are being acquired by such Holder in the ordinary course of the respective business of such holder, (ii) such holder has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes, (iii) if such holder is a resident of the State of California, it falls under the self-executing institutional investor exemption set forth under Section 25102(i) of the Corporate Securities Law of 1968 and Rules 260.102.10 and 260.105.14 of the California Blue Sky Regulations, (iv) if such holder is a resident of the Commonwealth of Pennsylvania, it falls under the self-executing institutional investor exemption set forth under Sections 203(c), 102(d) and (k) of the Pennsylvania Securities Act of 1972, Section 102.111 of the Pennsylvania Blue Sky Regulations and an interpretive opinion dated November 16, 1985, (v) such holder acknowledges and agrees that any person who is a broker-dealer registered under the Exchange Act or is participating in the Exchange Offer for the purposes of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Commission set forth in certain no-action letters, (vi) such holder understands that a secondary resale transaction described in clause (v) above and any resales of Exchange Notes obtained by such holder in exchange for Private Notes acquired by such holder 27 directly from the Company should be covered by an effective registration statement containing the selling securityholder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (vii) such holder is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. If the holder is a broker-dealer that will receive Exchange Notes for such holder's own account in exchange for Private Notes that were acquired as a result of market-making activities or other trading activities, such holder will be required to acknowledge in the Letter of Transmittal that such holder will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, such holder will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. RETURN OF PRIVATE NOTES If any tendered Private Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Private Notes are withdrawn or are submitted for a greater principal amount than the holders desire to exchange, such unaccepted, withdrawn or non-exchanged Private Notes will be returned without expense to the tendering holder thereof (or, in the case of Private Notes tendered by book-entry transfer into the Exchange Agent's account at the Depositary pursuant to the book-entry transfer procedures described below, such Private Notes will be credited to an account maintained with the Depositary) as promptly as practicable. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Private Notes at the Depositary for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the Depositary's systems may make book- entry delivery of Private Notes by causing the Depositary to transfer such Private Notes into the Exchange Agent's account at the Depositary in accordance with the Depositary's procedures for transfer. However, although delivery of Private Notes may be effected through book-entry transfer at the Depositary, the Letter of Transmittal or facsimile thereof, with any required signature guarantees 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 pursuant to the guaranteed delivery procedures described below. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Private Notes and (i) whose Private Notes are not immediately available or (ii) who cannot deliver their Private Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, may effect a tender if: (a) The tender is made through an Eligible Institution; (b) Prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery) setting forth the name and address of the Holder, the certificate number(s) of such Private Notes and the principal amount of Private Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or a facsimile thereof), together with the certificate(s) representing the Private Notes in proper form for transfer or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (c) Such properly executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Private Notes in proper form for transfer and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Date. 28 Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Private Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Private Notes may be withdrawn at any time prior to 5:00 p.m. on the Expiration Date. To withdraw a tender of Private Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private Notes to be withdrawn (including the certificate number or numbers and principal amount of such Private Notes) and (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Private Notes were tendered (including any required signature guarantees). All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company in its sole discretion, whose determination shall be final and binding on all parties. Any Private Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Private Notes so withdrawn are validly retendered. Properly withdrawn Private Notes may be retendered by following one of the procedures described above under "--Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or exchange the Exchange Notes for, any Private Notes, and may terminate the Exchange Offer as provided herein before the acceptance of such Private Notes, if the Exchange Offer violates applicable law, rules or regulations or an applicable interpretation of the staff of the Commission. If the Company determines in its reasonable discretion that any of these conditions are not satisfied, the Company may (i) refuse to accept any Private Notes and return all tendered Private Notes to the tendering holders, (ii) extend the Exchange Offer and retain all Private Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders to withdraw such Private Notes (see " --Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Private Notes that have not been withdrawn. If such waiver constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered holders of the Private Notes, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. TERMINATION OF CERTAIN RIGHTS All rights under the Registration Rights Agreement (including registration rights) of holders of the Private Notes eligible to participate in the Exchange Offer will terminate upon consummation of the Exchange Offer except with respect to the Company's continuing obligations (i) to indemnify such holders (including any broker-dealers) and certain parties related to such holders against certain liabilities (including liabilities under the Securities Act), (ii) to use its best efforts to keep the Registration Statement effective to the extent necessary to ensure that it is available for resales of Exchange Notes by broker-dealers for a period of up to 90 days from the date the Commission declares the Registration Statement effective (the "Exchange Offer Registration Period") and (iii) to provide copies of the latest version of the Prospectus to broker-dealers upon their request during the Exchange Offer Registration Period. 29 ADDITIONAL INTEREST If (i) the Company fails to file the Registration Statement within 90 days after the Issue Date or a shelf registration statement covering resale of the Private Notes (a "Shelf Registration Statement") within 30 days after such obligation arises; (ii) within 150 days after the Issue Date, the Registration Statement has not been declared effective; (iii) within 45 days after the date on which the Registration Statement is declared effective by the Commission, the Exchange Offer has not been consummated, or within the time period specified in the Registration Rights Agreement, the Shelf Registration Statement has not been declared effective; or (iv) after either the Registration Statement or the Shelf Registration Statement has been declared effective, such registration statement thereafter ceases to be effective or usable (subject to certain exceptions) in connection with resales of Private Notes or Exchange Notes in accordance with and during the periods specified in the Registration Rights Agreement (each event referred to in clauses (i) through (iv), a "Registration Default"), interest ("Additional Interest") will accrue on the Private Notes and the Exchange Notes (in addition to the stated interest on the Private Notes and the Exchange Notes) from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured. Additional Interest will accrue at a rate of 0.25% per annum during the 90-day period immediately following the occurrence of any Registration Default and shall increase by 0.25% per annum at the end of each subsequent 90-day period, but in no event shall such rate exceed 1.50% per annum. 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 has been filed as an exhibit to the registration statement of which this Prospectus is a part. EXCHANGE AGENT Norwest Bank Minnesota, N.A. has been appointed as Exchange Agent of the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows:
By Registered or Certified By Hand: Mail: By Overnight Courier: Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A. Northstar East Building Corporate Trust Operations Corporate Trust Services 608 Second Avenue South P.O. Box 1517 Sixth and Marquette Avenue 12th Floor Minneapolis, MN 55480-1517 Minneapolis, MN 55479-0113 Corporate Trust Services Minneapolis, MN
By Facsimile: (612) 667-4927 Confirm by Telephone: (612) 667-9764 FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or others soliciting acceptances of the Exchange Offer. The Company, 30 however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be approximately $100,000. Such expenses include registration fees, fees and expenses of the Exchange Agent and the Trustee, accounting and legal fees and printing costs, among others. The Company will pay all transfer taxes, if any, applicable to the exchange of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the exchange of the Private Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. CONSEQUENCE OF FAILURES TO EXCHANGE Participation in the Exchange Offer is voluntary. Holders of the Private Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take. The Private Notes that are not exchanged for the Exchange Notes pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Private Notes may be resold only (i) to a person whom the seller reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii) in a transaction meeting the requirements of Rule 144 under the Securities Act, (iii) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act, (iv) in accordance with another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company so requests), (v) to the Company or (vi) pursuant to an effective registration statement and, in each case, in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction. ACCOUNTING TREATMENT For accounting purposes, the Company will recognize no gain or loss as a result of the Exchange Offer. The expenses of the Exchange Offer will be amortized over the term of the Exchange Notes. USE OF PROCEEDS The Company will not receive any of the proceeds from the issuance of the Exchange Notes offered hereby. In consideration for issuing the Exchange Notes as contemplated in this Prospectus, the Company will receive in exchange Private Notes in like principal amount, the terms of which will be cancelled. The issuance of the Exchange Notes in exchange for the surrender of the Private Notes will not result in any increase in the indebtedness of the Company. 31 CAPITALIZATION The following table sets forth the total cash and cash equivalents and total capitalization of the Company at March 31, 1998 on (i) an historical basis, (ii) a pro forma combined basis to give effect to the Other Acquisitions as though all such acquisitions were consummated as of March 31, 1998 and (iii) a pro forma as adjusted basis to give effect to the Other Acquisitions and the issuance of the Private Notes pursuant to the Offering, the application of the net proceeds therefrom to repay indebtedness under the Revolver and the issuance of the Exchange Notes in exchange for the Private Notes. This table should be read in conjunction with "Use of Proceeds," "Unaudited Pro Forma Consolidated Financial Data," "Selected Consolidated Financial and Operating Data" and the Company's Consolidated Financial Statements and the notes thereto included elsewhere in this Prospectus.
MARCH 31, 1998 ------------------------------ PRO FORMA PRO FORMA ACTUAL COMBINED AS ADJUSTED -------- --------- ----------- (IN THOUSANDS) Cash and cash equivalents....................... $ 4,462 $ 5,231 $ 5,231 Debt: Revolver(1)................................... 329,810 427,642 234,142 Term Loan(1).................................. 100,000 100,000 100,000 9% Senior Subordinated Notes due 2008......... -- -- 200,000 Other......................................... 3,330 3,330 3,330 -------- -------- -------- Total debt.................................. 433,140 530,972 537,472 Stockholders' equity: Preferred stock, par value $.01 per share; 500,000 authorized and none outstanding, actual, pro forma combined and pro forma as adjusted..................................... -- -- -- Common stock, par value $.01 per share; 40,000,000 authorized and 20,421,968 outstanding, actual; 40,000,000 authorized and 20,668,751 outstanding, pro forma combined and pro forma as adjusted(2)........ 204 206 206 Additional paid-in capital.................... 284,155 289,603 289,603 Common stock issuable(3)...................... 3,741 3,741 3,741 Retained earnings............................. 19,140 19,140 19,140 -------- -------- -------- Total stockholders' equity.................. 307,240 312,690 312,690 -------- -------- -------- Total capitalization...................... $740,380 $843,662 $850,162 ======== ======== ========
- -------- (1) As of March 31, 1998 the total commitment of the Bank Facility was $600.0 million. On a pro forma basis giving effect to the Offering, the repayment of indebtedness under the Revolver with the net proceeds of the Offering and the completion of the Other Acquisitions, the Company would have had borrowing availability of approximately $247.8 million under the Bank Facility, after taking into account the restrictions under the borrowing base, if any, and other customary restrictions. (2) Excludes (i) 1,204,002 shares subject to options and restricted stock grants outstanding as of March 31, 1998 pursuant to the Company's Equity Participation Plans at a weighted average exercise price of $20.03 per share, (ii) 7,453 shares reserved for issuance pursuant to the Company's Equity Participation Plans, (iii) 241,660 shares reserved for issuance pursuant to the Company's QSP Plan and (iv) up to 271,437 shares reserved for issuance in connection with certain pending and completed acquisitions. See "Prospectus Summary--Recent Developments," "Management-- Equity Participation Plans," "--Employee Qualified Stock Purchase Plan," and Notes 2 and 6 to the Company's Consolidated Financial Statements. (3) The common stock issuable is associated with the Common Stock relating to the acquisitions of Foxx, Central States and Center that vests over future time periods. See Note 2 to the Company's Consolidated Financial Statements. 32 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA The following unaudited pro forma consolidated financial data of the Company presents the unaudited pro forma consolidated statements of operations for the year ended December 31, 1997 and the three months ended March 31, 1998, and the unaudited pro forma consolidated balance sheet at March 31, 1998. The unaudited pro forma combined consolidated statement of operations for the year ended December 31, 1997 has been adjusted to give effect to the following, as if such transactions had occurred on January 1, 1997: (i) the Company's acquisitions of substantially all of the assets of 3 W Services, Inc. (completed in January 1997), Holt Equipment Rental & Supply (completed in February 1997), Crider Electric Motor & Tool Rental Service, Inc. (completed in March 1997), United Rental & Sales (completed in March 1997), Kastner Rentals (completed in March 1997), Stop Again Rentals & Sales, Inc. (completed in May 1997), D & D Rentals, Inc. (completed in May 1997), Brute Equipment Co. d/b/a Foxx Hy-Reach Company (completed in June 1997), Central States Equipment, Inc. and Equipment Lessors, Inc. (completed in June 1997), Carter Rental & Equipment, Inc. (completed in June 1997), Super Rent Enterprises, Inc. (completed in June 1997), Plateau Rental, Inc. (completed in June 1997), AMCA Equipment Corp. (completed in September 1997), Kansas Enterprises, Inc. d/b/a AAA Rent-All (completed in October 1997), Sunbelt Equipment & Rentals, Inc. (completed in October 1997), Roesch Equipment Company (completed in October 1997), Allen Equipment, Inc. (completed in October 1997), R&M Rentals, Inc. (completed in December 1997) and the Company's acquisitions of all of the outstanding stock of Comtect, Inc. and subsidiaries d/b/a Industrial Air Tool (effective March 1, 1997) and Siems Rental & Sales Co., Inc. (effective November 1, 1997) (collectively, the "1997 Acquisitions"); (ii) the Center Acquisition (effective November 1, 1997), including the pro forma effect of Center's acquisition of Zuni Rental Enterprises, L.L.C.; (iii) the Valley Acquisition (completed in February 1998); (iv) the Company's acquisitions of substantially all of the assets of Panama City Rentals, Inc. (completed in January 1998), Ray E. Miller d/b/a Franklin Rent-All (completed in January 1998), Chris Roddenberry, Inc. and Joy Roddenberry, Inc. (completed in February 1998), Rex Rentals, Inc. (completed in February 1998), and Rent-It Company of Alexandria, Inc. (completed in March 1998), and the Company's acquisition of all of the outstanding stock of Frank Wilson's Rentals & Sales Co. (collectively, the "1998 Acquisitions"); and (v) the Company's acquisition of substantially all of the assets of Webb City Rental Center, Inc. d/b/a Southwest Rental & Sales (completed in April 1998), the Company's acquisitions of all of the outstanding stock of Metroquip (effective March 1, 1998), T&M (effective March 1, 1998), Equipment & Supply Company of Virginia (completed in April 1998) and Midwest Aerial Platforms, Inc. (completed in May 1998), and the Company's proposed acquisition of one equipment rental business with seven locations in Oklahoma (collectively, the "Other Acquisitions"). All such acquisitions in (i) and (ii) are referred to herein collectively as the "1997 Pro Forma Combined Acquisitions," and such acquisitions in (iii) through (v) are referred to herein collectively as the "1998 Pro Forma Combined Acquisitions." The pro forma adjustments relating to the 1997 Pro Forma Combined Acquisitions are referred to herein collectively as the "1997 Pro Forma Acquisition Adjustments," and the pro forma adjustments relating to the 1998 Pro Forma Combined Acquisitions are referred to herein collectively as the "1998 Pro Forma Acquisition Adjustments." The unaudited pro forma combined consolidated statement of operations for the three months ended March 31, 1998 has been adjusted to give effect to the 1998 Pro Forma Combined Acquisitions and the 1998 Pro Forma Acquisition Adjustments as if such transactions had occurred on January 1, 1998. The unaudited pro forma combined consolidated balance sheet at March 31, 1998 gives effect to the Other Acquisitions as if they had occurred on March 31, 1998. There can be no assurance that the Company's proposed acquisition will be consummated. In addition to the 1997 Pro Forma Combined Acquisitions and the 1998 Pro Forma Combined Acquisitions, the unaudited pro forma as adjusted consolidated statement of operations for the year ended December 31, 1997 gives effect to the following transactions, in each case as if such transactions had occurred on January 1, 1997: (i) the issuance of the Private Notes pursuant to the Offering and the issuance of the Exchange Notes in exchange for the Private Notes; (ii) the sale by the Company of 3,000,000 shares of Common Stock in June 1997 at a price of $19.875 per share and the sale by the Company of 4,345,224 shares of Common Stock in December 1997 at a price of $24.00 per share (collectively, the "Common Stock Offerings"); (iii) the change in interest 33 expense as a result of reductions in the Revolver upon the application of a portion of the net proceeds from the Offering and the Common Stock Offerings; (iv) the additional interest expense related to the implementation of the Term Loan; and (v) the change in interest expense resulting from amendments and/or restatements to the Revolver in January 1997, June 1997, December 1997 and May 1998 (collectively, (i) through (v) above, the "1997 Pro Forma Offering Adjustments"). In addition to the 1998 Pro Forma Combined Acquisitions, the unaudited pro forma as adjusted consolidated statement of operations for the three months ended March 31, 1998 and the unaudited pro forma as adjusted balance sheet at March 31, 1998 give additional effect to the following transactions, in the case of the statement of operations as if such transactions had occurred on January 1, 1998, and in the case of the balance sheet as if they had occurred on March 31, 1998: (i) the issuance of the Private Notes pursuant to the Offering and the issuance of the Exchange Notes in exchange for the Private Notes; (ii) the change in interest expense as a result of reductions in the amounts outstanding under the Revolver upon the application of the net proceeds from the Offering; and (iii) the change in interest expense resulting from the amendment to the Revolver in May 1998 (collectively, (i) through (iii) above, the "1998 Pro Forma Offering Adjustments"). See "Use of Proceeds," "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Certain Relationships and Related Transactions" and the Company's Consolidated Financial Statements and the notes thereto. The 1997 Pro Forma Acquisition Adjustments, the 1998 Pro Forma Acquisition Adjustments, the 1997 Pro Forma Offering Adjustments and the 1998 Pro Forma Offering Adjustments represent, in the opinion of management, all adjustments necessary to present fairly the Company's pro forma results of operations and financial position 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 financial position or results of operations would actually have been had such events leading to the 1997 Pro Forma Acquisition Adjustments, the 1998 Pro Forma Acquisition Adjustments, the 1997 Pro Forma Offering Adjustments and the 1998 Pro Forma Offering Adjustments in fact occurred on the date or at the beginning of the periods indicated or to project the Company's financial position or results of operations for any future date or period. The Unaudited Pro Forma Consolidated Financial Data should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto and management's discussion thereof contained elsewhere in this Prospectus. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and the notes thereto. 34 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
PRO FORMA PRO HISTORICAL 1997 CENTER VALLEY 1998 OTHER ACQUISITION FORMA COMPANY ACQUISITIONS(1) ACQUISITION(1) ACQUISITION ACQUISITIONS ACQUISITIONS ADJUSTMENTS COMBINED ---------- --------------- -------------- ----------- ------------ ------------ ----------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Equipment rentals......... $170,704 $29,180 $28,437 $30,831 $8,084 $30,427 $ -- $297,663 Sales of parts, supplies and equipment....... 90,559 30,159 12,122 5,900 6,641 16,127 -- 161,508 -------- ------- ------- ------- ------ ------- -------- -------- Total revenues... 261,263 59,339 40,559 36,731 14,725 46,554 -- 459,171 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation.... 87,552 11,009 13,226 15,852 2,853 10,296 -- 140,788 Depreciation, equipment rentals......... 37,413 7,721 5,301 6,831 1,460 8,810 (6,358)(2) 61,178 Cost of sales of parts, supplies and equipment... 67,666 21,609 10,894 3,848 5,191 9,130 -- 118,338 -------- ------- ------- ------- ------ ------- -------- -------- Total cost of revenues......... 192,631 40,339 29,421 26,531 9,504 28,236 (6,358) 320,304 -------- ------- ------- ------- ------ ------- -------- -------- Gross profit..... 68,632 19,000 11,138 10,200 5,221 18,318 6,358 138,867 Selling, general and administrative expense.......... 20,996 12,414 6,213 4,421 3,970 11,027 (4,633)(3) 54,408 Depreciation and amortization, excluding equipment rental depreciation..... 5,373 600 729 844 122 565 (169)(4) 8,064 Amortization of intangibles...... 3,907 23 102 20 4 -- 6,504 (5) 10,560 -------- ------- ------- ------- ------ ------- -------- -------- Operating income........... 38,356 5,963 4,094 4,915 1,125 6,726 4,656 65,835 Non-operating (income) expense.......... -- (59) 8 (480) -- -- 531 (6) -- Interest expense, net.............. 14,877 2,148 1,286 3,396 233 2,231 19,159 (7) 43,330 -------- ------- ------- ------- ------ ------- -------- -------- Income before income taxes and extraordinary items............ 23,479 3,874 2,800 1,999 892 4,495 (15,034) 22,505 Provision (benefit) for income taxes..... 10,330 322 964 -- (3) 1,501 (3,212)(9) 9,902 -------- ------- ------- ------- ------ ------- -------- -------- Income before extraordinary items............ $ 13,149 $ 3,552 $ 1,836 $ 1,999 $ 895 $ 2,994 $(11,822) $ 12,603 ======== ======= ======= ======= ====== ======= ======== ======== Income before extraordinary items per common share............ $ .96 $ .83 Weighted average common shares.... 13,653 15,265(10)(11) Income before extraordinary items per common share, assuming dilution......... $ .94 $ .81 Weighted average common shares, assuming dilution......... 13,927 15,540(10)(11) PRO FORMA OFFERING PRO FORMA ADJUSTMENTS AS ADJUSTED ------------- ------------------ Revenues: Equipment rentals......... $ -- $297,663 Sales of parts, supplies and equipment....... -- 161,508 ------------- ------------------ Total revenues... -- 459,171 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation.... -- 140,788 Depreciation, equipment rentals......... -- 61,178 Cost of sales of parts, supplies and equipment... -- 118,338 ------------- ------------------ Total cost of revenues......... -- 320,304 ------------- ------------------ Gross profit..... -- 138,867 Selling, general and administrative expense.......... -- 54,408 Depreciation and amortization, excluding equipment rental depreciation..... -- 8,064 Amortization of intangibles...... -- 10,560 ------------- ------------------ Operating income........... -- 65,835 Non-operating (income) expense.......... -- -- Interest expense, net.............. (4,132)(8) 39,198 ------------- ------------------ Income before income taxes and extraordinary items............ 4,132 26,637 Provision (benefit) for income taxes..... 1,818 (9) 11,720 ------------- ------------------ Income before extraordinary items............ $2,314 $ 14,917 ============= ================== Income before extraordinary items per common share............ $ .72 Weighted average common shares.... 20,724(10)(11) Income before extraordinary items per common share, assuming dilution......... $ .71 Weighted average common shares, assuming dilution......... 20,998(10)(11)
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of Operations. 35 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (1) Represents the results of the 1997 Acquisitions and the Center Acquisition prior to their acquisition by the Company, using in some cases estimates based on the mathematical annualization of such results of operations. Results of the 1997 Acquisitions and the Center Acquisition subsequent to the dates of their acquisition are included in the Historical Company results for the year ended December 31, 1997 from the date of effective control of such acquisitions. See Note 2 to the Company's Consolidated Financial Statements. (2) Represents the elimination of the historical carrying value of rental equipment depreciation of $30,122,000 and the Company's estimate of $23,764,000 for depreciation assuming the rental fleet acquired was adjusted to fair market value at the beginning of the period presented. As a result, pro forma depreciation decreased by $6,358,000. (3) Represents the elimination of compensation expense and other payments to officers and/or stockholders of certain acquired businesses, as such officers and/or stockholders will either be employed at lower contractual rates or will not be employed by the Company. (4) Represents the elimination of the historical carrying value of depreciation and amortization, excluding equipment rental depreciation, of $844,000 and the Company's estimate of $675,000 for depreciation excluding those assets not acquired and assuming the assets acquired were adjusted to fair market value at the beginning of the period presented. As a result, pro forma depreciation decreased by $169,000. (5) Represents the Company's estimate of amortization of goodwill and covenants not to compete for the 1997 Acquisitions, the Center Acquisition, the Valley Acquisition, the 1998 Acquisitions and the Other Acquisitions of $6,504,000, as if such acquisitions were consummated at the beginning of the period presented. (6) Represents the elimination of income earned on, or expenses associated with, assets or liabilities not acquired or assumed in connection with certain of the above acquisitions. (7) Represents the elimination of historical interest expense of $9,294,000 and the addition of $28,453,000 of interest expense on borrowings to fund the above acquisitions as if the transactions were consummated at the beginning of the period presented. As a result, pro forma interest expense increased by $19,159,000. (8) Represents the reduction in historical interest expense on the Revolver at an interest rate of 7.6% (after giving effect to the additional borrowings resulting from the 1997 Pro Forma Combined Acquisitions and the 1998 Pro Forma Combined Acquisitions) assuming the repayment of such indebtedness at the beginning of the period presented with a portion of the net proceeds from the Common Stock Offerings and the Offering, the additional interest expense associated with the issuance of the Private Notes pursuant to the Offering and the implementation of the Term Loan at an interest rate of 8.5% and the effect of the reductions in interest expense resulting from the Company's amendments and restatements to the Revolver, including the effects on capitalized debt issuance costs. (9) Represents the adjustment to provide income taxes at the Company's 1997 effective tax rate of 44.0%. (10) The acquisition agreements for certain of the above acquisitions provide for the potential issuance of certain amounts of Common Stock over specified periods following the acquisitions if certain performance objectives are met. The effects of the potential issuance of these shares are not considered in the pro forma consolidated statement of operations until the related performance objectives have been achieved. See Note 2 to the Company's Consolidated Financial Statements. (11) Weighted average common shares includes 2,062,514 shares of Common Stock for certain of the above acquisitions. 36 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
PRO FORMA PRO PRO FORMA HISTORICAL VALLEY 1998 OTHER ACQUISITION FORMA OFFERING COMPANY ACQUISITION(1) ACQUISITIONS(1) ACQUISITIONS(1) ADJUSTMENTS COMBINED ADJUSTMENTS ---------- -------------- --------------- --------------- ----------- -------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Equipment rentals......... $ 70,179 $2,401 $ 844 $5,773 $ -- $ 79,197 $ -- Sales of parts, supplies and equipment....... 38,484 513 1,025 3,246 -- 43,268 -- -------- ------ ------ ------ ------ -------- ----- Total revenues... 108,663 2,914 1,869 9,019 -- 122,465 -- Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation.... 37,073 1,411 315 2,093 -- 40,892 -- Depreciation, equipment rentals......... 15,461 627 189 1,512 (701)(2) 17,088 -- Cost of sales of parts, supplies and equipment... 29,193 363 794 1,844 -- 32,194 -- -------- ------ ------ ------ ------ -------- ----- Total cost of revenues......... 81,727 2,401 1,298 5,449 (701) 90,174 -- -------- ------ ------ ------ ------ -------- ----- Gross profit..... 26,936 513 571 3,570 701 32,291 -- Selling, general and administrative expense.......... 5,659 432 448 2,200 (535)(3) 8,204 -- Depreciation and amortization, excluding equipment rental depreciation..... 2,024 71 17 111 (15)(4) 2,208 -- Amortization of intangibles...... 2,085 2 -- -- 513 (5) 2,600 -- -------- ------ ------ ------ ------ -------- ----- Operating income........... 17,168 8 106 1,259 738 19,279 -- Interest expense, net.............. 7,583 103 15 414 1,565 (6) 9,680 779 (7) -------- ------ ------ ------ ------ -------- ----- Income (loss) before income taxes and extraordinary items............ 9,585 (95) 91 845 (827) 9,599 (779) Provision (benefit) for income taxes..... 4,101 -- -- 273 (265)(8) 4,109 (334)(8) -------- ------ ------ ------ ------ -------- ----- Income (loss) before extraordinary items............ $ 5,484 $ (95) $ 91 $ 572 $ (562) $ 5,490 $(445) ======== ====== ====== ====== ====== ======== ===== Income before extraordinary items per common share............ $ 0.27 $ 0.26 Weighted average common shares.... 20,419 20,832(9)(10) Income before extraordinary items per common share, assuming dilution......... $ 0.27 $ 0.26 Weighted average common shares, assuming dilution......... 20,568 20,982(9)(10) PRO FORMA AS ADJUSTED ----------------- Revenues: Equipment rentals......... $ 79,197 Sales of parts, supplies and equipment....... 43,268 ----------------- Total revenues... 122,465 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation.... 40,892 Depreciation, equipment rentals......... 17,088 Cost of sales of parts, supplies and equipment... 32,194 ----------------- Total cost of revenues......... 90,174 ----------------- Gross profit..... 32,291 Selling, general and administrative expense.......... 8,204 Depreciation and amortization, excluding equipment rental depreciation..... 2,208 Amortization of intangibles...... 2,600 ----------------- Operating income........... 19,279 Interest expense, net.............. 10,459 ----------------- Income (loss) before income taxes and extraordinary items............ 8,820 Provision (benefit) for income taxes..... 3,775 ----------------- Income (loss) before extraordinary items............ $ 5,045 ================= Income before extraordinary items per common share............ $ 0.24 Weighted average common shares.... 20,832(9)(10) Income before extraordinary items per common share, assuming dilution......... $ 0.24 Weighted average common shares, assuming dilution......... 20,982(9)(10)
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of Operations. 37 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 (1) Represents the results of the Valley Acquisition, the 1998 Acquisitions and the Other Acquisitions prior to their acquisition by the Company, using in some cases estimates based on the mathematical annualization of such results of operations. Results of the Valley Acquisition, the 1998 Acquisitions and certain of the Other Acquisitions subsequent to the dates of their acquisition are included in the Historical Company results for the three months ended March 31, 1998 from the date of effective control of such acquisitions. See Note 2 to the Company's Consolidated Financial Statements. (2) Represents the elimination of the historical carrying value of rental equipment depreciation of $2,328,000 and the Company's estimate of $1,627,000 for depreciation assuming the rental fleet acquired was adjusted to fair market value at the beginning of the period presented. As a result, pro forma depreciation decreased by $701,000. (3) Represents the elimination of compensation expense and other payments to officers and/or stockholders of certain acquired businesses, as such officers and/or stockholders will either be employed at lower contractual rates or will not be employed by the Company. (4) Represents the elimination of the historical carrying value of depreciation and amortization, excluding equipment rental depreciation, of $71,000 and the Company's estimate of $56,000 for depreciation excluding those assets not acquired and assuming the assets acquired were adjusted to fair market value at the beginning of the period presented. As a result, pro forma depreciation decreased by $15,000. (5) Represents the Company's estimate of amortization of goodwill and covenants not to compete for the Valley Acquisition, the 1998 Acquisitions and the Other Acquisitions of $513,000, as if the acquisitions were consummated at the beginning of the period presented. (6) Represents the elimination of historical interest expense of $531,000 and the addition of $2,096,000 of interest expense on borrowings to fund the above acquisitions as if the transactions were consummated at the beginning of the period presented. As a result, pro forma interest expense increased by $1,565,000. (7) Represents the reduction in historical interest expense on the Revolver at an interest rate of 7.5% (after giving effect to the additional borrowings resulting from the 1998 Pro Forma Combined Acquisitions) assuming the repayment of such indebtedness at the beginning of the period presented with a portion of the net proceeds from the Offering, the additional interest expense associated with the issuance of the Private Notes pursuant to the Offering and the reduction of interest expense resulting from the Company's amendment to the Revolver in May 1998, including the effects on capitalized debt issuance costs. (8) Represents the adjustment to provide income taxes at the Company's effective tax rate of 42.8%. (9) The acquisition agreements for certain of the above acquisitions provide for the potential issuance of certain amounts of Common Stock over specified periods following the acquisitions if certain performance objectives are met. The effects of the potential issuance of these shares are not considered in the pro forma consolidated statement of operations until the related performance objectives have been achieved. See Note 2 to the Company's Consolidated Financial Statements. (10) Weighted average common shares includes 696,892 shares of Common Stock for certain of the above acquisitions. 38 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET MARCH 31, 1998(1)
PRO FORMA PRO FORMA HISTORICAL OTHER ACQUISITION PRO FORMA OFFERING PRO FORMA COMPANY ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED ---------- ------------ ----------- --------- ----------- ----------- (IN THOUSANDS) ASSETS: Cash and cash equivalents............ $ 4,462 $ 920 $ (151)(4) $ 5,231 $ -- $ 5,231 Accounts receivable, net.................... 65,490 6,945 -- 72,435 -- 72,435 Other receivables and prepaid expense........ 4,479 373 (24)(4) 4,828 -- 4,828 Income tax receivable... 638 -- -- 638 -- 638 Parts and supplies inventories, net....... 35,825 1,296 -- 37,121 -- 37,121 Deferred taxes.......... 15,241 130 -- 15,371 -- 15,371 Rental equipment, net... 403,266 31,689 (350)(5) 434,605 -- 434,605 Operating property and equipment, net......... 41,106 2,082 -- 43,188 -- 43,188 Intangible assets, net.. 287,651 506 65,835 (6) 353,992 -- 353,992 Other assets, net....... 6,718 251 (36)(4) 6,933 6,500 (7) 13,433 -------- ------- ------- -------- --------- -------- $864,876 $44,192 $65,274 $974,342 $ 6,500 $980,842 ======== ======= ======= ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable........ $ 53,006 $ 2,434 $ (46)(4) $ 55,394 $ -- $ 55,394 Payroll and other accrued expenses....... 33,040 1,277 (21)(4) 34,296 -- 34,296 Accrued interest payable................ 1,781 116 -- 1,897 -- 1,897 Income taxes payable.... 5,812 (24) -- 5,788 -- 5,788 Deferred taxes.......... 30,857 2,448 -- 33,305 -- 33,305 Bank debt and long term obligations............ 333,140 26,734 71,098 (8) 430,972 (193,500)(9) 237,472 Term Loan............... 100,000 -- -- 100,000 -- 100,000 9% Senior Subordinated Notes due 2008......... -- -- -- -- 200,000 (10) 200,000 Related party notes payable................ -- 159 (159)(4) -- -- -- -------- ------- ------- -------- --------- -------- Total liabilities...... 557,636 33,144 70,872 661,652 6,500 668,152 Stockholders' equity: Common stock(2)......... 204 237 (235)(11) 206 -- 206 Additional paid-in capital................ 284,155 239 5,209 (11) 289,603 -- 289,603 Common stock issuable(3)............ 3,741 -- -- 3,741 -- 3,741 Retained earnings....... 19,140 10,572 (10,572)(11) 19,140 -- 19,140 -------- ------- ------- -------- --------- -------- Total stockholders' equity................ 307,240 11,048 (5,598) 312,690 -- 312,690 -------- ------- ------- -------- --------- -------- $864,876 $44,192 $65,274 $974,342 $ 6,500 $980,842 ======== ======= ======= ======== ========= ========
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet. 39 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET MARCH 31, 1998 (1) The purchase method of accounting has been used in preparing the Unaudited Pro Forma Consolidated Balance Sheet of the Company with respect to the Other Acquisitions. Purchase accounting values have been assigned to the Other Acquisitions on a preliminary basis and are subject to adjustment when final information as to the fair values of the net assets acquired is available. (2) The acquisition agreements for certain acquisitions provide for the potential issuance of certain amounts of Common Stock over specified periods following the acquisitions if certain performance objectives are met. The effects of the potential issuance of these shares are not considered in the pro forma consolidated balance sheet until the related performance objectives have been achieved. See Note 2 to the Company's Consolidated Financial Statements. (3) The Common Stock issuable is associated with Common Stock for certain of the Company's acquisitions that vests over future time periods. See Note 2 to the Company's Consolidated Financial Statements. (4) Represents assets not acquired or liabilities not assumed in the Other Acquisitions. (5) Represents the Company's preliminary estimates of the adjustments necessary to record the assets acquired at fair market value. (6) Represents the estimated fair market value of covenants not to compete and goodwill represented by the excess purchase price over the estimated fair market value of the net assets acquired. (7) Represents the estimated capitalized debt issuance costs associated with the Offering and the issuance of the Exchange Notes in exchange for the Private Notes. (8) Represents borrowings under the Revolver to fund the Other Acquisitions. (9) Represents the use of the estimated net proceeds from the Offering to reduce the Company's outstanding obligations under the Revolver. (10) Represents the issuance of the Private Notes pursuant to the Offering and the issuance of the Exchange Notes in exchange for the Private Notes. (11) Represents the elimination of the equity accounts of the Other Acquisitions and the effects of the issuance of Common Stock as a portion of the consideration paid for certain of these acquisitions. 40 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA The following selected consolidated statement of operations data for the years ended December 31, 1995, 1996 and 1997, and selected consolidated balance sheet data as of December 31, 1996 and 1997, have been derived from the audited consolidated financial statements of the Company appearing elsewhere in this Prospectus. The selected consolidated financial data with respect to the Company's statement of operations for the years ended December 31, 1993 and 1994, and with respect to the balance sheet as of December 31, 1993, 1994 and 1995, have been derived from audited financial statements of the Company not included in this Prospectus. The selected consolidated financial data with respect to the Company's statements of operations for the three months ended March 31, 1997 and 1998, and with respect to the balance sheet as of March 31, 1998, has been derived from the unaudited consolidated financial statements of the Company, 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 dates and for such periods. The results for the three months ended March 31, 1998 are not necessarily indicative of the results which may be expected for future periods, including for the year ending December 31, 1998. The selected operating data presented has not been audited. The selected consolidated financial and operating data presented should be read in conjunction with the Company's 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. 41 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
THREE MONTHS YEARS ENDED DECEMBER 31, ENDED MARCH 31, --------------------------------------------- ---------------- 1993 1994 1995 1996 1997 1997 1998 -------- ------- ------- ------- -------- ------- ------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA(1): Revenues: Equipment rentals...... $17,238 $27,775 $47,170 $94,218 $170,704 $27,527 $70,179 Sales of parts, supplies and new equipment............. 7,387 10,800 14,621 21,919 70,957 9,165 27,227 Sales of used equipment............. 1,007 3,240 4,126 12,217 19,602 4,617 11,257 -------- ------- ------- ------- -------- ------- ------- Total revenues......... 25,632 41,815 65,917 128,354 261,263 41,309 108,663 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation.......... 11,405 16,284 27,854 55,202 87,552 14,316 37,073 Depreciation, equipment rentals............... 2,161 4,020 7,691 17,840 37,413 6,306 15,461 Cost of sales of parts, supplies and new equipment............. 5,370 7,978 10,439 15,582 54,739 6,737 21,249 Cost of sales of used equipment............. 589 2,320 2,178 8,488 12,927 2,972 7,944 -------- ------- ------- ------- -------- ------- ------- Total cost of revenues.............. 19,525 30,602 48,162 97,112 192,631 30,331 81,727 -------- ------- ------- ------- -------- ------- ------- Gross profit............ 6,107 11,213 17,755 31,242 68,632 10,978 26,936 Selling, general and administrative expense................ 2,683 4,747 6,421 12,254 20,996 3,784 5,659 Depreciation and amortization, excluding equipment rental depreciation........... 211 504 1,186 2,835 5,373 1,068 2,024 Amortization of intangibles(2)......... 2,635 2,078 718 2,379 3,907 624 2,085 -------- ------- ------- ------- -------- ------- ------- Operating income........ 578 3,884 9,430 13,774 38,356 5,502 17,168 Interest expense, net... 407 731 3,314 7,063 14,877 1,597 7,583 -------- ------- ------- ------- -------- ------- ------- Income before income taxes and extraordinary items.................. 171 3,153 6,116 6,711 23,479 3,905 9,585 Provision for income taxes.................. 465 1,177 2,401 2,722 10,330 1,722 4,101 -------- ------- ------- ------- -------- ------- ------- Income (loss) before extraordinary items.... (294) 1,976 3,715 3,989 13,149 2,183 5,484 Extraordinary items(3).. -- -- (478) (1,269) (534) (534) -- -------- ------- ------- ------- -------- ------- ------- Net income (loss)....... (294) 1,976 3,237 2,720 12,615 1,649 5,484 Redeemable preferred stock accretion........ 1,013 1,646 1,717 1,643 -- -- -- -------- ------- ------- ------- -------- ------- ------- Net income (loss) available to common stockholders........... $ (1,307) $ 330 $ 1,520 $ 1,077 $ 12,615 $ 1,649 $ 5,484 ======== ======= ======= ======= ======== ======= ======= Income (loss) before extraordinary items per common share........... $ (.29) $ .08 $ .50 $ .34 $ .96 $ .19 $ .27 Income (loss) before extraordinary items per common share, assuming dilution............... $ (.29) $ .08 $ .49 $ .33 $ .94 $ .19 $ .27 SELECTED OPERATING DATA: Beginning locations..... 11 21 25 50 94 94 165 Locations acquired...... 11 1 26 25 64 12 22 Locations opened........ -- 3 10 19 16 -- 2 Locations closed, sold or held for sale(4).... (1) -- (11) -- (9) -- (2) -------- ------- ------- ------- -------- ------- ------- Ending locations........ 21 25 50 94 165 106 187 ======== ======= ======= ======= ======== ======= ======= OTHER DATA: Ratio of Earnings to Fixed Charges(5)....... 1.3x 4.1x 2.5x 1.8x 2.4x 3.0x 2.2x
AS OF DECEMBER 31, AS OF -------------------------------------------- MARCH 31, 1993 1994 1995 1996 1997 1998 ------- ------- -------- -------- -------- --------- (IN THOUSANDS) BALANCE SHEET DATA: Net book value of rental equipment.............. $16,223 $24,138 $ 52,818 $116,921 $314,696 $403,266 Total assets............ 35,877 48,098 137,832 218,933 699,326 864,876 Total debt ............. 4,411 12,752 68,555 68,594 306,975 433,140 Redeemable preferred stock (net of treasury stock)................. 25,956 26,684 28,401 -- -- -- Common stockholders' equity (deficit)....... (1,281) (1,474) 46 95,072 290,781 307,240
42 - -------- (1) The Company's acquisitions have been accounted for as purchases and, accordingly, the operations of the acquired businesses are included in the statements of operations data from the date of effective control of each such acquisition. See Note 2 to the Company's Consolidated Financial Statements. (2) 1993 data includes $781,000 for the write-off of costs in excess of net assets acquired. (3) The extraordinary item in the year ended December 31, 1995 represents the loss on extinguishment of debt related to the Old Revolver paid off September 12, 1995. The extraordinary item in the year ended December 31, 1996 represents the loss on extinguishment of debt related to the amendment to the Revolver in September 1996. The extraordinary item in the year ended December 31, 1997 represents the loss on extinguishment of debt related to the amendment to the Revolver in January 1997. (4) In 1996, the Company closed or disposed of its California locations, which were previously classified as "assets held for sale" in the Company's Consolidated Financial Statements. (5) For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes and extraordinary items plus fixed charges. Fixed charges consist of interest expense and 30% of rental expense (the portion deemed representative of the interest factor). 43 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company's consolidated financial condition and results of operations should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto appearing elsewhere in this Prospectus. OVERVIEW Since its formation in 1992 through June 5, 1998, the Company has acquired 56 businesses consisting of 172 locations and has opened 54 start-up locations. The Company also focuses on increasing revenues and profitability across its locations through investments in fleet expansion, the implementation of information systems designed to improve asset utilization and targeted marketing efforts. As a result, the Company has increased its total revenues from $65.9 million in the year ended December 31, 1995 to $261.3 million in the year ended December 31, 1997, and operating income has increased from $9.4 million to $38.4 million during the same period, representing increases of 296.4% and 306.7%, respectively. During the first quarter of 1998, the Company generated revenues of $108.7 million with operating income of $17.2 million, increases of 163.0% and 212.0%, respectively, over the same period in 1997. The Company has also substantially increased its presence in the MRO supply business, which has historically had lower gross margins than the Company's equipment rental business. The Company has historically financed its acquisitions, start-up locations and capital expenditures primarily through the issuance of equity securities, secured bank borrowings and internally generated cash flow. Such financings have increased the Company's interest expense and resulted in the accretion of dividends on its Redeemable Preferred Stock prior to its redemption in September 1996. Because all of the acquisitions have been accounted for under the purchase method of accounting, such acquisitions have increased the Company's goodwill and other intangibles (including covenants not to compete). During the initial phase of an acquisition or start-up location, the Company typically incurs expenses related to completing acquisitions and opening start-up locations, training employees, installing or converting information systems, facility set-up and marketing expenses. As a result, the profitability of a new location is generally expected to be lower in the initial period of its operation than in subsequent periods. Integration of acquisitions is generally completed within the first six months, while the Company generally expects start-up locations to achieve normalized profitability after one year. The Company anticipates that as it continues to implement its growth strategy, new locations will continue to impact the Company's margins until such locations achieve normalized profitability. The Company is continually involved in the investigation and evaluation of potential acquisitions and start-up locations. Acquisition transactions are typically subject to numerous conditions, including due diligence investigation, environmental review and negotiation of a definitive purchase agreement. In evaluating acquisition targets, the Company considers, among other things, the target's competitive market position, management team, growth position and the demographic characteristics of the target market. At any time, the Company may have one or more offers outstanding and may have executed one or more non-binding letters of intent or binding acquisition agreements. As of June 5, 1998, the Company was party to non-binding letters of intent to acquire three equipment rental businesses with a combined eleven locations in three states for a total combined purchase price of approximately $33.2 million (including the assumption of approximately $7.4 million of debt). In view of the fact that these letters of intent are non-binding and that the Company has not completed its due diligence investigations with respect thereto, the Company cannot predict whether these letters of intent will lead to definitive agreements, whether the terms of any such definitive agreements will be the same as the terms contemplated by the letters of intent or whether any transaction contemplated by such letters of intent will be consummated. The Company's capital expenditures have principally been discretionary expenditures to finance the growth of its rental equipment fleet; however, the Company must continually reinvest in ongoing capital expenditures in order to acquire and maintain a competitive, high quality rental equipment fleet. For the years ended 44 December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and 1998, the Company made capital expenditures of $23.6 million, $86.8 million, $165.1 million, $44.1 million and $70.7 million, respectively. The Company depreciates rental equipment over periods ranging from three to seven years, which has resulted in equipment rental depreciation of $7.7 million, $17.8 million, $37.4 million, $6.3 million and $15.5 million for the years ended December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and 1998, respectively. Depreciation related to new rental equipment periodically contributes to short-term margin pressure, since new rental equipment does not immediately generate revenues at historical utilization rates. In recent years, the Company has also made substantial investments in its information systems. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, information derived from the consolidated statements of operations of the Company expressed as a percentage of total revenues, and the percentage change in such items compared to the same period in the prior year. There can be no assurance that the trends in revenue growth or operating results will continue in the future.
PERCENTAGE OF TOTAL REVENUES PERCENTAGE INCREASE --------------------------------- ----------------------------------------- THREE MONTHS THREE MONTHS YEARS ENDED ENDED ENDED DECEMBER 31, MARCH 31, MARCH 31, ------------------- ------------ ------------- 1995 1996 1997 1997 1998 1996 VS. 1995 1997 VS. 1996 1998 VS. 1997 ----- ----- ----- ----- ----- ------------- ------------- ------------- Revenues: Equipment rentals...... 71.6% 73.4% 65.3% 66.6% 64.6% 99.7% 81.2% 154.9% Sales of parts, supplies and new equipment............. 22.2 17.1 27.2 22.2 25.0 49.9 223.7 197.1 Sales of used equipment............. 6.2 9.5 7.5 11.2 10.4 196.1 60.4 143.8 ----- ----- ----- ----- ----- Total revenues......... 100.0 100.0 100.0 100.0 100.0 94.7 103.5 163.0 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation.......... 42.3 43.0 33.5 34.6 34.1 98.2 58.6 159.0 Depreciation, equipment rentals............... 11.7 13.9 14.3 15.3 14.2 132.0 109.7 145.2 Cost of sales of parts, supplies and new equipment............. 15.8 12.2 21.0 16.3 19.6 49.3 251.3 215.4 Cost of sales of used equipment............. 3.3 6.6 4.9 7.2 7.3 289.7 52.3 167.3 ----- ----- ----- ----- ----- Total cost of revenues.............. 73.1 75.7 73.7 73.4 75.2 101.6 98.4 169.5 ----- ----- ----- ----- ----- Gross profit............ 26.9 24.3 26.3 26.6 24.8 76.0 119.7 145.4 Selling, general and administrative expense................ 9.7 9.5 8.0 9.2 5.2 90.8 71.3 49.6 Depreciation and amortization, excluding equipment rental depreciation........... 1.8 2.2 2.1 2.6 1.9 139.0 89.5 89.5 Amortization of intangibles............ 1.1 1.9 1.5 1.5 1.9 231.3 64.2 234.1 ----- ----- ----- ----- ----- Operating income........ 14.3 10.7 14.7 13.3 15.8 46.1 178.5 212.0 Interest expense, net... 5.0 5.5 5.7 3.9 7.0 113.1 110.6 374.8 ----- ----- ----- ----- ----- Income before income taxes and extraordinary items.................. 9.3% 5.2% 9.0% 9.4% 8.8% 9.7 249.9 145.5 ===== ===== ===== ===== ===== Selected Financial Data: Gross profit on equipment rentals..... 24.6% 22.5% 26.8% 25.1% 25.1% 82.2 116.0 155.5 Gross profit on sales of parts, supplies and new equipment......... 28.6 28.9 22.9 26.5 22.0 51.5 155.9 146.2 Gross profit on sales of used equipment..... 47.2 30.5 34.1 35.6 29.4 91.4 79.0 101.4 Other Data: EBITDA................. 28.9% 28.7% 32.6% 32.7% 33.8% 93.6 130.9 172.1
45 THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997 Revenues. Total revenues for the three months ended March 31, 1998 increased 163.0% to $108.7 million from $41.3 million for the three months ended March 31, 1997. This increase was primarily due to the inclusion of revenues from acquisitions of 24 businesses (consisting of 78 locations) and the opening of 18 start-up locations since March 31, 1997. Also contributing to the increased revenues was the larger rental fleet resulting from the Company's significant investment in capital expenditures. Equipment rental revenues increased 154.9% to $70.2 million from $27.5 million due to the larger rental fleet resulting from acquisitions and capital expenditures. Sales of parts, supplies and new equipment increased 197.1% to $27.2 million from $9.2 million due primarily to the acquisition of IAT (effective in the Company's results of operations from March 1, 1997), the increased number of rental locations selling these items and the acquisitions of businesses that were dealers for certain new equipment. Sales of used equipment increased 143.8% to $11.3 million from $4.6 million due to the larger rental fleet and the Company's continuing strategy of selling the older items in its fleet. Gross Profit. Gross profit for the three months ended March 31, 1998 increased to $26.9 million, or 24.8% of total revenues, from $11.0 million, or 26.6% of total revenues, for the three months ended March 31, 1997. This increase is primarily attributable to the Company's increased number of locations due to acquisitions and start-up locations and the increased rental fleet resulting from capital expenditures. Gross margin on equipment rentals was 25.1% of equipment rental revenues for the three months ended March 31, 1998 and 1997. Gross margin on sales of parts, supplies and new equipment decreased to 22.0% of sales from 26.5%, due primarily to the acquisition of IAT, effective in the Company's results of operations from March 1, 1997, and a change in the product mix of parts, supplies and new equipment sales. Excluding the effect of the acquisition of IAT, the Company's gross margin on sales of parts, supplies and new equipment would have been 25.1% for the three months ended March 31, 1998. The Company believes the gross margin on sales of parts, supplies and new equipment will likely remain at this lower level due to the impact of IAT's product sales, which generally have had lower gross margins than the parts, supplies and new equipment sold by the Company prior to the acquisition of IAT. Gross margin on sales of used equipment decreased to 29.4% of sales from 35.6%, due primarily to variations in the mix and age of the equipment being sold. Selling, General and Administrative Expense. Selling, general and administrative expense for the three months ended March 31, 1998 was $5.7 million, or 5.2% of total revenues, compared to $3.8 million, or 9.2% of total revenues for the three months ended March 31, 1997. This increase is the result of the greater number of locations and employees resulting from the Company's acquisitions and start-ups since March 31, 1997. Depreciation and Amortization, excluding equipment rental depreciation. Depreciation and amortization, excluding equipment rental depreciation, for the three months ended March 31, 1998 was $2.0 million, or 1.9% of total revenues, compared to $1.1 million, or 2.6% of total revenues for the three months ended March 31, 1997. This increase is primarily attributable to the larger fleet of service and delivery vehicles in 1998 versus 1997, which has grown as a result of the Company's increased number of locations and larger rental fleet. Amortization of Intangibles. Amortization of intangibles for the three months ended March 31, 1998 was $2.1 million, or 1.9% of total revenues, compared to $624,000, or 1.5% of total revenues for the three months ended March 31, 1997. This increase is due to the additional goodwill and covenants not to compete associated with acquisitions completed since March 31, 1997. Interest Expense, net. Interest expense, net, for the three months ended March 31, 1998 was $7.6 million, compared to $1.6 million for the three months ended March 31, 1997. This increase is the result of the Company's increased average debt outstanding for the three months ended March 31, 1998 versus the three months ended March 31, 1997. The increased debt has resulted from acquisitions, capital expenditures and start-up locations financed under the Bank Facility. Interest expense will continue to increase in subsequent periods to the extent the Company borrows under the Bank Facility, or otherwise, to fund acquisitions and capital expenditures. 46 Provision for Income Taxes. Provision for income taxes was $4.1 million for the three months ended March 31, 1998, compared to $1.7 million for the three months ended March 31, 1997. The Company's effective tax rate was 42.8% for the three months ended March 31, 1998, compared to 44.1% for the three months ended March 31, 1997. The decrease in the Company's effective tax rate is a result of increased profitability, which has lessened the impact of the higher levels of non-deductible items (primarily goodwill). Extraordinary Item. In connection with the implementation of an amendment to the Revolver in January 1997, the Company wrote off the related unamortized deferred financing costs and recorded a loss on extinguishment of debt of $920,000, which has been classified as an extraordinary item, net of income taxes of $386,000, in the consolidated statement of operations for the three months ended March 31, 1997. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 Revenues. Total revenues for the year ended December 31, 1997 increased 103.5% to $261.3 million from $128.4 million for the year ended December 31, 1996. This increase was primarily due to the inclusion of revenues from acquisitions of 22 businesses (consisting of 64 locations) and the opening of 16 start-up locations since December 31, 1996. Also contributing to the increased revenues was the larger rental fleet resulting from the Company's significant investment in capital expenditures. Equipment rental revenues increased 81.2% to $170.7 million from $94.2 million due to the larger rental fleet resulting from acquisitions and capital expenditures. Sales of parts, supplies and new equipment increased 223.7% to $71.0 million from $21.9 million due primarily to the acquisition of IAT (effective in the Company's results of operations from March 1, 1997), the increased number of rental locations selling these items and the 1997 acquisitions of businesses that were dealers for certain new equipment. Sales of used equipment increased 60.4% to $19.6 million from $12.2 million due to the larger rental fleet and the Company's continuing strategy of selling the older items in its fleet. Gross Profit. Gross profit for the year ended December 31, 1997 increased to $68.6 million, or 26.3% of total revenues, from $31.2 million, or 24.3% of total revenues, for the year ended December 31, 1996. Gross margin on equipment rentals increased to 26.8% of equipment rental revenues from 22.5% for the year ended December 31, 1996, primarily due to the improved gross profit resulting from the Company's cost controlling methods. Gross margin on sales of parts, supplies and new equipment decreased to 22.9% of sales from 28.9%, due primarily to the acquisition of IAT, effective in the Company's results of operations from March 1, 1997, and a change in the product mix of parts, supplies and new equipment sales. Excluding the effect of the acquisition of IAT, the Company's gross margin on sales of parts, supplies and new equipment would have been 26.2% for the year ended December 31, 1997. The Company believes that the gross margin on sales of parts, supplies and new equipment will likely remain at this lower level due to the impact of IAT's product sales, which generally have had lower gross margins than the parts, supplies and new equipment sold by the Company prior to the acquisition of IAT. Gross margin on sales of used equipment increased to 34.1% of sales from 30.5%, due primarily to a change in the mix and age of the equipment being sold. Selling, General and Administrative Expense. Selling, general and administrative expense for the year ended December 31, 1997 was $21.0 million, or 8.0% of total revenues, compared to $12.3 million, or 9.5% of total revenues for the year ended December 31, 1996. This increase is the result of the greater number of locations and employees resulting from the Company's acquisitions and start-ups. Depreciation and Amortization, excluding equipment rental depreciation. Depreciation and amortization, excluding equipment rental depreciation, for the year ended December 31, 1997 was $5.4 million, or 2.1% of total revenues, compared to $2.8 million, or 2.2% of total revenues for the year ended December 31, 1996. This increase is primarily attributable to the larger fleet of service and delivery vehicles in 1997 versus 1996, which has grown as a result of the Company's increased number of locations and larger rental fleet. Amortization of Intangibles. Amortization of intangibles for the year ended December 31, 1997 was $3.9 million, or 1.5% of total revenues, compared to $2.4 million, or 1.9% of total revenues for the year ended 47 December 31, 1996. This increase is due to the additional goodwill and covenants not-to-compete associated with acquisitions completed since December 31, 1996. Interest Expense, net. Interest expense, net, for the year ended December 31, 1997 was $14.9 million, compared to $7.1 million for the year ended December 31, 1996. This increase is the result of the Company's increased average debt outstanding in 1997 versus 1996. The increased debt has resulted from acquisitions, capital expenditures and start-up locations financed under the Bank Facility. Interest expense will continue to increase in subsequent periods to the extent the Company borrows under the Bank Facility, or otherwise, to fund acquisitions and capital expenditures. Provision for Income Taxes. Provision for income taxes was $10.3 million for the year ended December 31, 1997, compared to $2.7 million for the year ended December 31, 1996. The Company's effective tax rate was 44.0% for 1997, compared to 40.6% for 1996. The increase in the Company's effective tax rate is a result of increased levels of non-deductible items, primarily goodwill. Extraordinary Items. In connection with the implementation of an amendment to the Revolver in January 1997, the Company wrote off the related unamortized deferred financing costs and recorded a loss on extinguishment of debt of $920,000, which has been classified as an extraordinary item, net of income taxes of $386,000, in the consolidated statement of operations for the year ended December 31, 1997. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Revenues. Total revenues for the year ended December 31, 1996 increased 94.7% to $128.4 million compared to $65.9 million for the year ended December 31, 1995. This increase was primarily due to the full period impact of the acquisition of RHI (consisting of 11 locations), the full period impact of ten start-up locations opened in 1995 and the inclusion of revenues from 11 acquired businesses (consisting of 25 locations) and the opening of 19 start- up locations during 1996. Equipment rental revenues increased 99.7% to $94.2 million for the year ended December 31, 1996 from $47.2 million in the same period in 1995 due to a larger rental equipment fleet as a result of acquisitions, the partial year impact of $86.8 million in capital expenditures in 1996 and the full year impact of 1995 capital expenditures of $23.6 million. Sales of parts, supplies and new equipment increased 49.9% to $21.9 million for the year ended December 31, 1996 from $14.6 million for the year ended December 31, 1995 due primarily to the increased number of rental locations selling these items. Sales of used equipment increased 196.1% to $12.2 million for the year ended December 31, 1996 from $4.1 million for the year ended December 31, 1995 due to the larger rental equipment fleet resulting from acquisitions and the Company's ongoing strategy of selling the older items in its fleet. Gross Profit. Gross profit for the year ended December 31, 1996 increased to $31.2 million, or 24.3% of total revenues, from $17.8 million, or 26.9% of total revenues, for the year ended December 31, 1995. Gross margins on equipment rentals decreased to 22.5% of equipment rental revenues from 24.6% for the year ended December 31, 1995 primarily due to the impact of 44 location additions during the period. These new locations were comprised of 25 acquired locations and 19 start-ups, and operated for an average of seven months during the period. Start-ups and acquisitions generally incur start-up and integration expenses during their first nine months of operation resulting in lower profit margins than the Company's more established locations. Gross margin on sales of parts, supplies and new equipment increased slightly to 28.9% of sales from 28.6% for the year ended December 31, 1995. Gross margin on sales of used equipment decreased to 30.5% of sales from 47.2% of sales for the year ended December 31, 1995 due primarily to a change in the mix and age of the equipment being sold. Selling, General and Administrative Expense. Selling, general and administrative expense increased to $12.3 million, or 9.5% of total revenues, for the year ended December 31, 1996, compared to $6.4 million, or 9.7% of total revenues, for the year ended December 31, 1995. This increase is attributable primarily to the increase in the number of locations from 1995. 48 Depreciation and Amortization, excluding equipment rental depreciation. Depreciation and amortization, excluding equipment rental depreciation, for the year ended December 31, 1996 was $2.8 million, or 2.2% of total revenues, compared to $1.2 million, or 1.8% of total revenues, for the same period in 1995. This increase is primarily attributable to the larger fleet of service and delivery vehicles in 1996 versus 1995, as well as to capital expenditures on rental locations in order to standardize their appearance. Amortization of Intangibles. Amortization of intangibles for the year ended December 31, 1996 was $2.4 million, or 1.9% of total revenues, compared to $718,000, or 1.1% of total revenues, for the same period in 1995. This increase is due to the full year impact of additional goodwill and covenants not-to-compete associated with 1995 acquisitions, the partial year impact of additional goodwill and covenants not-to-compete associated with 1996 acquisitions and amortization of the capitalized costs associated with the Revolver entered into in September 1995, amended in January 1996 and amended and restated in September 1996. Interest Expense, net. Interest expense, net, for the year ended December 31, 1996 was $7.1 million, compared to $3.3 million for the year ended December 31, 1995. This increase was the result of the Company's increased average debt outstanding for the year ended December 31, 1996 compared to the year ended December 31, 1995, as well as amortization of mandatory increases in the prepayment price of the Bank Note. The increased debt resulted from start-up locations, acquisitions and capital expenditures financed under the Company's Revolver. In September 1996, the Company utilized proceeds from its initial public offering of $13.0 million to repay the Bank Note and $37.7 million to reduce its indebtedness under the Revolver. Provision for Income Taxes. Provision for income taxes was $2.7 million for the year ended December 31, 1996, compared to $2.4 million for the same period in 1995. The Company's effective tax rate was 40.6% for 1996, as compared to 39.3% for 1995. The Company's effective tax rate for the fourth quarter of 1996 increased to 42.0% as a result of increased levels of non-deductible items. This higher tax rate is expected to continue in future periods. Extraordinary Items. In connection with the implementation of the amended Revolver in September 1996, the Company wrote off the related unamortized deferred financing costs and recorded a loss on extinguishment of debt of $2.5 million, which has been classified as an extraordinary item, net of income taxes of $964,000. Additionally, in September 1996, the Company repaid the Bank Note and repurchased the related warrants for $13 million, resulting in a gain on extinguishment of debt of $362,000, which has been classified as an extraordinary item, net of income taxes of $142,000. In 1995, the Company paid off the borrowings under the Old Revolver upon entering into the Revolver, resulting in a loss on extinguishment of such debt of $783,000 which has been classified as an extraordinary item, net of income taxes of $305,000. LIQUIDITY AND CAPITAL RESOURCES The Company's primary uses of cash have been the funding of capital expenditures, acquisitions and start-up locations. The Company has historically financed its capital expenditures, acquisitions and start-up locations primarily through the issuance of equity securities, secured bank borrowings and net cash provided by operating activities. The Company had cash and cash equivalents of $4.5 million at March 31, 1998, $8.9 million at December 31, 1997 and $1.5 million at December 31, 1996. Operating activities. During the three months ended March 31, 1997 and 1998, the Company's operating activities provided net cash flow of $20.3 million and $39.1 million, respectively. The principal causes for the variation in cash flow between periods were higher net income, increased depreciation and amortization and higher average accounts payable. During the years ended December 31, 1995, 1996 and 1997, the Company's operating activities provided net cash flow of $9.9 million, $23.5 million and $46.0 million, respectively. The principal causes for the variations in cash flow between years were higher net income, increased depreciation and amortization and higher average accounts payable. 49 Investing activities. Net cash used in investing activities was $51.5 million and $167.2 million for the three months ended March 31, 1997 and 1998, respectively. The increase between periods was attributable to a higher combined level of capital expenditures and acquisitions. Acquisition spending totaled $12.0 million and $107.8 million for the three months ended March 31, 1997 and 1998, respectively. In addition, the Company had capital expenditures of $44.1 million and $70.7 million for the three months ended March 31, 1997 and 1998, respectively. Capital expenditures were primarily for purchases of rental equipment. Included in investing activities were proceeds from the sale of used equipment, which were $4.6 million and $11.3 million for the three months ended March 31, 1997 and 1998, respectively. Net cash used in investing activities was $58.9 million, $84.7 million and $424.4 million for the years ended December 31, 1995, 1996 and 1997, respectively. The increases between years were attributable to a higher combined level of capital expenditures and acquisitions. Acquisition spending totaled $42.1 million, $27.3 million and $278.9 million for the years ended December 31, 1995, 1996 and 1997, respectively. In addition, the Company had capital expenditures of $23.6 million, $86.8 million and $165.1 million for the years ended December 31, 1995, 1996 and 1997, respectively. Capital expenditures were primarily for purchases of rental equipment. Included in investing activities were proceeds from the sale of used equipment, which were $4.1 million, $12.7 million and $19.6 million for the years ended December 31, 1995, 1996 and 1997, respectively. Also included in investing activities were proceeds from assets held for sale of $2.7 million and $16.7 million for the years ended December 31, 1995 and 1996, respectively. Financing activities. Net cash provided by financing activities was $31.3 million and $123.6 million for the three months ended March 31, 1997 and 1998, respectively. The net cash provided by financing activities during these periods was primarily from borrowings under the Revolver. Net cash provided by financing activities was $49.8 million, $61.3 million and $385.9 million for the years ended December 31, 1995, 1996 and 1997, respectively. During 1997, the net cash provided by financing activities was primarily due to issuances of Common Stock in the public offerings completed in June and December, and from borrowings under the Bank Facility. During 1996, the net cash provided by financing activities was primarily due to issuances of Common Stock, primarily from the Company's initial public offering in September 1996, and from borrowings under the Revolver. During 1995, the net cash provided by financing activities was primarily due to the receipt of the proceeds from the Revolver and the Bank Note, which were used to pay off the Old Revolver and to acquire RHI. In September 1996, the Company received net proceeds of approximately $87.9 million from the sale of 6,027,813 shares of Common Stock in its initial public offering. Additionally, the Company received net proceeds of approximately $55.6 million from the sale of 3,000,000 shares of Common Stock in a public offering completed in June 1997, and approximately $98.3 million from the sale of 4,345,224 shares of Common Stock in a public offering completed in December 1997. Through the application of these proceeds, the Company has improved its liquidity and capital resources through the replacement of a portion of its secured debt, as well as the related interest and debt obligations, with Common Stock. Specifically, the Company used these proceeds to reduce the outstanding indebtedness under its Revolver to provide borrowing availability for general corporate purposes, including acquisitions. Since December 2, 1997, the Company's principal source of liquidity has been the Bank Facility, which consists of the Revolver and the Term Loan. Prior to December 2, 1997, the Company's principal source of liquidity was the Revolver, which consisted of a revolving line of credit and availability of letters of credit. On January 31, 1997, the Company amended the Revolver to, among other things, increase the availability to $200.0 million, decrease the interest rate margins by 0.50% and extend the maturity date to January 31, 2002. On June 4, 1997, the Company again amended the Revolver to, among other things, increase the availability to $300.0 million, decrease the interest rate margins by 0.25% with further reductions if certain interest coverage ratios are met and to reduce the unused line fee to 0.25% of the unused commitment. In connection with the implementation of the January 1997 amendment, the Company recorded an extraordinary loss on extinguishment 50 of debt of $920,000, net of income taxes of $386,000, associated with the write-off of unamortized debt issuance costs. On December 2, 1997, the Company amended and restated the Revolver to increase its total available financing to $600.0 million. This increase consisted of an increase in the availability under the Revolver to $500.0 million and the implementation of the new $100.0 million Term Loan (together with the Revolver, the "Bank Facility"). In addition, this new financing package extended the maturity date of the Revolver to December 2, 2002; changed the methodology for determining the interest rate margins; increased the allowed levels of capital expenditures and investments; and amended several covenants, including the computation methodology of certain financial covenants. In connection with the completion of the Offering in May 1998, the Company amended the Revolver to (i) reduce the interest rate margins by 0.25%, (ii) increase the allowed levels of capital expenditures and investments to $220.0 million in 1998, $235.0 million in 1999, $250.0 million in 2000, $270.0 million in 2001 and $340.0 million in each of 2002, 2003 and 2004 (plus amounts reinvested from asset sales), (iii) change certain financial and other covenants and (iv) permit the issuance of the Private Notes. The amended and restated Revolver contains provisions to periodically adjust the prime and Eurodollar interest rate margins based on the Company's achievement of specified total debt to EBITDA ratios. The total amount of credit available under the Revolver is limited to a borrowing base equal to the sum of (i) 85% of eligible accounts receivable of the Company's subsidiaries and (ii) 100% of the value (lower of net book value or orderly liquidation value) of eligible rental equipment through December 31, 1998; 90% of the value of eligible rental equipment from January 1, 1999 through December 31, 1999; 85% of the value of eligible rental equipment from January 1, 2000 through December 31, 2000; and 80% of the value of eligible rental equipment from January 1, 2001 through the expiration date of the Revolver. The Revolver expires December 2, 2002. The Term Loan consists of a $100.0 million seven-year term loan facility, which requires mandatory principal payments of $1.0 million on each of its first six anniversaries, with the remaining principal balance due at maturity. The Term Loan matures on December 2, 2004. Interest on the Term Loan is payable monthly at either the prime rate plus 1.0% or the Eurodollar rate plus 2.5% (at the Company's option). The Bank Facility has financial covenants for RSC regarding debt incurrence, interest coverage, capital expenditures and investments (including acquisitions), rental equipment utilization and minimum EBITDA levels. The Bank Facility also contains covenants and provisions that restrict, among other things, the ability of the Company and its subsidiaries to: (i) incur additional indebtedness; (ii) incur liens on their property, (iii) enter into contingent obligations; (iv) make certain capital expenditures and investments; (v) engage in certain sales of assets; (vi) merge or consolidate with or acquire another person or engage in other fundamental changes; (vii) enter into leases; (viii) engage in certain transactions with affiliates; and (ix) declare or pay dividends. As of March 31, 1998, the Company was in compliance with all covenants of the Bank Facility. Borrowings under the Bank Facility are secured by all of the personal property of the Company's subsidiaries and a pledge of the capital stock and intercompany debt of the Company's subsidiaries. RSC is a guarantor of the obligations of its subsidiaries under the Bank Facility, and has granted liens on substantially all of its assets (including the stock of its subsidiaries) to secure such guaranty. The Bank Facility also restricts the Company from declaring or paying dividends on its Common Stock. In addition, the Company's subsidiaries are guarantors of the obligations of the other subsidiaries under the Bank Facility. The Bank Facility also includes a $2.0 million letter of credit facility. A commitment fee equal to 0.25% of the unused commitment, excluding the face amount of all outstanding and undrawn letters of credit, is also payable monthly in arrears. The obligation of the lenders to make loans or issue letters of credit under the Bank Facility is subject to certain customary conditions. 51 At June 5, 1998, the principal amount outstanding under the Revolver was $315.1 million, the average interest rate on such borrowings was 7.2%, and an additional $184.9 million was available to the Company under the Revolver. The Private Notes call for semi-annual interest payments each May 15 and November 15 of each year beginning November 15, 1998 and mature on May 15, 2008. The Private Notes are guaranteed by substantially all of the Company's current and future domestic subsidiaries, and contain covenants restricting additional indebtedness, certain payments by the Company and its subsidiaries, asset sales, liens, mergers and consolidations and transactions with affiliates. See "Description of Exchange Notes--Certain Covenants." Acquisitions and Start-ups. As part of its growth strategy, the Company is continually involved in the investigation and evaluation of potential acquisitions and start-up locations. The Company is currently evaluating a number of acquisition opportunities and start-up locations and may at any time be a party to one or more non-binding letters of intent or acquisition agreements. At December 31, 1997, the Company operated 165 locations throughout the United States. Since December 31, 1997, the Company has completed twelve acquisitions of rental equipment businesses (including Valley, Metroquip and T&M) with an aggregate of 34 locations, has opened six new start-up locations and has consolidated two acquired locations with existing locations serving the same markets, bringing the Company's total number of locations to 203 as of June 5, 1998. During the three months ended March 31, 1998, the Company completed seven acquisitions of rental equipment businesses with a combined total of 22 locations for an aggregate purchase price of approximately $107.8 million in cash (including the payoff of assumed debt), 450,109 shares of Common Stock and the assumption of approximately $5.5 million in liabilities. During the three months ended March 31, 1997, the Company completed five acquisitions of rental equipment businesses with a combined total of eight locations for an aggregate purchase price of approximately $12.0 million in cash and the assumption of approximately $1.3 million in liabilities. During the year ended December 31, 1997, the Company completed 22 acquisitions of rental equipment businesses with a combined total of 64 locations for an aggregate purchase price of approximately $278.9 million in cash (including the payoff of assumed debt), 1,299,709 shares of Common Stock (of which 218,195 shares will be issued in future years) and the assumption of approximately $23.6 million in liabilities. Additionally, 197,738 shares of Common Stock may be paid for these acquisitions based on the achievement of certain performance objectives by the acquired companies, of which 65,913 shares were earned and payable at December 31, 1997. During the year ended December 31, 1996, the Company completed eleven acquisitions of rental equipment businesses with a combined total of 25 locations for an aggregate purchase price of approximately $27.3 million in cash and the assumption of approximately $5.3 million in liabilities. During the year ended December 31, 1995, the Company completed five acquisitions of rental equipment businesses (including RHI) with a combined total of 26 locations for an aggregate purchase price of approximately $42.1 million in cash (including the payoff of assumed debt) and the assumption of approximately $27.6 million in liabilities. During the three months ended March 31, 1998, the Company opened two new start-up locations and consolidated two acquired locations with existing locations serving the same markets. During the year ended December 31, 1997, the Company opened 16 new start-up locations, consolidated seven acquired locations with existing locations serving the same markets and closed two underperforming locations. During the year ended December 31, 1996, the Company opened 19 new start-up locations. During the year ended December 31, 1995, the Company opened ten new start-up locations and designated the eleven California locations acquired from RHI as "assets held for sale." RHI's eleven California locations were sold or closed during 1996. On April 1, 1998, the Company acquired all of the outstanding stock of Metroquip for $51.2 million in cash (including the payoff of assumed debt) and 193,090 shares of Common Stock. Up to an additional 95,727 shares 52 of Common Stock may be paid to the seller over a three year period if certain performance objectives are met. Metroquip rented, sold and supported aerial work platforms and contractors' equipment and operated a total of five locations in Minnesota and Nebraska. Metroquip's balance sheet was consolidated with the Company's as of April 1, 1998. Pursuant to the acquisition agreement, the Company assumed effective control of Metroquip's operations on March 1, 1998 and has included Metroquip's revenues, costs and expenses from such date in its consolidated statements of operations, net of related imputed purchase price adjustments. On April 2, 1998, the Company acquired all of the outstanding stock of T&M for $21.9 million in cash (including the payoff of assumed debt). Up to 33,132 shares of Common Stock may be paid to the seller over a three year period if certain performance objectives are met. T&M was an independent rental company operating one location in Indiana. T&M's balance sheet was consolidated with the Company's as of April 2, 1998. Pursuant to the acquisition agreement, the Company assumed effective control of T&M's operations on March 1, 1998 and has included T&M's revenues, costs and expenses from such date in its consolidated statements of operations, net of related imputed purchase price adjustments. Subsequent to March 31, 1998, the Company has completed three additional acquisitions for a total combined purchase price of approximately $17.1 million (including 53,693 shares of Common Stock). These acquisitions had a combined six locations in Illinois, Missouri, Virginia and Wisconsin. As of June 5, 1998, the Company was party to non-binding letters of intent to acquire three equipment rental businesses with a combined eleven locations in Illinois, Missouri and Oklahoma for a total combined purchase price of approximately $33.2 million (including the assumption of approximately $7.4 million of debt). These acquisitions are subject to a number of closing conditions, including the execution of definitive purchase agreements, RSC board of directors approval and, in some cases, expiration or early termination of the waiting period under the HSR Act. Furthermore, in view of the fact that these letters of intent are non-binding and that the Company has not completed its due diligence investigations with respect thereto, the Company cannot predict whether these letters of intent will lead to definitive agreements, whether the terms of any such definitive agreements will be the same as the terms contemplated by the letters of intent or whether any transaction contemplated by such letters of intent will be consummated. General. The Company's liquidity and capital resources have been and will continue to be significantly impacted by the Company's growth strategy and by the need to offer customers a modern and well-maintained rental equipment fleet. To pursue its growth strategy, the Company must be able to complete acquisitions, open start-up locations and make the capital expenditures necessary to acquire and maintain its rental fleet. At June 5, 1998, the Company was obligated, under noncancellable purchase commitments, to purchase approximately $90.8 million of equipment. Such purchases are expected to be financed with cash flows from operations and through borrowings under the Revolver. The Company believes cash flow from operations, together with availability under the Revolver, and vendor financing in appropriate cases, will be sufficient to support its operations and capital liquidity requirements for at least the next 12 months. However, if significant additional acquisition opportunities arise, the Company may need to seek additional capital. Such acquisitions and capital expenditures could be financed through the incurrence of additional indebtedness, including convertible debt, or the issuance of common or preferred stock (which may be issued to third parties or to sellers of acquired businesses), depending on market conditions. If such financing were not available, the Company's growth strategy could be hampered and its cash flow from operations reduced, thereby constraining funds available for growth and acquisitions. Further, additional indebtedness generally would increase RSC's leverage and may make the Company more vulnerable to economic downturns and may limit its ability to withstand competitive pressures. However, there can be no assurance that the Company's business will generate sufficient cash flow or that future borrowings or additional capital, if and when required, will be available on terms acceptable to the Company, or at all. 53 ENVIRONMENTAL The Company and its operations are subject to a variety of federal, state and local laws and regulations governing, among other things, worker safety, air emissions, water discharge and the generation, handling, storage, transportation, treatment and disposal of hazardous substances and wastes. Under such laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as related costs of investigation and property damage. The Company incurs ongoing expenses associated with the removal of older underground storage tanks and other activities to come into compliance with environmental laws, and the performance of appropriate remediation at certain locations. The Company has accrued $594,000 and $652,000 at March 31, 1998 and December 31, 1997, respectively, related to the removal of underground tanks and remediation expenses. The Company believes that the impact of the cost of such remediation on its financial position, results of operations and cash flows will not be material. See "Business--Government and Environmental Regulation." 54 SEASONALITY AND SELECTED QUARTERLY OPERATING RESULTS The following table sets forth unaudited quarterly consolidated statement of operations data for the eight consecutive quarters through the quarter ended March 31, 1998. The unaudited quarterly data has been prepared on the same basis as the Company's annual financial statements and, in the opinion of management, includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the data for the quarters presented. Historically, the Company's revenues and operating results have varied from quarter to quarter and are expected to continue to fluctuate in the future. These fluctuations have been due to a number of factors, including: general economic conditions in the Company's markets; the timing of acquisitions and start-up locations and related costs; the effectiveness of integrating acquired businesses and start-up locations; the timing of fleet expansion capital expenditures; the realization of targeted equipment utilization rates; seasonal rental patterns of the Company's customers; and price changes in response to competitive factors. In addition, operating results have been seasonally lower during the first and fourth fiscal quarters than during the other quarters of the fiscal year. The operating results for any historical quarter are not necessarily indicative of the results which may be expected for any future period. See "Risk Factors--Seasonality and Quarterly Fluctuations."
1998 1996 QUARTERS ENDED 1997 QUARTERS ENDED QUARTER ------------------------- ---------------------------------- ENDED JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 ------- -------- ------- -------- ------- -------- ------- -------- (DOLLARS IN THOUSANDS) REVENUES: Equipment rentals....... $22,874 $25,212 $26,476 $27,527 $36,800 $47,222 $59,155 $ 70,179 Sales of parts, supplies and new equipment...... 5,722 5,890 5,469 9,165 17,787 20,167 23,838 27,227 Sales of used equipment.............. 2,671 3,529 3,314 4,617 3,967 5,080 5,938 11,257 ------- ------- ------- ------- ------- ------- ------- -------- Total revenues.......... 31,267 34,631 35,259 41,309 58,554 72,469 88,931 108,663 COST OF REVENUES: Cost of equipment rentals, excluding equipment rental deprecation............ 13,551 14,977 14,225 14,316 19,361 23,829 30,046 37,073 Depreciation, equipment rentals................ 4,156 4,586 5,465 6,306 7,730 10,457 12,920 15,461 Cost of sales of parts, supplies and new equipment.............. 4,121 4,225 3,783 6,737 13,869 15,777 18,356 21,249 Cost of sales of used equipment.............. 1,681 2,525 2,668 2,972 2,724 3,565 3,666 7,944 ------- ------- ------- ------- ------- ------- ------- -------- Total cost of revenues.. 23,509 26,313 26,141 30,331 43,684 53,628 64,988 81,727 ------- ------- ------- ------- ------- ------- ------- -------- Gross profit............ 7,758 8,318 9,118 10,978 14,870 18,841 23,943 26,936 Selling, general and administrative expense................ 3,028 3,299 3,193 3,784 4,685 4,975 7,552 5,659 Depreciation and amortization, excluding equipment rental depreciation........... 607 651 1,006 1,068 1,219 1,502 1,584 2,024 Amortization of intangibles............ 600 664 554 624 745 1,094 1,444 2,085 ------- ------- ------- ------- ------- ------- ------- -------- Operating income........ 3,523 3,704 4,365 5,502 8,221 11,270 13,363 17,168 Interest expense, net... 2,045 2,135 1,244 1,597 3,030 4,236 6,014 7,583 ------- ------- ------- ------- ------- ------- ------- -------- Income before income taxes and extraordinary items.................. 1,478 1,569 3,121 3,905 5,191 7,034 7,349 9,585 Provision for income taxes.................. 581 617 1,311 1,722 2,336 3,114 3,158 4,101 ------- ------- ------- ------- ------- ------- ------- -------- Income before extraordinary items.... 897 952 1,810 2,183 2,855 3,920 4,191 5,484 Extraordinary items, net of income tax benefit of $822 in 1996 and $386 in 1997........... -- (1,269) -- (534) -- -- -- -- ------- ------- ------- ------- ------- ------- ------- -------- Net income (loss)....... 897 (317) 1,810 1,649 2,855 3,920 4,191 5,484 Redeemable preferred stock accretion........ 565 524 -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- -------- Net income (loss) available to common stockholders........... $ 332 $ (841) $ 1,810 $ 1,649 $ 2,855 $ 3,920 $ 4,191 $ 5,484 ======= ======= ======= ======= ======= ======= ======= ======== EARNINGS PER COMMON SHARE: Income (loss) before extraordinary items... $ .06 $ .07 $ .16 $ .19 $ .23 $ .26 $ .26 $ .27 Extraordinary items.... -- (.21) -- (.04) -- -- -- -- ------- ------- ------- ------- ------- ------- ------- -------- Net income (loss)...... $ .06 $ (.14) $ .16 $ .15 $ .23 $ .26 $ .26 $ .27 ======= ======= ======= ======= ======= ======= ======= ======== Weighted average common shares................ 5,169 5,977 11,231 11,298 12,412 15,002 15,838 20,419 EARNINGS PER COMMON SHARE, ASSUMING DILUTION: Income (loss) before extraordinary items... $ .06 $ .07 $ .16 $ .19 $ .23 $ .26 $ .26 $ .27 Extraordinary items.... -- (.20) -- (.05) -- -- -- -- ------- ------- ------- ------- ------- ------- ------- -------- Net income (loss) per common share.......... $ .06 $ (.13) $ .16 $ .14 $ .23 $ .26 $ .26 $ .27 ======= ======= ======= ======= ======= ======= ======= ======== Weighted average common shares, assuming dilution.............. 5,501 6,273 11,504 11,511 12,612 15,317 16,208 20,568 Net increase in locations at period end.................... 17 3 11 8 29 3 31 22
55 INCOME TAXES At December 31, 1997, the Company had net operating loss carryforwards for federal income tax purposes of approximately $18.4 million that expire in years 2005 through 2012. In addition the Company had combined state net operating loss carryforwards of approximately $20.1 million that expire in years 1998 through 2012. Approximately $8.5 million of the federal carryforwards and $800,000 of the state carryforwards are attributable to the Company's acquisition of RHI. For financial reporting purposes a valuation allowance of approximately $4.0 million and $3.7 million at December 31, 1996 and 1997, respectively, has been recognized to offset the deferred tax assets related to those carryforwards. These separate company net operating loss carryforwards are subject to restrictions in accordance with Internal Revenue Service Code Section 382, and the ultimate utilization of the net operating losses is further limited based on the future profitability of certain subsidiaries of RHI. The Company also has alternative minimum tax credit carryovers of approximately $4.6 million for federal and $165,000 for state of California income tax purposes which are available to offset future regular income tax that is in excess of the alternative minimum tax in such year. Approximately $600,000 of the federal and all of the state alternative minimum tax credit carryovers resulted from the Company's acquisition of RHI. For financial reporting purposes a valuation allowance of approximately $800,000 has been recognized to offset the deferred tax assets related to all alternative minimum tax credit carryovers. Limitations similar to those restricting the use of the net operating losses also restrict the use of the credit carryovers. Any tax benefit resulting from the utilization of the net operating loss carryforwards or the tax credit carryovers obtained in the acquisition of RHI will be accounted for as a reduction of the purchase price in the periods they are realized. INFLATION AND GENERAL ECONOMIC CONDITIONS Although the Company cannot accurately anticipate the effect of inflation on its operations, it does not believe that inflation has had, or is likely in the foreseeable future to have, a material impact on its results of operations. The Company's operating results may be adversely affected by events or conditions in a particular region, such as regional economic, weather and other factors. In addition, the Company's operating results may be adversely affected by increases in interest rates that may lead to a decline in economic activity, while simultaneously resulting in higher interest payments by the Company under its variable rate credit facilities. YEAR 2000 The Company is aware of the issues associated with the programming code in existing computer and software systems as the Year 2000 approaches. The Year 2000 problem is pervasive and complex, as virtually every computer operation could be affected in some way by the rollover of the two-digit year value to "00." The issue is whether systems will properly recognize date sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or cause complete system failures. The Company has received confirmation from all of its current systems' vendors that each of their systems will properly handle the rollover to the Year 2000. Although there can be no assurance, management believes the Year 2000 problem will not have a material effect on the financial position, results of operations or cash flows of the Company. 56 BUSINESS GENERAL The Company is a leading consolidator in the rapidly-growing equipment rental industry, serving the needs of a wide variety of industrial, manufacturing, construction, government and homeowner markets. As of June 5, 1998, RSC operated the largest equipment rental network in the United States with 203 rental locations in 26 states. RSC rents a broad selection of equipment ranging from small items such as pumps, generators, welders and electric hand tools to larger equipment such as backhoes, forklifts, air compressors, scissor lifts, booms, aerial manlifts and skid-steer loaders. The Company also sells MRO supplies, small tools, contractor supplies, parts and used rental equipment, and acts as a distributor for new equipment on behalf of certain national equipment manufacturers. Since its formation in 1992, the Company has pursued an aggressive expansion strategy and has acquired 56 businesses comprised of 172 locations and has opened 54 start-up locations through June 5, 1998. With a focus on operating rental locations in underserved small- to medium-sized markets, RSC intends to continue to expand its presence in existing markets and capitalize on opportunities to enter new geographic markets through a combination of acquisitions and start-up locations. The Company also seeks to increase revenues and profitability across its locations through fleet expansion, improved asset utilization and targeted marketing efforts. Management believes RSC is well-positioned to capitalize on the substantial consolidation opportunities in the equipment rental industry, and to take advantage of the growing demand for rental equipment as businesses increasingly outsource non- core operations. INDUSTRY OVERVIEW The equipment rental industry serves a wide variety of industrial, manufacturing, construction, governmental and homeowner markets. Equipment available for rent ranges from construction and industrial equipment to general tools and homeowners' equipment. A survey conducted for the Associated Equipment Distributors estimates that industry rental revenues were approximately $13 billion in 1993, which the author of the survey estimated would increase to $15 billion in 1995. The Company's management estimates that 1996 and 1997 industry rental revenues were approximately $18 billion and $21 billion, respectively. Management believes the equipment rental industry benefits from the trend among businesses to outsource non-core operations in order to reduce capital investment and minimize the downtime, maintenance, repair and storage associated with equipment ownership. While customers traditionally rented equipment for specific purposes such as supplementing capacity during peak periods and using equipment in connection with special projects, customers are increasingly looking to rental operators to provide an ongoing comprehensive supply of equipment which can enable customers to benefit from the economic advantages and convenience of rental. Many of the businesses that rent equipment also purchase complementary tools and supplies from MRO distributors. The Company believes such customers would be interested in a one-stop solution consisting of both equipment rental and MRO supplies. The equipment rental industry is highly fragmented and primarily consists of a large number of relatively small, independent businesses typically serving discrete local markets within 30 to 50 miles of the store location, and a small number of multi-location regional or national operators. Traditionally, large equipment rental companies have focused their operations on serving relatively large customers, primarily in medium to large metropolitan markets, while generally serving smaller markets through delivery from distant major markets without establishing a local presence. In such smaller markets, the primary source of rental equipment has traditionally been relatively small, local equipment rental businesses and equipment dealers with product offerings typically limited in both depth and breadth. The Company believes the equipment rental industry offers substantial consolidation opportunities for large, well capitalized equipment rental companies such as RSC. Relative to smaller companies with only one or two rental locations, the Company believes RSC benefits from several competitive advantages, including 57 sophisticated management information systems, volume purchasing discounts, professional management, a diverse customer base and geographic locations, a modern and well maintained rental fleet, the ability to transfer equipment among rental locations to satisfy customer demand and national brand identity. In addition, the Company believes national operators are less sensitive to localized cyclical downturns and can justify significant investments in professional management and information systems. As a result of consolidation and industry growth, 1997 rental revenues of the top 100 rental equipment companies increased over 1996 rental revenues by approximately 35%, to more than $4.2 billion, according to estimates by the RER. In spite of this growth, these top 100 companies represented only a small percentage of the estimated $21 billion in industry rental revenues in 1997. See "--Competition." BUSINESS STRATEGY The Company's goal is to increase revenues and profitability by taking advantage of its strong market position and pursuing a business strategy that includes the following key elements: Small- to Medium-Sized Market Focus. The Company focuses on operating rental locations in underserved small- to medium-sized rental markets where the Company can capitalize on its competitive advantages relative to the small, local equipment rental businesses and equipment dealers who have traditionally served such markets. In addition, the Company believes small- to medium-sized markets provide an extensive selection of acquisition candidates and attractive start-up locations. The Company believes future acquisitions and start-up locations will provide opportunities to achieve greater geographic and customer diversification. Through its geographic diversification, the Company believes it can more effectively manage economic fluctuations than single-location businesses by transferring equipment to regions with higher demand. See "--Locations" and "--Growth Strategy." Cluster Strategy. Under its cluster strategy, RSC establishes a comprehensive pool of rental equipment at a central, readily-accessible "hub" location, and surrounds the hub with smaller "satellite" locations 30 to 150 miles away, which draw on this equipment pool to serve local customers' needs. The hub locations provide full-service rental fleet maintenance and repair operations for the satellite locations. The Company believes this strategy increases fleet utilization and allows RSC to bring the benefits of a large, high-quality and diversified rental equipment fleet to markets with populations as small as 25,000 where a full-scale rental facility might not otherwise be justified. See "--Fleet Management." Advanced Information Systems. The Company has made substantial investments in its management information systems in order to improve asset utilization and financial performance. Every rental location has on-line access to a centralized computer system that provides real-time transaction processing, extensive fleet management tools and financial management reports. Use of these systems allows the Company to improve its asset utilization by deploying assets to locations generating higher returns and identifying underperforming assets for disposition. These systems also allow an employee at any location to identify and reserve a specific piece of equipment anywhere in a region, and schedule delivery (generally within 24 hours) to a customer's job site. With the acquisition of Center, the Company obtained Center's proprietary information system, which, among other enhancements, automatically prioritizes equipment for maintenance based on type, age and recent use. The Company believes Center's system is scalable over a large number of locations, and expects to add it to the Company's existing systems. See "--Fleet Management," "--Information Systems" and "Offering Memorandum Summary--Recent Developments--Acquisition of Center Rental." Decentralized Management. Under the Company's decentralized management structure, RSC's region vice presidents and district managers, who currently average over 20 years of rental experience, are responsible for management, customer service, marketing strategies and business growth, including pursuing acquisitions and start-up locations, in their regions. Each region vice president and district manager is compensated through a stock option program and cash bonus plan tied directly to the region's performance. A small corporate staff at the Company's headquarters focuses on corporate planning, financial reporting and analysis and overseeing 58 execution of the Company's growth strategy. The Company has also centralized its purchasing and equipment disposal functions in order to maximize purchase discounts sale prices for used rental equipment. Superior Customer Service. The Company believes it differentiates itself from many of its competitors by providing responsive customer service, a broad selection of high-quality rental equipment and "one-stop shopping" for a wide range of supplies, tools, parts and equipment. Depending upon market needs, RSC also offers value-added services to its customers such as a radio- dispatched transportation fleet and 24 hours-a-day, seven days-a-week support services, including on-site maintenance and repair. The Company believes its rapid response time in delivering, servicing or replacing equipment at job sites generates customer loyalty. A cornerstone to the Company's customer service commitment is its extensive training system, RSU, which provides formal training to Company employees relating to customer service, strategy, finance, information systems, fleet management, safety and risk management and human resources. See "--Products" and "--Sales and Marketing." GROWTH STRATEGY RSC's growth strategy is to continue to expand its presence in existing markets and capitalize on opportunities to enter new geographic markets through a combination of acquisitions and start-up locations. The Company is systematic in its selection of new markets for expansion and, together with Arthur D. Little, Inc., has developed a proprietary model to guide future expansion efforts by identifying and ranking desirable locations based on more than 25 demographic characteristics found in the Company's most successful geographic markets. The Company also seeks to increase revenues at new and existing locations through fleet expansion, improved asset utilization and targeted marketing efforts. The Company also has begun to increase revenues across existing locations by cross-selling both equipment rental services and MRO tools and supplies to its industrial customers. Acquisitions. RSC's acquisition efforts focus on acquiring stable, respected businesses in markets the Company believes offer opportunities for additional growth. The Company primarily targets acquisitions of businesses in small- to medium-sized markets where an existing owner has limited resources to expand the rental equipment fleet and/or the owner's decision to sell coincides with the decision to retire. The Company believes it can capitalize in such markets on its competitive advantages relative to the small, local equipment rental businesses and equipment dealers who have traditionally served such markets. Immediately after completing an acquisition, the Company generally integrates the operations of the acquired business into its management information systems, consolidates its equipment purchasing and disposal functions, and centralizes its fleet management, while seeking to provide consistent, high- quality service to the acquired business' customers. The Company has a proven track record in completing and integrating acquisitions. Proprietors of smaller businesses often place significant emphasis on the Company's reputation in these areas, and the Company believes this reputation provides it access to additional acquisition opportunities. Since its formation in 1992, RSC has acquired 56 businesses consisting of 172 locations. See "-- Business Strategy--Small- to Medium-Sized Market Focus" and "--Locations." Start-Up Locations. RSC also enters targeted markets through start-up locations where there is no quality business available for acquisition or where such a business cannot be acquired on terms acceptable to the Company. The Company's decision to open a start-up location is based upon its review of demographic information, business growth projections and the level of existing competition. RSC enhances the flexibility of start-up locations by entering into real estate leases with short initial terms and multiple option periods. In addition, RSC typically minimizes capital expenditures at a start-up location by redeploying and sharing equipment with an existing hub. If a start-up location does not meet expectations, the Company can redeploy the equipment elsewhere. Since the Company opened its first start-up location in October 1994, the Company has opened 53 additional start-up locations. See "-- Business Strategy--Cluster Strategy" and "--Locations." Internal Growth. The Company focuses on achieving internal growth through an emphasis on disciplined fleet expansion, improved asset utilization and targeted marketing efforts. The Company intends to replace assets 59 in, and increase the breadth and depth of, its existing rental equipment fleet through capital expenditures. In addition, RSC's information systems provide the data necessary to improve asset deployment based upon such factors as price realization, time utilization and individual asset return on investment. Through its national accounts marketing program, the Company targets large petrochemical, industrial and commercial customers. The Company offers these customers IPM services whereby RSC locates equipment at a customer's facility and assumes complete responsibility for the maintenance of such equipment. The IPM program allows the Company to eliminate operating expenses such as equipment transportation and delivery, and to improve asset utilization rates. In addition, the Company has increased its MRO supply business and its tool room management and small tool trailer business. The Company has also created an Industrial Division, with a dedicated and specially trained sales force focusing exclusively on industrial customers. See "--Fleet Management," "-- Information Systems" and "--Sales and Marketing." PRODUCTS The Company believes it has one of the most comprehensive and well- maintained rental equipment fleets in the industry. The Company sells parts, supplies and used rental equipment, and acts as a distributor for new equipment on behalf of certain national equipment manufacturers. Rental Equipment. The Company rents over 50 categories of equipment on a daily, weekly or monthly basis, and occasionally for periods of up to one year. The Company's rental equipment fleet of over 92,000 units includes a broad selection of equipment ranging from small items such as pumps, generators, welders, electric hand tools and concrete finishing equipment to larger equipment such as air compressors, dirt equipment, booms, aerial manlifts, forklifts, scissor lifts, skid-steer loaders and backhoes. Each of the Company's rental locations has access to a product mix tailored to satisfy the needs and preferences of the local customer base. Sales of Parts, Supplies and Equipment. In addition to rental equipment, most RSC locations carry a wide range of parts and supplies, including "convenience consumables" used in conjunction with rental equipment, such as safety equipment, diamond saw blades and sandpaper. This sales activity allows the Company to attract and retain customers by offering the convenience of "one-stop shopping." In addition, RSC is a distributor for new equipment on behalf of certain national equipment manufacturers, including Black & Decker, Genie, Honda, Ingersoll-Rand, JLG, Kobelco, Lull, Multiquip, Norton, Sky-Jack, Sky Trak, Snorkel, Stanley Proto, Terramite, Wacker and Weldon Pumps. The Company also offers its customers a one-source catalog for a variety of equipment, tools and supplies. The Company also routinely sells used rental equipment in order to maintain an economically competitive fleet and to adjust to fluctuations in the demand for specific rental products. The Company has developed a proprietary algorithm, the "CAPCOM" model, which is designed to determine the optimal timing for the sale and replacement of equipment given, among other things, original purchase price, maintenance expense, rental demand and prices in the used rental equipment market. RSC is able to realize attractive prices on used equipment sales due to its strong preventative maintenance program, ability to use offshore, retail and direct mail distribution channels to redirect disposals to markets where the equipment is in highest demand, and ability to negotiate attractive fee arrangements with third-party auctioneers. In addition, the Company markets its used rental equipment via the Internet, and is also currently evaluating additional disposal alternatives. FLEET MANAGEMENT The Company believes its advanced information systems, combined with its cluster strategy and ability to redeploy equipment among locations, allow RSC to better manage its fleet and achieve higher equipment utilization rates than many of its competitors. Under this strategy, an employee at any location can locate a specific piece of equipment throughout the region, whether on rent (in which case the estimated date available is provided), in transit, in the service bay or ready for rent. Once identified, the equipment can be reserved for a customer through the system and scheduled for delivery (generally within 24 hours) to the job site or store location by the Company's radio-dispatched transportation fleet of trucks, trailers and independent carriers. The 60 Company is able to further increase fleet utilization and moderate capital expenditures through its "use-it-or-lose-it" policy, whereby equipment is deployed to areas where it can provide the highest return. Through its information systems, the Company generates a monthly management report showing, for each region, every rental asset that had an unacceptable utilization rate for the most recent 90-day period. Region managers have 30 days to correct the problem or the asset may be redeployed to another region where demand exceeds supply or sold, depending on the age of the asset. The Company's information systems also track each individual rental asset and automatically schedule preventative maintenance, frequently in advance of that suggested by the manufacturer. As a result, the Company believes it is able to enhance the reliability and extend the useful life of its rental equipment fleet, and obtain favorable prices when used rental equipment is sold. INFORMATION SYSTEMS Each rental location is networked with a commonly configured PC equipped with electronic links to all other RSC locations and the Company's central databases. The Company has developed a comprehensive set of management information databases covering financial performance, fleet utilization, sales and pricing. Company management can access these databases 24 hours a day at all locations via the Internet to analyze such items as: (i) price trends by store, region, salesperson, end-user, equipment category or customer; (ii) sales trends by store, customer, region or end-user; (iii) fleet utilization by individual asset or asset class; (iv) financial results and (v) performance of selected acquisitions and start-up locations. In addition, all rental transactions are processed in real-time through a centralized AS400 system located at corporate headquarters, which can be accessed by the employee at the point of sale to determine equipment availability. Local, regional and corporate management can access this information to monitor current business activity, including daily sales volume and fleet availability. The Company also has a proprietary tool management software system which controls the issuance, return and management of tools and equipment used by plant personnel and contractors. With the acquisition of Center, the Company obtained Center's proprietary information system, which allows Center to operate on a nearly paperless basis. This system automatically prioritizes equipment for maintenance based on the type, age and recent use. Repair personnel merely log on to the system to get their assignments. Simultaneously, the system forwards a list of the required parts and supplies to the parts department at each Center location, so those parts and supplies can be waiting for the repair personnel to pick them up. The Company believes Center's system is scaleable over a large number of locations, and expects to add it to the Company's existing systems. The Company believes its use of advanced information technology will continue to create profit improvement opportunities and improve equipment utilization. The Company believes that the Year 2000 will not be a material issue with respect to the Company's information systems. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000." CUSTOMERS In 1997, the Company rented equipment to over 100,000 customers, with no one customer accounting for more than 0.5% of the Company's total revenues, and the top ten customers representing less than 3% of total revenues. The composition of RSC's customer base varies widely by location and is determined by several factors, including the business composition of the local economy. The Company's customer base consists of the following general categories: (i) industrial, including manufacturers, petrochemical facilities, large chemical processing companies, paper mills, entertainment companies and public utilities; (ii) construction, including contractors; and (iii) government and homeowners. The Company believes the loss of any one customer would not have a material adverse effect on the Company's business. Through the formation of its Industrial Division, the Company believes industrial customers will account for an increased portion of the Company's total revenues in the future. See "--Growth Strategy--Internal Growth." SALES AND MARKETING The Company markets its products and services through a sales force of approximately 533 salespeople as of June 5, 1998 (excluding the employees of Center). The Company's field-based sales force calls regularly on contractors' job sites and industrial facilities with the objective of building strong business relationships and 61 ensuring that such customers' rental and supply needs are fulfilled. The Company's store-based sales force handles telephone inquiries and assists customers at each rental location to select the proper equipment and supplies to meet their needs. In addition, through its national accounts program, the Company targets large petrochemical, industrial and commercial customers in order to develop national relationships and increase awareness of its IPM program. The Company's sales force attends RSU in order to develop extensive product knowledge and refine their customer service skills. See "--Business Strategy--Superior Customer Service." The Company supplements its sales and marketing activities through participation in industry trade shows and conferences, direct mail, and advertising in local industry publications and the yellow pages in the markets it serves. In addition, the Company maintains a home page on the Internet describing the Company's products and services, geographic locations and used rental equipment for sale. RSC's home page can be found at "http://www.rentalservice.com." LOCATIONS As of June 5, 1998, the Company operated 203 rental locations in the following 26 states: Alabama (13), Arizona (8), Arkansas (15), Colorado (6), Delaware (1), Florida (23), Georgia (24), Illinois (7), Indiana (1), Iowa (6), Kansas (4), Louisiana (7), Maryland (3), Minnesota (4), Mississippi (11), Missouri (7), Nebraska (3), New Mexico (5), North Carolina (2), Oklahoma (1), Pennsylvania (1), South Carolina (8), Tennessee (11), Texas (27), Virginia (4) and Wisconsin (1). As of June 5, 1998, the Company was party to non-binding letters of intent to acquire three equipment rental businesses with a combined eleven locations in the following three states: Illinois (2), Missouri (2) and Oklahoma (7). The Company's locations are generally situated in industrial, commercial or mixed-use zones. The buildings range from approximately 1,500 to 47,000 square feet, consist of a customer showroom, an equipment service area and storage facilities, and are located on parcels of one to seven acres of land. Eight of the Company's rental locations are owned, with the remaining locations subject to leases with terms expiring from 1998 to 2005, most with options to extend. In a number of instances, the Company's rental locations are leased from the former owners of businesses acquired by the Company. COMPETITION The equipment rental industry is highly fragmented and competitive. The Company's competitors include: large national companies (such as Hertz Equipment Rental Corporation, Prime Service, Inc., U.S. Rentals, Inc., BET Plant Services U.S.A. and United Rentals, Inc.); regional competitors that operate in a few states; small, independent businesses with one or two rental locations; and equipment vendors and dealers who both sell and rent equipment directly to customers. The industry's fragmented nature has attracted new competitors. Through its acquisition of Prime Service, Inc., Atlas Copco has entered into the equipment rental business, and the Company believes equipment manufacturers, such as Caterpillar and John Deere, and equipment dealers such as Neff, have entered or may enter equipment rental business as well. The Company also competes against MRO suppliers, including large companies (such as W.W. Grainger and McMaster Carr), as well as regional and independent competitors. Certain competitors have greater financial resources, are more geographically diverse and have greater name recognition than the Company. There can be no assurance that the Company will not encounter increased competition from existing competitors or new market entrants that may be significantly larger and have greater financial and marketing resources. In addition, to the extent existing or future competitors seek to gain or retain market share by reducing prices, the Company may be required to lower its prices, thereby impacting operating results. Existing or future competitors also may seek to compete with the Company for acquisition candidates which could have the effect of increasing the price for acquisitions or reducing the number of suitable acquisition candidates. Management believes such competition has already increased the prices obtained by businesses acquired by the Company and its competitors. In addition, such competitors may also compete with the Company for start-up locations, thereby limiting the number of attractive locations for expansion. Competition in the rental 62 or MRO business and competition in making acquisitions could have a material adverse effect on the Company. See "Risk Factors--Competition." The equipment rental business is highly service-oriented. The success of an individual rental operator is predicated on its customer handling and problem solving abilities; quality, condition and servicing of its equipment; and overall operation of its business. Other components of competition include location, availability of equipment (both depth and breadth) and price. The Company believes it competes in the markets it serves primarily on the basis of responsive customer service, a broad selection of high-quality rental equipment and supplies, and competitive prices. Relative to smaller companies with only one or two rental locations, the Company believes RSC benefits from several competitive advantages, including sophisticated management information systems, volume purchasing discounts, professional management, a diverse customer base and geographic locations, a modern and well maintained rental fleet, the ability to transfer equipment among rental locations to satisfy customer demand, the ability to service national accounts and national brand identity. In addition, the Company believes national operators are less sensitive to localized cyclical downturns and can justify significant investments in professional management and information systems. GOVERNMENT AND ENVIRONMENTAL REGULATION The Company and its operations are subject to a variety of federal, state and local laws and regulations governing, among other things, worker safety, air emissions, water discharge and the generation, handling, storage, transportation, treatment and disposal of hazardous substances and wastes. Under such laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as related costs of investigation and property damage. Such laws often impose such liability without regard to whether the owner or lessee knew of, or was responsible for, the presence of such hazardous or toxic substances. In connection with its acquisitions and start-up locations, the Company usually obtains Phase I environmental assessment reports prepared by independent environmental consultants. A Phase I assessment consists of a site visit, historical record review, interviews and report, with the purpose of identifying potential environmental conditions associated with the subject real estate. There can be no assurance, however, that acquired or leased locations have been operated in compliance with environmental laws and regulations or that future uses or conditions will not result in the imposition of environmental liability upon the Company or expose the Company to third-party actions such as tort suits. The Company dispenses petroleum products from underground and above-ground storage tanks located at certain rental locations that it owns or leases. The Company maintains an environmental compliance program that includes the implementation of required technical and operational activities designed to minimize the potential for leaks and spills, maintenance of records and the regular testing and monitoring of tank systems for tightness. There can be no assurance, however, that these tank systems have been or will at all times remain free from leaks or that the use of these tanks has not or will not result in spills or other releases. The Company incurs ongoing expenses associated with the removal of older underground storage tanks and other activities to come into compliance with environmental laws, and the performance of appropriate remediation at certain locations. The Company does not believe such removal and remediation will have a material adverse effect on the Company's operating results or financial position. The Company also uses hazardous materials such as solvents to clean and maintain its rental equipment fleet. In addition, the Company generates and disposes waste such as used motor oil, radiator fluid and solvents, and may be liable under various federal, state and local laws for environmental contamination at facilities where its waste is or has been disposed. The Company believes it currently conducts its operations in material compliance with all applicable laws and regulations. Compliance by the Company with applicable environmental laws has not had a material adverse effect on the Company's financial condition or competitive position to date. 63 TRADE NAMES The Company currently does business under the name Rental Service CorporationSM. The Company believes this brand name identity enables it to more effectively target national accounts. In certain local markets the Company also selectively continues to use the name of an acquired business where there is strong local name recognition and customer loyalty. EMPLOYEES At June 5, 1998 the Company employed 2,600 people, including 533 salespeople, 1,964 operational employees and 103 corporate and regional management employees. With the acquisition of Center, the Company added approximately 347 employees, which are not included in the above totals. The Company's employees generally are not represented by a union or a collective bargaining agreement; however, approximately 59 of the Company's employees are represented by a union. The Company considers its labor relations to be good. LEGAL PROCEEDINGS The Company and its subsidiaries are parties to various litigation matters, in most cases involving ordinary and routine claims incidental to the business of the Company. The ultimate legal and financial liability of the Company with respect to such pending litigation cannot be estimated with certainty but the Company believes, based on its examination of such matters, that such ultimate liability will not have a material adverse effect on its business or financial condition. 64 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The table below sets forth certain information with respect to the directors and executive officers of the Company:
NAME AGE TITLE - ---- --- ----- Martin R. Reid.......... 55 Chairman of the Board and Chief Executive Officer Robert M. Wilson........ 40 Senior Vice President, Chief Financial Officer, Secretary and Treasurer Ronald Halchishak....... 50 Senior Vice President of Operations David G. Ledlow......... 39 Senior Vice President of Operations John Markle............. 42 Senior Vice President of Operations Douglas A. Waugaman..... 40 Senior Vice President of Operations David B. Harrington..... 44 Senior Vice President of Human Resources William M. Barnum, Jr... 44 Director James R. Buch........... 44 Director David P. Lanoha......... 48 Director Christopher A. Laurence............... 31 Director Eric L. Mattson......... 46 Director Britton H. Murdoch...... 40 Director John M. Sullivan........ 62 Director
MARTIN R. REID was elected as a director and Chief Executive Officer of the Company in June 1994 and became Chairman of the Board in October 1995. From October 1993 to February 1998, Mr. Reid served as a director of Tuboscope Vetco International Corporation ("Tuboscope"), a provider of oilfield-related inspection and coating services. Mr. Reid served as Chief Executive Officer of Tuboscope from May 1991 to October 1993 and as Chairman of the Board of Directors from October 1990 to April 1996. From September 1986 to June 1990, Mr. Reid was Chief Executive Officer of Eastman Christensen Co., a provider of oil and gas drilling systems. Mr. Reid was also Vice Chairman of Eastman Christensen Co. from August 1989 to June 1990. Mr. Reid is a director of Cobblestone Holdings, Inc. and Cobblestone Golf Group, Inc. ROBERT M. WILSON joined the Company in April 1997 as Senior Vice President, Chief Financial Officer, Secretary and Treasurer. From October 1994 until joining the Company, Mr. Wilson served as Senior Vice President of Operations, Finance and Administration for Shade/Allied Inc. From September 1989 through October 1994, Mr. Wilson served in various positions at Simon Engineering plc, including Vice President of Finance for the United States holding company and President of Simon LGI. Mr. Wilson is a Certified Public Accountant, and has public accounting experience with Arthur Andersen and Co. RONALD HALCHISHAK joined the Company in October 1991 as Vice President of Purchasing and Director of Safety and became Region Manager for California in 1994. He was appointed Regional Vice President of Operations in January 1995, and was promoted to Senior Vice President of Operations in December 1996. Prior to joining the Company, Mr. Halchishak worked for 13 years at Hertz Equipment Corporation in various positions, including Director of European Operations and Region Manager of the Midwest Division. DAVID G. LEDLOW joined the Company in conjunction with the acquisition of Walker Jones Equipment, Inc. ("Walker Jones") in 1992. Mr. Ledlow had been employed by Walker Jones since 1982, serving most recently as its Vice President of Marketing. Mr. Ledlow was promoted to Regional Vice President of Operations of the Company in February 1993, and to Senior Vice President of Operations in December 1996. JOHN MARKLE has served as a Senior Vice President of Operations of the Company since January 1998. Mr. Markle joined the Company in conjunction with the Center Acquisition in December 1997. Prior to joining the Company, Mr. Markle served as President of Center since 1989. Prior to joining Center, Mr. Markle spent ten years with Power Rental. 65 DOUGLAS A. WAUGAMAN has served as Senior Vice President of Operations of the Company since April 1997. From January 1994 through April 1997, Mr. Waugaman served as Vice President, Chief Financial Officer, Secretary and Treasurer of the Company. From June 1993 until joining the Company, Mr. Waugaman served as Operations Manager for Plastiglide Manufacturing Corporation, a subsidiary of Illinois Tool Works. From September 1991 until June 1993, Mr. Waugaman was Vice President of Finance for Knapp Communications Corporation, a magazine publisher. From September 1989 until September 1991, Mr. Waugaman was Controller for Plastiglide Manufacturing Corporation. Mr. Waugaman is a Certified Public Accountant, and has public accounting experience with Arthur Andersen and Co. DAVID B. HARRINGTON joined the Company in June 1997 as Senior Vice President of Human Resources. Prior to joining the Company, Mr. Harrington worked for 19 years at General Electric ("GE") in various positions, including the most recent six years as Senior Vice President of Human Resources for GE Capital Technology Management Services. Mr. Harrington serves on the board of the Atlanta chapter of the Human Resources Planning Society. WILLIAM M. BARNUM, JR. has served as a director of the Company since its formation in 1992 and served as Chairman of the Board from June 1993 through October 1995. Mr. Barnum is a general partner of Brentwood Buyout Partners, L.P. ("BBP"), the general partner of Brentwood RSC Partners, L.P. ("Brentwood RSC Partners"). Brentwood RSC Partners is a significant stockholder of the Company. See "Principal Stockholders." Mr. Barnum was an associate at Morgan Stanley & Co. Incorporated from October 1981 until joining Brentwood Associates, an affiliate of Brentwood RSC Partners, in July 1984. Mr. Barnum is a director of Quiksilver, Inc., and several privately held companies. JAMES R. BUCH has served as a director of the Company since October 1995. From October 1990 through May 1996, Mr. Buch served as President and Chief Executive Officer of Evans Rents, Inc. Since April 1997, Mr. Buch has been the Chief Executive Officer of Classroom Holdings, Inc. Previously, he served as Director of U.S. Operations for Brittania Security Group. DAVID P. LANOHA has served as a director of the Company since January 1998. Mr. Lanoha initially joined the Company as Senior Vice President of Operations in conjunction with the Center Acquisition. Mr. Lanoha served in various capacities at Center, most recently as Chairman of the Board, from October 1989 to December 1997, and President, from May 1984 to October 1989. CHRISTOPHER A. LAURENCE has served as a director of the Company since October 1995. Mr. Laurence is a general partner of Brentwood Associates and a member of Brentwood Private Equity LLC. Prior to joining Brentwood Associates in 1991, Mr. Laurence was an analyst at Morgan Stanley & Co. Incorporated. ERIC L. MATTSON has served as a director of the Company since December 1996. Mr. Mattson is and has been Vice President and Chief Financial Officer of Baker Hughes Incorporated ("BHI") since July 1993. For more than five years prior to 1993, Mr. Mattson was Vice President and Treasurer of BHI. Mr. Mattson is also a director of Tuboscope. BRITTON H. MURDOCH has served as a director of the Company since January 1997. Since October 1996, Mr. Murdoch has been Chief Financial Officer of Internet Capital Group, LLP, a privately held company. From 1990 to 1996, Mr. Murdoch was Vice President and Chief Financial Officer of Airgas, Inc., an industrial gas distribution and manufacturing company, and from 1987 to 1990, he was Vice President of Corporate Development of Airgas, Inc. Mr. Murdoch is also a director of Susquehanna Banc Shares, Inc. JOHN M. SULLIVAN has served as a director of the Company since July 1997. He is presently a director of The Scotts Company and Cobblestone Holdings, Inc. From October 1987 to January 1993, Mr. Sullivan was Chairman of the Board and Chief Executive Officer of Prince Holdings, Inc. ("Prince"). Prior to that, and since September 1984, Mr. Sullivan was President of Prince and Vice President of Chesebrough-Pond's, Inc. 66 Messrs. Reid, Waugaman and Barnum were also directors and/or executive officers of RHI at the time RHI filed its prepackaged bankruptcy plan under Chapter 11 of the United States Bankruptcy Code. See "Risk Factors--RHI's Bankruptcy; Increase in Indebtedness." The Board of Directors presently consists of eight members, including four independent directors. Directors of the Company serve until their successors are elected and qualified or until the director resigns or is removed. Officers of the Company serve at the discretion of the Company's Board of Directors. There are no family relationships among executive officers or directors of the Company. COMMITTEES OF THE BOARD OF DIRECTORS The Board has the following standing committees: the Audit Committee, the Compensation Committee, the Acquisition Committee and the Nominating Committee. The Audit Committee was established on August 20, 1996 to make recommendations concerning the engagement of independent public accountants, review with the independent public accountants the scope and results of the audit engagement, approve professional services provided by the independent public accountants, review the independence of the independent public accountants, consider the range of audit and non-audit fees and review the adequacy of the Company's internal accounting controls. The Audit Committee consists of Messrs. Buch, Mattson and Lanoha. The Compensation Committee was established on December 5, 1996 to establish remuneration levels for executive officers of the Company and implement the Company's stock option plans and any other incentive programs. The Compensation Committee consists of Messrs. Murdoch and Sullivan. The Audit Committee met two times and the Compensation Committee met four times during 1997. The Acquisition Committee was established on September 30, 1997 to approve acquisitions in which the consideration to be paid by the Company is less than $10 million. The Acquisition Committee consists of Messrs. Reid and Laurence. The Nominating Committee was established on February 25, 1998 to make recommendations regarding the nomination of members of the Board. The Nominating Committee consists of Messrs. Barnum, Mattson and Murdoch. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to December 5, 1996, the Company had no compensation committee or other committee of the Board performing similar functions. Accordingly, decisions concerning compensation of executive officers were made by the entire Board. Other than Martin R. Reid, there were no officers or employees of the Company who participated in deliberations concerning such compensation matters. Mr. Reid was an executive officer of Tuboscope until April 1996. He served on the Executive Committee of the Board of Directors of Tuboscope, which is responsible for Tuboscope's compensation policies, until February 1998. Eric L. Mattson, a director of the Company, is a director of Tuboscope. COMPENSATION OF DIRECTORS The Company did not pay any fees or remuneration to directors for their service on the Board or any Board committee in 1997; however, the Company reimbursed directors for their out-of-pocket expenses incurred in connection with attending meetings of the Board. Effective January 1, 1997, in addition to reimbursement for out-of-pocket expenses, all non-employee members of the Board will receive $10,000 per year (payable $2,500 per quarter) as compensation for serving on the Board, plus $1,500 for attendance at each Board meeting and $500 for attendance at each committee meeting. Each committee chairman will receive an additional $1,500 per year. All non-employee directors receive non-qualified stock options under the 1996 Plan (as defined) as described under "--Equity Participation Plans." 67 LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS The Company's Certificate of Incorporation provides that a director of the Company will not be personally liable to the Company or its stockholders for monetary damages for any breach of fiduciary duty as a director, except in certain cases where liability is mandated by the General Corporation Law of the State of Delaware. The 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. The Bylaws of the Company generally provide that the Company shall indemnify, to the fullest extent permitted by law, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit, investigation, administrative hearing or any other proceeding (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) and losses, claims, liabilities, judgments, fines and amounts paid in settlement actually incurred by such person in connection with such Proceeding. The Company has entered into, or intends to enter into, agreements to provide indemnification for its directors and executive officers in addition to the indemnification provided for in the Bylaws. These agreements, among other things, will indemnify the Company's directors and executive officers for certain expenses (including attorney's fees), and all losses, claims, liabilities, judgments, fines and settlement amounts incurred by such persons arising out of or in connection with their service as a director or officer of the Company to the fullest extent permitted by applicable law. In addition, the Company has obtained director and officer liability insurance that insures the Company's directors and officers against certain liabilities. 68 EXECUTIVE COMPENSATION Summary Compensation Table. The following table provides certain summary information concerning compensation paid or accrued by the Company to or on behalf of the Company's Chief Executive Officer and each of the Company's four other most highly compensated executive officers (collectively, the "Named Executive Officers") for all services rendered in all capacities to the Company during the fiscal years ended December 31, 1997, 1996 and 1995: SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION --------------------- ------------ ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($) OPTIONS(#) --------------------------- ---- --------- ----------- --------------- ------------ Martin R. Reid Chairman and Chief Executive Officer.. 1997 339,361 300,000 10,122(2) 200,000(3) 1996 294,231 84,375 5,641(2) -- 1995(4) 220,674 140,625(5) -- -- Robert M. Wilson Senior Vice President, Chief Financial Officer, Secretary and Treasurer...... 1997 99,300 -- 75,287(5) 75,000 1996 -- -- -- -- 1995 -- -- -- -- Douglas A. Waugaman Senior Vice President of Operations... 1997 166,531 200,000 2,121(2) 100,000 1996 155,923 42,900 7,149(2) -- 1995(4) 139,550 48,050 126,940(6) -- Ronald Halchishak Senior Vice President of Operations... 1997 148,260 75,000 1,408(2) -- 1996 150,000 100,000 910(2) 71,250 1995(4) 147,115 26,520 -- 16,740 David G. Ledlow Senior Vice President of Operations... 1997 137,132 75,000 16,754(2) -- 1996 117,692 36,709 4,200(2) 71,250 1995 85,827 38,472 -- 16,740
- -------- (1) The amount of bonus earned in each fiscal year is paid, and accounted for in this table, in the next succeeding fiscal year. Bonuses earned with respect to fiscal 1997 were as follows: Mr. Reid, $500,000; Mr. Wilson, $103,185; Mr. Waugaman, $149,960; Mr. Halchishak, $123,058 and Mr. Ledlow, $120,000. Such fiscal 1997 bonuses were paid during April 1998. (2) Consists of one or more of the following: (i) an automobile allowance, (ii) relocation expenses reimbursed by the Company, and (iii) insurance premiums paid by the Company for life insurance and disability policies covering such officer. (3) In January 1998, Mr. Reid entered into an employment agreement with the Company. In connection with such agreement, Mr. Reid's 200,000 outstanding options to purchase Common Stock became immediately exercisable. Additionally, Mr. Reid was granted stock options to purchase 190,000 shares of Common Stock, vesting in equal installments over four years (or earlier if certain performance criteria are met), and was granted 10,000 shares of restricted stock, vesting in equal installments over four years. On February 25, 1998, Mr. Reid surrendered to the Company options to purchase 57,000 shares of Common Stock in order to ensure the number of shares of Common Stock available for issuance pursuant to the 1996 Plan was sufficient to allow certain grants of stock options to other officers. On April 29, 1998, Mr. Reid was granted stock options to purchase 40,411 shares of Common Stock, vesting in equal installments over four years (or earlier if certain performance criteria are met), and was granted 16,589 shares of restricted stock, vesting in equal installments over four years. (4) Includes amounts paid by RHI. (5) Consists of relocation expenses reimbursed by the Company ($70,309), an automobile allowance and insurance premiums paid by the Company for life insurance and disability policies covering Mr. Wilson. (6) Consists of relocation expenses reimbursed by the Company ($19,598), a relocation bonus ($100,000) and insurance premiums paid by the Company for life insurance and disability policies covering Mr. Waugaman. 69 Stock Options Granted in Fiscal 1997. The following table sets forth information concerning individual grants of stock options made by the Company during the fiscal year ended December 31, 1997 to each of the Named Executive Officers. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ---------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE NUMBER OF PERCENT OF TOTAL APPRECIATION FOR SECURITIES OPTIONS GRANTED EXERCISE OR OPTION TERM UNDERLYING TO EMPLOYEES BASE PRICE --------------------- NAME OPTIONS GRANTED(#) IN FISCAL YEAR ($/SH) EXP. DATE 5%($) 10%($) ---- ------------------ ---------------- ----------- --------- ---------- ---------- Martin R. Reid Chairman and Chief Executive Officer...... 200,000(1)(2) 27.9% $20.25 2007 2,547,023 6,454,657 Robert M. Wilson Senior Vice President, Chief Financial Officer, Secretary and Treasurer.............. 75,000(1) 10.4% $18.00 2007 849,008 2,151,552 Douglas A. Waugaman Senior Vice President of Operations.......... 100,000(1) 13.9% $20.25 2007 1,273,512 3,227,328 Ronald Halchishak Senior Vice President of Operations.......... -- -- -- -- -- -- David G. Ledlow Senior Vice President of Operations.......... -- -- -- -- -- --
- -------- (1) Such options vest equally over four years from the date of grant. (2) In connection with his employment agreement in January 1998, the vesting of Mr. Reid's previously outstanding options was accelerated, and such options became immediately exercisable. 70 Aggregated Option Exercises. The following table sets forth information (on an aggregated basis) concerning each exercise of stock options during the year ended December 31, 1997 by each of the Named Executive Officers and the year- end value of unexercised options. AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT FISCAL YEAR- "IN-THE-MONEY" OPTIONS SHARES END AT FISCAL YEAR-END(1) ACQUIRED VALUE ------------------------- ------------------------- NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ------------- ----------- ----------- ------------- ----------- ------------- Martin R. Reid Chairman and Chief Executive Officer...... -- -- 200,000(2) -- (2) 862,500(2) -- Robert M. Wilson Senior Vice President, Chief Financial Officer, Secretary and Treasurer.............. -- -- -- 75,000 -- 492,188 Douglas A. Waugaman Senior Vice President of Operations.......... -- -- -- 100,000 -- 431,250 Ronald Halchishak Senior Vice President of Operations.......... -- -- 27,120 55,290 171,861 260,156 David G. Ledlow Senior Vice President of Operations.......... -- -- 21,753 55,503 177,091 333,887
- -------- (1) Options are "in-the-money" at the fiscal year end if the fair market value (based on the closing price of the Common Stock on the NYSE on December 31, 1997 of $24.5625 per share, less the exercise price) of the underlying securities on such date exceeds the exercise or base price of the option. (2) In connection with his employment agreement in January 1998, the vesting of all of Mr. Reid's previously outstanding options was accelerated, and such options became immediately exercisable. 401(K) PLAN The Company maintains 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 (the "Code"). Employees of the Company become eligible to participate in the 401(k) Plan and to have salary deferral contributions made on their behalf after they complete six months of service and attain the age of 18. Subject to legal limitations, participants may elect, by salary reduction, to have 401(k) Plan contributions of 2% to 16% of their compensation made to their accounts. Under the 401(k) Plan, the Company may make discretionary profit sharing contributions on behalf of participants who have completed 1,000 hours of service during the plan year or six months of continuous employment and are employed on the last day of the plan year (or have retired after attaining age 65, died or incurred a disability in a plan year), based on compensation. Participants in the 401(k) Plan always have a 100% vested and nonforfeitable interest in the value of their 401(k) contributions. Participants become vested in the Company's profit sharing and matching contributions based on a graded five year vesting schedule (or upon a participant's retirement after attaining age 65, death or 71 disability, if earlier). Participants are entitled to receive the vested amounts in their accounts in a single lump-sum payment on death, disability, retirement or termination of employment. In certain circumstances, participants may receive loans and hardship withdrawals from their accounts in the 401(k) Plan. EQUITY PARTICIPATION PLANS The Company currently maintains two plans, the Stock Option Plan for Key Employees (the "1995 Plan") and the 1996 Equity Participation Plan (the "1996 Plan"), pursuant to which certain employees or directors may obtain options or other awards that enable them to participate in the Company's equity. The Board adopted the 1996 Plan on December 5, 1996, and the 1996 Plan was approved by the Company's stockholders on February 5, 1997. The principal purposes of the 1996 Plan are to provide incentives for officers, directors, key employees and consultants of the Company and its subsidiaries through granting options, restricted stock and other awards, thereby stimulating their personal and active interest in the Company's development and financial success, and inducing them to remain in the Company's service. In addition to awards made to officers, key employees or consultants, the 1996 Plan provides for the granting of options ("Director Options") to the Company's independent non-employee directors pursuant to a formula. The 1995 Plan is maintained for the benefit of certain employees of the Company for similar purposes. The 1995 Plan provides that the Board, or a committee appointed by the Board (in either case, the "1995 Plan Committee"), may grant non-transferable incentive stock options ("ISOs") and non-qualified stock options ("NQSOs") to key employees. The 1995 Plan Committee has the full authority and discretion, subject to the terms of the 1995 Plan, to determine those individuals who are eligible to be granted options and the amount and type of such options. Terms and conditions of options are set forth in written option agreements. An aggregate of up to 324,000 shares of Common Stock are issuable under the 1995 Plan, however, as of May 31, 1998, none of these shares were available for future stock option grants. The 1996 Plan is administered by the Compensation Committee, or a subcommittee thereof (the "Committee"), with respect to grants to employees or consultants of the Company and by the full Board with respect to Director Options. Subject to the terms and conditions of the 1996 Plan, the Committee or the Board, as applicable, has the authority to select the persons to whom awards are to be made, to determine the number of shares to be subject thereto and the terms and conditions thereof, and to make all other determinations and to take all other actions necessary or advisable for the administration of the 1996 Plan. The 1996 Plan provides that the Committee may grant or issue stock options, stock appreciation rights ("SARs"), restricted stock, deferred stock, dividend equivalents, performance awards, stock payments, other stock related benefits and other awards (collectively, "Awards"), or any combination thereof. Each Award will be set forth in a separate agreement with the person receiving the Award. Under the 1996 Plan, not more than 2,000,000 shares of Common Stock (or the equivalent in other equity securities) are authorized for issuance upon exercise or vesting of any Awards. As of May 31, 1998, 916,183 shares of Common Stock were available for future Awards. Furthermore, the maximum number of shares which may be subject to options or SARs granted under the 1996 Plan to any individual in any calendar year cannot exceed 200,000. Awards under the 1996 Plan may be granted to (i) individuals who are then officers or other employees of the Company or any of its present or future subsidiaries who are determined by the Committee to be key employees and (ii) consultants of the Company selected by the Committee for participation in the 1996 Plan. Approximately 150 officers and other employees are currently eligible to participate in the 1996 Plan. During the term of the 1996 Plan and pursuant to a formula, (a) each non-employee director is automatically granted an NQSO to purchase 10,000 shares of Common Stock on the date of his initial election and (b) each then-current non-employee director is automatically granted an NQSO to purchase 2,500 shares of Common Stock at each subsequent annual meeting at which he is reelected to the Board. 72 MANAGEMENT INCENTIVE COMPENSATION PLAN The Company maintains an annual bonus plan (the "Management Incentive Compensation Plan") under which the chief executive officer and certain of the Company's other executives ("Covered Employees") are eligible to receive bonus payments. The Management Incentive Compensation Plan is intended to provide an incentive for superior work, to motivate Covered Employees toward even higher achievement and business results, to tie their goals and interests to those of the Company and its stockholders and to enable the Company to attract and retain highly qualified senior employees. The Management Incentive Compensation Plan will be administered by a committee consisting of at least two members of the Board of Directors of the Company who qualify as "outside directors" under Code Section 162(m) (the "Bonus Committee"). Initially, the Bonus Committee will be the members of the Compensation Committee. The Bonus Committee will have the sole discretion and authority to administer and interpret such portion of the Management Incentive Compensation Plan. A Covered Employee may receive a bonus payment based upon the attainment of performance objectives established by the Bonus Committee and related to one or more of the following corporate business criteria, which may be limited, where applicable with respect to any Covered Employee, to store-level or regional operations: pre-tax income, operating income, cash flow, earnings per share, EBITDA, return on equity, return on invested capital or assets, cost reductions and savings, return on revenues, collection of accounts receivable or productivity. The actual amount of future bonus payments under the Management Incentive Compensation Plan is not presently determinable. However, the Management Incentive Compensation Plan provides that the maximum bonus for a Covered Employee shall not exceed $1,000,000 with respect to any fiscal year. The Management Incentive Compensation Plan is designed to ensure that the annual bonuses paid thereunder to Covered Employees are deductible by the Company, without limit under Code Section 162(m). Section 162(m), which was added to the Code in 1993, places a limit of $1,000,000 on the amount of compensation that may be deducted by the Company in any tax year with respect to Covered Employees. However, certain performance-based compensation is not subject to the deduction limit. The Management Incentive Compensation Plan is designed to provide this type of performance-based compensation to Covered Employees. Bonuses paid to Covered Employees will be based upon bonus formulas that tie bonuses to one or more objective performance standards. Bonus formulas for Covered Employees will be adopted in each performance period by the Bonus Committee no later than the latest time permitted by Code Section 162(m). No bonuses will be paid to Covered Employees unless and until the Bonus Committee makes a certification in writing with respect to the attainment of the objective performance standards as required by Code Section 162(m); and, although the Bonus Committee may in its sole discretion reduce a bonus payable to a Covered Employee, the Bonus Committee has no discretion to increase the amount of a Covered Employee's bonus. The Bonus Committee has the discretion to apply or not apply the foregoing provisions to bonuses paid to eligible employees who have not been designated as Covered Employees. EXECUTIVE INCENTIVE BONUS PLAN The Company maintains a Corporate Management Bonus Plan (the "Management Bonus Plan") for key corporate employees. The purpose of the Management Bonus Plan is to offer incentives to key management of the Company so as to (i) reward them for achieving financial goals and (ii) further the alignment of interests of key management with the Company's stockholders. Bonuses under the Management Bonus Plan are based on achieving certain earnings per share objectives. Each participant's bonus award is calculated as a percentage of base salary, and generally ranges from 20% to 30% of base salary. In addition, the Company maintains Region Manager and General Manager Bonus Plans (the "Operations Bonus Plan"). The Operations Bonus Plan is designed to provide incentives to operations management to 73 maintain a high level of profitability and asset utilization and to achieve the Company's financial goals in their individual market. Bonuses under the Operations Bonus Plan are based on the degree to which region or individual location operating profit objectives are met and generally range from 20% to 75% of the participant's base salary if financial targets are achieved. If financial targets are exceeded, participants may receive an additional bonus based on incremental regional or store profit. Bonuses under the Management Bonus Plan and the Operations Bonus Plan are paid semi-annually. The first payment is made after finalization of the first six months results, and the amount of the first payment is 50% of the bonus earned for that six months, with the remainder of the bonus to be paid at year end. The second payment is calculated after year end audited financial statements are finalized, and the amount of the second payment is the total bonus paid less the amount paid for the first six-month period. EXECUTIVE DEFERRED COMPENSATION PLAN AND SURVIVOR PROTECTION PROGRAM In January 1998, the Board of Directors approved the Executive Deferred Compensation Plan (the "EDCP") and Survivor Protection Program (the "SPP"), pursuant to which senior executives of the Company may defer portions of their cash compensation and senior executives and certain other senior management of the Company received life insurance policies. Senior executives of the Company may defer the receipt of a portion of their cash compensation pursuant to the EDCP, whereby amounts, while deferred, earn interest at a rate of (i) for the first five years of the program, the greater of 10% or the average long-term bond yield and (ii) after the first five years of the program, the average of the long-term bond yield. In addition, an annual deferral incentive rate will be determined each year, beginning with the third year of the program, which rate will be added to the rates described in the previous sentence. Participants will receive payments under the EDCP upon the later of retirement or upon reaching age 55 with at least seven years of service to the Company. If a participant's employment is terminated by the Company, such participant will receive payments under the EDCP upon reaching age 62. The payments will be made over a fifteen-year period, subject to the one-time right of participants to elect to receive 90% of their EDCP account balance and forfeit the remainder. The trust administering the EDCP has purchased life insurance policies to fund future payments under the EDCP, which policies are owned by the trust. Pursuant to the SPP, the Company has purchased life insurance policies for the benefit of the survivors of senior executive and other senior management. The amount of the benefit under the SPP will be three times annual base salary (less $100,000) for senior executives and two times base salary (less $100,000) for other senior management participants, with a maximum benefit of $500,000 for both groups. In addition, a bonus will be paid to participants in the amount of any tax due on imputed income associated with the life insurance. The life insurance benefits under the SPP will continue after a participant's retirement from the Company, with eligibility to begin upon the earlier of (i) the participant reaching age 62 or (ii) the participant reaching age 55 with at least seven years of service to the Company. EMPLOYEE QUALIFIED STOCK PURCHASE PLAN In 1997, the Company adopted its Employee Qualified Stock Purchase Plan (the "QSP Plan"). In general, the QSP Plan authorizes employees of the Company and its subsidiaries to purchase shares of the Company's Common Stock, through payroll deductions, at a purchase price of 85% of the fair market value of such shares. The QSP Plan is intended to help the Company attract and retain experienced and capable persons who can make significant contributions to the further growth and success of the Company and to align further the interests of such persons with those of the Company's stockholders. The QSP Plan provides that an aggregate of up to 250,000 shares of the Company's Common Stock may be issued thereunder. The QSP Plan also provides for appropriate adjustments in the number and kind of shares subject to the plan and to outstanding purchase rights in the event of a stock split, stock dividend or certain other similar changes in the Company's Common Stock and in the event of a merger, reorganization, consolidation or certain other types of recapitalizations of the Company. 74 Each employee of the Company who has been employed by the Company for not less than six months and who is customarily employed by the Company for more than 20 hours per week and more than five months per calendar year is eligible to participate in the QSP Plan. The Company presently has approximately 1,900 employees who are eligible to participate in the QSP Plan. The per share exercise price of each purchase right shall be an amount equal to the lesser of 85% of the fair market value of a share of Common Stock on the first day of the Offering Period in which the eligible employee began participating in the QSP Plan or 85% of the fair market value of a share of Common Stock on the date of exercise of an installment of the purchase right. The QSP Plan commenced on July 1, 1997. As of May 31, 1998, 241,660 shares of Common Stock remain available under the QSP Plan. 75 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock outstanding as of May 31, 1998 by (i) each person known by the Company to own beneficially 5% or more of any class of the Company's voting securities; (ii) each director and executive officer of the Company; and (iii) all directors and executive officers of the Company as a group. Except as otherwise indicated, each stockholder listed below has informed the Company that such stockholder has (i) sole voting and investment power with respect to such stockholder's shares of stock, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to such stockholder's shares of stock.
COMMON STOCK BENEFICIALLY OWNED(1) ------------------------- NAME NUMBER PERCENT ---- ------------- ----------- William M. Barnum, Jr.(2)(3)........................ 644,425 3.1% Martin R. Reid(3)(4)(5)............................. 270,533 1.3 Robert M. Wilson(3)(4).............................. 18,825 * Ronald Halchishak(3)(4)............................. 39,340 * David G. Ledlow(3)(4)............................... 34,531 * John Markle(3)(6)................................... 43,029 * Douglas A. Waugaman(3)(4)........................... 83,806 * David B. Harrington(3)(4)........................... 6,250 * James R. Buch(3)(4)................................. 3,850 * David P. Lanoha(3)(6)............................... 146,730 * Christopher A. Laurence(2)(3)....................... 3,736 * Eric L. Mattson(3)(7)............................... 2,500 * Britton H. Murdoch(3)(8)............................ 4,500 * John M. Sullivan(3)(4).............................. 2,500 * All directors and executive officers as a group (14 persons)(2)(3)(5).............................. 1,304,555 6.2
- -------- *Less than 1.0%. (1) A person is deemed as of any date to have "beneficial ownership" of any security that such person has a right to acquire within 60 days after such date. Shares that each identified stockholder has the right to acquire within 60 days of the date of the table set forth above are deemed to be outstanding in calculating the percentage ownership of such stockholder, but are not deemed to be outstanding as to any other person. (2) Mr. Barnum, a director of the Company, is a general partner of BBP, the general partner of Brentwood RSC Partners, which owns 617,972 shares of Common Stock; accordingly, Mr. Barnum may be deemed to be the beneficial owner of the shares owned by BBP and for purposes of this table they are included. Mr. Barnum disclaims beneficial ownership of such shares. The address of Brentwood RSC Partners, Mr. Barnum and Mr. Laurence is 11150 Santa Monica Boulevard, Suite 1200, Los Angeles, California 90025. (3) Excludes shares issuable upon exercise of options that are not exercisable within 60 days of the date of the table set forth above, as follows: Mr. Barnum--10,000 shares; Mr. Reid--173,411 shares; Mr. Wilson--72,250 shares; Mr. Halchishak--64,750 shares; Mr. Ledlow--64,750 shares; Mr. Markle--25,000 shares; Mr. Waugaman--91,000 shares; Mr. Harrington--27,275 shares; Mr. Buch--8,650 shares; Mr. Lanoha--12,500 shares; Mr. Laurence--10,000 shares; Mr. Mattson--10,000 shares; Mr. Murdoch--10,000 shares; and Mr. Sullivan--10,000 shares. (4) The address of such person is c/o Rental Service Corporation, 6929 E. Greenway Parkway, Suite 200, Scottsdale, Arizona 85254. (5) Includes shares subject to vesting that may be repurchased by the Company if they fail to vest. 76 (6) The address of such person is c/o Center Rental & Sales, 11250 East 40th Avenue, Denver, Colorado 60239. (7) The address of such person is c/o Baker Hughes Incorporated, 3900 Essex Lane, Suite 1200, Houston, Texas 77027. (8) The address of such person is c/o Internet Capital Group, LLP, 800 The Safeguard Building, 435 Devon Park Drive, Suite 411, Wayne, Pennsylvania 19087. 77 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS MANAGEMENT AGREEMENT Pursuant to a Corporate Development and Administrative Services Agreement (the "Services Agreement"), the Company, prior to its initial public offering in September 1996, paid BBP a monitoring fee in connection with management, consulting and financial advisory services equal to one percent (1%) per annum of the aggregate amount of debt and equity investment in the Company of or by BBP and any persons or entities associated with BBP (collectively, the "Brentwood Entities"), and investors in any of the Brentwood Entities, plus reimbursement of customary costs and expenses. In 1996, the Company paid BBP a monitoring fee of $235,000 pursuant to the Services Agreement. From time to time, BBP has also received investment banking fees from the Company in connection with the Company's acquisitions, calculated at 1.5% of the total of the purchase price plus acquisition costs and net capital expenditures. Investment banking fees paid to BBP totaled $388,000, $1,084,000 and $0 during the years ended December 31, 1996 and 1997 and the three months ended March 31, 1998, respectively. The Company's obligation to pay such monitoring and investment banking fees terminated upon completion of its initial public offering; however, the Company, at its discretion, may utilize the stockholder's investment banking services under the same fee arrangement. Mr. Barnum, a general partner of BBP, who also serves as a director of the Company, does not receive additional compensation from BBP for service as a director. EMPLOYMENT AGREEMENT WITH MARTIN R. REID RSC and Martin R. Reid are parties to an employment agreement pursuant to which Mr. Reid is employed as Chairman of the Board and Chief Executive Officer (the "Employment Agreement"). The term of the Employment Agreement initially is through December 31, 2001, but is automatically extended for one additional year at the end of each calendar year unless earlier terminated (the "Term of the Employment Agreement"). The Employment Agreement provides for a base salary of no less than $500,000. Subject to stockholder approval of an Executive Incentive and Bonus Plan, Mr. Reid is also eligible to receive a yearly bonus of up to $500,000 pursuant to such plan, if certain performance criteria are met. In addition, Mr. Reid is entitled to four weeks vacation and all benefits generally available to other RSC executives. In January 1998, Mr. Reid was granted options to purchase 190,000 shares of Common Stock, vesting in equal installments over four years (or earlier if certain performance criteria are met), and 10,000 shares of restricted stock, vesting in equal installments over four years. However, the options will vest immediately if Mr. Reid presents a chief executive officer succession plan which is approved by the Board, but in no event earlier than one year from the grant of such options. On February 25, 1998, Mr. Reid surrendered to the Company options to purchase 57,000 shares of Common Stock in order to ensure the number of shares of Common Stock available for issuance pursuant to the 1996 Plan was sufficient to allow certain grants of stock options to other officers. On April 29, 1998, Mr. Reid was granted options to purchase 40,411 shares of Common Stock and 16,589 shares of restricted stock. These options and restricted stock are subject to the same vesting as those granted in January 1998. The Employment Agreement may be terminated by Mr. Reid or the Company at any time, with or without cause. In addition, if requested by the Board of Directors, Mr. Reid will resign as Chief Executive Officer (a "Resignation"), but will remain as Chairman of the Board and devote at least 50% of his time to the Company. Beginning with the first full year after his Resignation, Mr. Reid's base salary and corresponding bonus opportunity will each be reduced to $250,000. However, if the Board of Directors also asks him to step down as Chairman of the Board (a "Step Down"), Mr. Reid will remain an RSC employee at a base salary not in excess of $125,000, depending on the time he devotes. Except where there has been a Change of Control, if Mr. Reid's active employment in all capacities is terminated by RSC without "cause" (as defined in the Employment Agreement), Mr. Reid will be entitled to receive severance pay equal to his then-current base salary through the remaining Term of the Employment Agreement plus the maximum bonus opportunity available if he had continued in the position from which he was terminated. Additionally, Mr. Reid will be entitled to immediate vesting of all his unvested options and 78 restricted stock. In addition, for the remainder of the Term of the Employment Agreement, Mr. Reid will be treated as an active employee for purposes of all benefits and the exercise of his options, and Mr. Reid will be entitled to health insurance coverage until age 65. No severance pay or benefit continuation will be available if Mr. Reid is terminated for "cause" or if he resigns other than due to the Company's breach or at the Board of Directors' request as a Resignation or Step Down. Upon a Change of Control (as defined in the Employment Agreement), all of Mr. Reid's unvested stock options and restricted stock will vest. In addition, if within 24 months after a Change of Control, Mr. Reid is terminated without "cause" or voluntarily terminates his employment for "good reason" (as defined in the Employment Agreement), then, in place of other severance payments, he will receive a payment equal to two and one-half times his highest base salary and annual bonus opportunity during the Term of the Employment Agreement prior to the Change of Control. The Company must also continue to provide Mr. Reid health and life insurance comparable to that in effect on the date of the Change of Control for 30 months or until he is re-employed and eligible for health and life insurance benefits from a new employer that are at least as favorable as those provided by RSC. In addition, Mr. Reid will either be fully vested in his account under the 401(k) Plan upon the Change of Control or receive payment equal to the unvested portion of such account. RSC must also transfer to Mr. Reid the company-owned car he was using at the time of the Change of Control or pay him two and one-half times his annual car allowance. During the Term of the Employment Agreement, and for four years after any termination of employment for any reason, Mr. Reid cannot directly or indirectly engage in any business that competes with RSC, whether as an owner, director, officer, employee, consultant or otherwise, subject to limited investments in public companies and a pre-existing loan to a family member. Upon Mr. Reid's death or disability, all of his unvested options and restricted stock will vest, and he or his estate will receive his unpaid base salary through the date of such death or disability plus a pro rata portion of his maximum bonus opportunity for that year. In connection with the Employment Agreement, in January 1998 the Company accelerated the vesting of Mr. Reid's 200,000 outstanding options to purchase Common Stock and such options became immediately exercisable. OTHER ARRANGEMENTS In connection with the Center Acquisition, the Company entered leases for certain of Center's facilities with David P. Lanoha, a director of the Company, and certain partnerships affiliated with Mr. Lanoha. The leases initially expire in 2002, with options to extend for three periods of five years each. The aggregate annual rent under such leases is $720,000. The Company believes the terms of these leases are no less favorable than those that could be obtained from unaffiliated third parties. Prior to the Center Acquisition, these locations had been leased by Center from Mr. Lanoha and his affiliates. The previous leases were terminated in connection with the Center Acquisition. The Company and Mr. Waugaman are parties to a Separation and Stock Purchase Agreement dated July 25, 1995 (the "Waugaman Purchase Agreement"). Pursuant to the Waugaman Purchase Agreement, if Mr. Waugaman's employment is terminated without cause or if he is not offered a substantially similar position with a successor entity following a change of control, he will be entitled to severance pay equal to nine months base salary. Mr. Waugaman has agreed that in consideration of such severance benefits, he will not compete with the Company for a period of nine months if his employment is terminated other than for cause. In addition, pursuant to an oral arrangement supplementing the Waugaman Purchase Agreement, RSC has purchased a $500,000 life insurance policy under which Mr. Waugaman's wife is the beneficiary and a disability policy for Mr. Waugaman. 79 The Company has entered into a severance agreement with each of Messrs. Halchishak, Harrington, Ledlow and Wilson providing for certain benefits upon termination of employment either by the Company without cause or by such named executive officer due to a reduction in base salary and benefits (other than across the board salary cuts for employees at such named executive officer's level or changes in benefits). These benefits include a lump sum severance payment equal to 100% of such named executive officer's base salary, plus a pro rata portion of the current-year bonus opportunity, plus life, disability, accident and group health insurance benefits substantially similar to those received by such named executive officer immediately prior to termination for a twelve (12) month period. In addition, all stock options granted prior to 1996, all stock options that are scheduled to vest in the year of termination and one-third of all other stock options held by him, if any, shall become vested and exercisable effective as of the day immediately prior to the date of termination of such named executive officer. As consideration for these benefits, each of Messrs. Halchishak and Ledlow agreed that during the term of the severance agreement and for twenty-four (24) months after termination of employment for any reason they would not solicit any customers of the Company or hire or offer employment to any employee of the Company. Messrs. Harrington and Wilson agreed that during the term of the severance agreement and for twelve (12) months after termination of employment for any reason they would not solicit any customers of the Company or hire or offer employment to any employee of the Company. The severance agreements with Messrs. Halchishak and Ledlow will continue in effect through December 31, 2001, that with Mr. Wilson will continue in effect through April 2000 and that with Mr. Harrington will continue in effect through June 2000. FUTURE TRANSACTIONS The Company has adopted a policy that it will not enter into any material transaction in which a Company director or officer has a direct or indirect financial interest, unless the transaction is determined by the Company's Board of Directors to be fair to the Company or is approved by a majority of the Company's disinterested directors or by the Company's stockholders, as provided for under Delaware law. In addition, the Company's debt instruments generally prohibit the Company from entering into any affiliate transaction on other than arm's length terms. 80 DESCRIPTION OF THE BANK FACILITY The Company's bank credit facility consists of a $500.0 million revolving credit facility (the "Revolver") and a $100.0 million seven-year term loan facility (the "Term Loan" and together with the Revolver, the "Bank Facility"). The Revolver contains provisions to periodically adjust the prime and Eurodollar interest rate margins based on the Company's achievement of specified total debt to EBITDA ratios. The total amount of credit available under the Revolver is limited to a borrowing base equal to the sum of (i) 85% of eligible accounts receivable of the Company's subsidiaries and (ii) 100% of the value (lower of net book value or orderly liquidation value) of eligible rental equipment through December 31, 1998; 90% of the value of eligible rental equipment from January 1, 1999 through December 31, 1999; 85% of the value of eligible rental equipment from January 1, 2000 through December 31, 2000; and 80% of the value of eligible rental equipment from January 1, 2001 through the expiration date of the Revolver. The Revolver expires December 2, 2002. The Term Loan consists of a $100.0 million seven-year term loan facility, which requires mandatory principal payments of $1.0 million on each of its first six anniversaries, with the remaining principal balance due at maturity. The Term Loan matures on December 2, 2004. Interest on the Term Loan is payable monthly at either the prime rate plus 1.0% or the Eurodollar rate plus 2.5% (at the Company's option). The Bank Facility has financial covenants for RSC regarding debt incurrence, interest coverage, capital expenditures and investments (including acquisitions), rental equipment utilization and minimum EBITDA levels. The Bank Facility also contains covenants and provisions that restrict, among other things, the ability of the Company and its subsidiaries to: (i) incur additional indebtedness; (ii) incur liens on their property, (iii) enter into contingent obligations; (iv) make certain capital expenditures and investments; (v) engage in certain sales of assets; (vi) merge or consolidate with or acquire another person or engage in other fundamental changes; (vii) enter into leases; (viii) engage in certain transactions with affiliates; and (ix) declare or pay dividends. As of March 31, 1998, the Company was in compliance with all covenants of the Bank Facility. Borrowings under the Bank Facility are secured by all of the personal property of the Company's subsidiaries and a pledge of the capital stock and intercompany debt of the Company's subsidiaries. RSC is a guarantor of the obligations of its subsidiaries under the Bank Facility, and has granted liens on substantially all of its assets (including the stock of its subsidiaries) to secure such guaranty. The Bank Facility also restricts the Company from declaring or paying dividends on its Common Stock. In addition, the Company's subsidiaries are guarantors of the obligations of the other subsidiaries under the Bank Facility. The Bank Facility also includes a $2.0 million letter of credit facility. A commitment fee equal to 0.25% of the unused commitment, excluding the face amount of all outstanding and undrawn letters of credit, is also payable monthly in arrears. The obligation of the lenders to make loans or issue letters of credit under the Bank Facility is subject to certain customary conditions. At June 5, 1998, the principal amount outstanding under the Revolver was $315.1 million, the average interest rate on such borrowings was 7.2%, and an additional $184.9 million was available to the Company under the Revolver. Additionally, $100.0 million was outstanding under the Term Loan at an interest rate of 8.1% at June 5, 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 81 DESCRIPTION OF EXCHANGE NOTES The Exchange Notes will be issued under an indenture (the "Indenture"), to be dated as of May 13, 1998 by and between the Company, the Subsidiary Guarantors and Norwest Bank Minnesota, N.A., as Trustee (the "Trustee"). The following summary of certain provisions of the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of the Indenture, including the definitions of certain terms therein and those terms made a part of the Indenture by reference to the TIA as in effect on the date of the Indenture. A copy of the Indenture may be obtained from the Company or the Initial Purchasers. The definitions of certain capitalized terms used in the following summary are set forth below under "--Certain Definitions." For purposes of this "Description of Exchange Notes," references to the "Company" mean only Rental Service Corporation and not its Subsidiaries. The Exchange Notes will be unsecured obligations of the Company, ranking subordinate in right of payment to all Senior Indebtedness. The Exchange Notes will be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Initially, the Trustee will act as Paying Agent and Registrar for the Exchange Notes. The Exchange Notes may be presented for registration or transfer and exchange at the offices of the Registrar, which initially will be the Trustee's corporate trust office. The Company may change any Paying Agent and Registrar without notice to registered holders of the Exchange Notes (the "Holders"). The Company will pay principal (and premium, if any) on the Exchange Notes at the Trustee's corporate office in New York, New York. At the Company's option, interest may be paid at the Trustee's corporate trust office or by check mailed to the registered address of Holders. Any Private Notes that remain outstanding after the completion of the Exchange Offer, together with the Exchange Notes issued in connection with the Exchange Offer, will be treated as a single class of securities under the Indenture. PRINCIPAL, MATURITY AND INTEREST The Exchange Notes are limited in aggregate principal amount to $300.0 million, of which $200.0 million in aggregate principal amount will be issued in the Exchange Offer, and will mature on May 15, 2008. Additional amounts may be issued from time to time, subject to the limitations set forth under "-- Certain Covenants--Limitation on Incurrence of Additional Indebtedness." Interest on the Exchange Notes will accrue at the rate of 9% per annum and will be payable semiannually in cash on each May 15 and November 15, commencing on November 15, 1998, to the Holders at the close of business on the May 1 and November 1 immediately preceding the applicable interest payment date. Interest on the Exchange from the most recent date to which interest has been paid or, if no interest has been paid, from and including the date of issuance. The Exchange Notes will not be entitled to the benefit of any mandatory sinking fund. REDEMPTION Optional Redemption. The Exchange Notes will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after May 15, 2003, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on May 15 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
YEAR PERCENTAGE ---- ---------- 2003............................................................ 104.5% 2004............................................................ 103.0% 2005............................................................ 101.5% 2006 and thereafter............................................. 100.0%
82 Optional Redemption upon Equity Offerings. At any time, or from time to time, on or prior to May 15, 2001, the Company may, at its option, use the net cash proceeds of one or more Equity Offerings (as defined below) to redeem up to 35% of the principal amount of the Exchange Notes originally issued under the Indenture at a redemption price equal to 109% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of the principal amount of Notes issued under the Indenture remains outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Equity Offering. As used in the preceding paragraph, "Equity Offering" means a public or private issuance of Qualified Capital Stock of the Company for cash. SELECTION AND NOTICE OF REDEMPTION In the event that less than all of the Exchange Notes are to be redeemed at any time, selection of such Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which Notes are listed or, if such Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Notes of a principal amount of $1,000 or less shall be redeemed in part; provided, further, that if a partial redemption is made with the proceeds of an Equity Offering, selection of the Exchange 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. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture. SUBORDINATION The payment of all Obligations on the Exchange Notes is subordinated in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on Senior Indebtedness. Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Company or its property, whether voluntary or involuntary, all Obligations due or to become due upon all Senior Indebtedness shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Indebtedness, before any payment or distribution of any kind or character is made on account of any Obligations on the Exchange Notes, or for the acquisition of any of the Exchange Notes for cash or property or otherwise. If 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 Indebtedness, no payment of any kind or character shall be made by or on behalf of the Company or any other Person on its or their behalf with respect to any Obligations on the Exchange Notes or to acquire any of the Exchange Notes for cash or property or otherwise. In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Indebtedness, as such event of default is defined in the instrument creating or evidencing such Designated Senior Indebtedness, permitting the holders of such Designated Senior Indebtedness then outstanding to accelerate the maturity thereof and if the Representative for the respective issue of Designated Senior Indebtedness gives 83 written notice of the event of default to the Trustee (a "Default Notice"), then, unless and until all events of default with respect to such Designated Senior Indebtedness have been cured (if capable of being cured) or waived in writing or have ceased to exist or the Trustee receives notice from the Representative for the respective issue of Designated Senior Indebtedness terminating the Blockage Period (as defined below), during the 179 days after the delivery of such Default Notice (the "Blockage Period"), 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 Exchange Notes or (y) acquire any of the Exchange Notes for cash or property or otherwise. Notwithstanding anything herein to the contrary, in no event will a Blockage Period extend beyond 179 days from the date the payment on the Exchange Notes was due and only one such Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Blockage Period with respect to the Designated Senior Indebtedness shall be, or be made, the basis for commencement of a second Blockage Period by the Representative of such Designated Senior Indebtedness 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 (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). By reason of such subordination, in the event of the insolvency of the Company, creditors of the Company who are not holders of Senior Indebtedness, including the Holders of the Exchange Notes, may recover less, ratably, than holders of Senior Indebtedness. As of March 31, 1998, on a pro forma basis after giving effect to the Offering and the Other Acquisitions, the aggregate amount of Senior Indebtedness would have been approximately $337.5 million. SUBSIDIARY GUARANTEES Each Subsidiary Guarantor will unconditionally guarantee, on a senior subordinated basis, jointly and severally, to each Holder and the Trustee, the full and prompt performance of the Company's obligations under the Indenture and the Exchange Notes, including the payment of principal of and interest on the Exchange Notes. The Guarantees will be subordinated to Guarantor Senior Indebtedness on the same basis as the Exchange Notes are subordinated to Senior Indebtedness. The obligations of each Subsidiary Guarantor are limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, will result in the obligations of such Subsidiary Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Subsidiary Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Subsidiary Guarantor in an amount pro rata, based on the net assets of each Subsidiary Guarantor, determined in accordance with GAAP. Each Subsidiary Guarantor may consolidate with or merge into or sell its assets to the Company or another Subsidiary Guarantor that is a Wholly Owned Restricted Subsidiary of the Company without limitation, or with other Persons upon the terms and conditions set forth in the Indenture. See "--Certain Covenants--Merger, Consolidation and Sale of Assets." In the event all of the Capital Stock of a Subsidiary Guarantor is (or all or substantially all of the assets of a Subsidiary Guarantor are) sold by the Company and the sale complies with the provisions set forth under "--Certain Covenants--Limitation on Asset Sales," the Subsidiary Guarantor's Guarantee will be released. 84 Separate financial statements of the Subsidiary Guarantors are not included herein because such Subsidiary Guarantors are jointly and severally liable with respect to the Company's obligations pursuant to the Exchange Notes, and the aggregate net assets, earnings and equity of the Subsidiary Guarantors are substantially equivalent to the net assets, earnings and equity of the Company and its Subsidiaries on a consolidated basis. CHANGE OF CONTROL The Indenture will provide that upon the occurrence of a Change of Control, each Holder will have the right to require that the Company purchase all or a portion of such Holder's Notes 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 interest thereon, if any, to the date of purchase (the "Change of Control Offer Price"). Within 30 days following the date upon which the Change of Control occurred, the Company must send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 60 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have an Exchange 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 to 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 business day prior to the Change of Control Payment Date. Notwithstanding the foregoing, the Company shall not be required to make a Change of Control Offer, as provided above, if, in connection with any Change of Control, it had made an offer to purchase (an "Alternate Offer") any and all Notes validly tendered at a cash price equal to or higher than the Change of Control Offer Price and has purchased all Notes properly tendered in accordance with the terms of such Alternate Offer. 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 Exchange 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. The Change of Control feature of the Exchange Notes may make it more difficult or discourage a takeover of the Company, and, thus, the removal of incumbent management. Except as described herein with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders to require the Company to repurchase or redeem the Exchange Notes in the event of a takeover, recapitalization or similar restructuring. Restrictions in the Indenture described herein on the ability of the Company and its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on their property, to make Restricted Payments and to make Asset Sales may also 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 Exchange 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 by the management of the Company. 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 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 securities laws or regulations conflict with the "Change of Control" provisions of the Indenture, the Company 85 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 virtue thereof. The Bank Facility will, and future credit agreements or other agreements relating to Senior Indebtedness to which the Company becomes a party may, prohibit the Company from purchasing any Notes as a result of a Change of Control and/or provide that certain change of control events with respect to the Company would constitute a default thereunder. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing the Exchange Notes, the Company could seek the consent of its lenders to the purchase of the Exchange Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing the Exchange Notes. In such case, the Company's failure to purchase tendered Exchange Notes would constitute an Event of Default under the Indenture. If, as a result thereof, a default occurs with respect to any Senior Indebtedness, the subordination provisions in the Indenture would likely restrict payments to the Holders. BOOK ENTRY; DELIVERY AND FORM Except as set forth below, the Exchange Notes will be issued in registered, global form in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. The Exchange Notes initially will be represented by one or more Exchange Notes in registered, global form without interest coupons (collectively, the "Global Notes"). The Global Notes will be deposited upon issuance with the Trustee as custodian for its nominee, in each case for credit to an account of a direct or indirect participant in DTC as described below. Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for Exchange Notes in certificated form except in the limited circumstances described below. See "--Exchange of Book-Entry Notes for Certificated Notes." Except in the limited circumstances described below, owners of beneficial interest in the Global Notes will not be entitled to receive physical delivery of Certificated Notes (as defined below). Transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants, which may change from time to time. Initially, the Trustee will act as Paying Agent and Registrar. The Exchange Notes may be presented for registration of transfer and exchange at the offices of the Registrar. DEPOSITARY PROCEDURES DTC has advised the Company that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book- entry charges in accounts of its Participants. The Participants include securities brokers and dealers (including the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in each security held by or on behalf of DTC are recorded on the records of the Participants and the Indirect Participants. DTC has also advised the Company that, pursuant to procedures established by it, (i) upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the Initial Purchasers with portions of the principal amount of the Global Notes and (ii) ownership of such interest in the Global Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect 86 to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interest in the Global Notes). EXCEPT AS DESCRIBED BELOW, OWNERS OF INTEREST IN THE GLOBAL NOTES WILL NOT HAVE EXCHANGE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF THE EXCHANGE NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR "HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE. Payments in respect of the principal of, and premium, if any, interest and additional interest in a Global Note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered Holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee will treat the persons in whose names the Exchange Notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the Company, the Trustee nor any agent of the Company or the Trustee has or will have any responsibility or liability for (i) any aspect of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Notes or (ii) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. DTC has advised the Company that its current practice upon receipt of any payment in respect of securities such as the Exchange Notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings unless DTC has reason to believe it will not receive payment on such payment date. Payments by the Participants and the Indirect Participants to the beneficial owners of Exchange Notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the Exchange Notes, and the Company and the Trustee may conclusively rely on and will be protected in relying on the instructions from DTC or its nominee for all purposes. Interests in the Global Notes are expected to be eligible to trade in DTC's Same-Day Funds Settlement System, and secondary market trading activity in such interests will, therefore, settle in immediately available funds, subject in all cases to the rules and procedures of DTC and its Participants. Transfers between Participants in DTC will be effected in accordance with the DTC's procedures, and will be settled in same-day funds. DTC has advised the Company that it will take any action permitted to be taken by a Holder of Exchange Notes only at the direction of one or more Participants to whose account DTC has credited the interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the Exchange Notes as to which Participant or Participants has or have given such direction. However, if there is an Event of Default under the Exchange Notes, DTC reserves the right to exchange the Global Notes for legended Exchange Notes in certificated form, and to distribute such Exchange Notes to its Participants. Although DTC has agreed to the foregoing procedures to facilitate transfers of interest in the Global Notes among Participants in DTC, it is under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee nor any of their respective agents will have any obligations under the rules and procedures governing their operations. EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES A Global Note is exchangeable for definitive Exchange Notes in registered certificated form ("Certificated Notes") if (i) DTC (x) notifies the Company that it is unwilling or unable to continue as depositary for the Global Notes and the Company thereupon fails to appoint a successor depositary or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) if the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Certificated Notes or (iii) there shall have occurred and be continuing a 87 Default or Event of Default with respect to the Exchange Notes. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures). CERTAIN COVENANTS The Indenture will contain, 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 Subsidiary Guarantor 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 (i) 2.25 to 1.0 if the date of such incurrence is on or prior to May 15, 2001 or (ii) 2.50 to 1.0 if the date of such incurrence is after May 15, 2001. 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 Equity Interests of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock, (b) 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, (c) 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 of the Exchange Notes or (d) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (a), (b), (c) and (d) 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 in cash, being the fair market value of such property as determined in good faith by the Board of Directors of the Company) shall exceed the sum of: (w) 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 earned during the period beginning on the first day of the fiscal quarter including the Issue Date (the "Reference Date") (treating such period as a single accounting period), provided, however, that if the Exchange Notes achieve an Investment Grade Rating as of the end of any fiscal quarter, the percentage for the fiscal quarter after such fiscal quarter (and for any other fiscal quarter where, on the first day of such fiscal quarter, the Exchange Notes shall have an Investment Grade Rating) will be 100% of Consolidated Net Income during each fiscal quarter after such fiscal quarter; provided further, however, that if such Restricted Payment is to be made in reliance upon an additional amount permitted pursuant to the immediately preceding proviso, the Exchange Notes must have an Investment Grade Rating at the time such Restricted Payment is declared or, if not declared, made, plus (x) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from (i) the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Equity Interests of the Company (other than Qualified Equity Interests applied pursuant to clauses 2(ii) and 3(ii) of the next succeeding paragraph) and (ii) Indebtedness or Disqualified Capital Stock that has been converted into or exchanged for Qualified Equity Interests together with the aggregate net cash proceeds received by the Company at the time of such conversion or exchange, plus (y) without duplication of any amounts 88 included in clause (iii)(x) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock and plus (z) an amount equal to the sum of (1) any net reduction in Investments made pursuant to this first paragraph 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) and (2) the consolidated net Investments, as of the date of Revocation, made by the Company or any of its Restricted Subsidiaries in any Subsidiary of the Company that had been designated as an Unrestricted Subsidiary after the Issue Date, upon its redesignation as a Restricted Subsidiary in accordance with the covenant described under "--Limitation on Designations of Unrestricted Subsidiaries." Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of such dividend if the dividend would have been permitted on the date of declaration; (2) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any shares of Capital Stock of the Company, either (i) solely in exchange for Qualified Equity Interests 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 Qualified Equity Interests of the Company; (3) if no Default or Event of Default shall have occurred and be continuing, the purchase, redemption, defeasance or other acquisition or retirement for value of any Indebtedness of the Company that is subordinate or junior in right of payment to the Exchange Notes either (i) solely in exchange for Qualified Equity Interests of the Company or (ii) through the application of net proceeds of (A) a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of Qualified Equity Interests of the Company or (B) Refinancing Indebtedness; (4) so long as 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 $2.0 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), (4) and (5) shall be included in such calculation. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an officers' certificate stating that such Restricted Payment complies with the Indenture and setting forth in reasonable detail the basis upon which the required calculations were computed, which calculations may be based upon the Company's latest available internal 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), (ii) at least 75% of the consideration received by the Company or the Restricted Subsidiary (excluding liabilities that are not subordinated to the Exchange Notes that have been assumed by a transferee of such assets to the extent that the applicable agreement releases or indemnifies the Company or such Restricted Subsidiary from such liabilities), 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 or securities which are converted into cash or Cash Equivalents within 60 days; and (iii) upon 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 within 365 days of receipt thereof either (A) to prepay any Senior Indebtedness and, in the case of any Senior Indebtedness under any revolving credit facility, including the Bank Facility, effect a permanent reduction in the availability under such revolving credit facility, (B) to make an investment in or acquire properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used (including acquisitions of other businesses) 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 89 foregoing clauses (iii)(A) and (iii)(B). 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, as the case may be, determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (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 (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount"), shall be applied by the Company or such Restricted Subsidiary, as the case may be, 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 issued under the Indenture equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Exchange Notes to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase; provided, however, that 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 this covenant. 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 paragraph); provided, that in no event will the net cash proceeds from an Asset Sale be subject to more than one Net Proceeds Offer. 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. Notwithstanding the two immediately preceding paragraphs, the Company and its Restricted Subsidiaries will be permitted to consummate an Asset Sale without complying with such paragraphs to the extent (i) at least 75% of the consideration for such Asset Sale constitutes Replacement Assets and (ii) such Asset Sale is for fair market value as determined in good faith by the Board of Directors of the Company; provided that any consideration not constituting Replacement Assets received by the Company or any of its Restricted Subsidiaries in connection with any Asset Sale permitted to be consummated under this paragraph shall constitute Net Cash Proceeds subject to the provisions of the two preceding paragraphs. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 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 in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be purchased on a pro rata basis (based on amounts tendered). 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 thereof. 90 The Bank Facility will, and future credit agreements or other agreements relating to Senior Indebtedness to which the Company becomes a party may, prohibit the Company from purchasing any Notes pursuant to this "Limitation on Asset Sales" covenant. In the event the Company is prohibited from purchasing the Exchange Notes, the Company could seek the consent of its lenders to the purchase of the Exchange Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing the Exchange Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture. If, as a result thereof, a default occurs with respect to any Senior Indebtedness, the subordination provisions in the Indenture would likely restrict payments to the Holders. 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; (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 properties or assets of the Person so acquired; (5) agreements (other than the Bank Facility) existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date or as amended in a manner that is not more disadvantageous to the Holders in any material respect than the agreement existing on the Issue Date; (6) the Bank Facility; provided, however, that, except during a period when an event of default under the Bank Facility shall have occurred and be continuing, no such encumbrances or restrictions shall limit the ability of such Subsidiary to dividend, loan, advance or otherwise transfer funds to the Company in an amount required to pay when due the scheduled interest (including Additional Interest) and principal at maturity of the Exchange Notes; (7) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (c) above; (8) contracts for the sale of assets, including, without limitation, customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; (9) secured Indebtedness otherwise permitted to be incurred pursuant to the covenants described under "--Limitation on Incurrence of Additional Indebtedness" and "--Limitation on Liens" that limit the right of the debtor to dispose of the assets securing such Indebtedness; (10) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; (11) any credit facility or similar agreement entered into in accordance with clause (xv) of the definition of "Permitted Indebtedness"; provided, however, that, except during a period when an event of default under such credit facility shall have occurred and be continuing, no such encumbrances or restrictions shall limit the ability of any Foreign Subsidiary to dividend, loan, advance or otherwise transfer funds to the Company in an amount required to pay when due the scheduled interest (including Additional Interest) and principal at maturity of the Exchange Notes; (12) customary provisions in joint venture agreements; or (13) an agreement governing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (2), (4), (5), (6), (7), (8), (9), (10), (11) or (12) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such Refinancing 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), (6), (7), (8), (9), (10), (11) or (12). 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 91 acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless (i) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the Exchange Notes or any Guarantee, the Exchange Notes and the Guarantees are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens and (ii) in all other cases, the Exchange Notes and the Guarantees are equally and ratably secured, except for (A) Liens existing as of the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date; (B) Liens securing Senior Indebtedness and Liens securing Guarantor Senior Indebtedness; (C) Liens of the Company or a Wholly Owned Restricted Subsidiary of the Company on assets of any Restricted Subsidiary of the Company; (D) Liens securing Refinancing Indebtedness incurred in accordance with the provisions of the Indenture which is incurred to Refinance any Indebtedness which has been secured by a Lien permitted under the Indenture; provided, however, that such Liens (i) are no less favorable to the Holders and are no more favorable to the lienholders with respect to such Liens than the Liens in respect of the Indebtedness being Refinanced and (ii) 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; (E) Liens securing Indebtedness incurred in accordance with clause (xv) of the definition of "Permitted Indebtedness" and (F) Permitted Liens. Prohibition on Incurrence of Senior Subordinated Debt. The Company will not incur or suffer to exist Indebtedness that is senior in right of payment to the Exchange Notes and subordinate in right of payment to any other Indebtedness of the Company. No Subsidiary Guarantor will incur or suffer to exist Indebtedness that is senior in right of payment to such Subsidiary Guarantor's Guarantee and subordinate in right of payment to any other Indebtedness of such Subsidiary Guarantor. Notwithstanding anything to the contrary contained herein, no Indebtedness incurred at any time under the Bank Facility (as such facility is in existence on the Issue Date) shall be considered subordinate in right of payment to any other Indebtedness incurred under the Bank Facility (as such facility is in existence on the Issue Date). 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 on all of the Exchange Notes and the performance of every covenant of the Exchange 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, 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 or 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. 92 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 (other than to the Company or another Restricted Subsidiary) 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. The Indenture will provide that 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 successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture and the Exchange Notes with the same effect as if such surviving entity had been named as such. Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and the Indenture in connection with any transaction complying with the provisions of "--Limitation on Asset Sales") will not, and the Company will not cause or permit any Subsidiary Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Subsidiary Guarantor unless: (i) the entity formed by or surviving any such consolidation or merger is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (ii) such entity, if not already a Subsidiary Guarantor, assumes by supplemental indenture all of the obligations of the Subsidiary 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 proceeds therefrom on a pro forma basis, the Company could satisfy the provisions of clause (ii) of the first paragraph of this covenant. Any merger or consolidation of a Subsidiary Guarantor with and into the Company (with the Company being the surviving entity) or another Subsidiary Guarantor that is a Wholly Owned Restricted Subsidiary of the Company need only comply with clause (iv) of the first paragraph of this covenant. 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 are 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) shall not apply to (i) fees and compensation and benefits paid 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 (including, without limitation, any issuance of securities, grants of cash, securities, stock options or otherwise, pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors of the Company or the Board of Directors of the relevant Restricted Subsidiary); 93 (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 agreement as 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 such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date; (iv) loans and advances to officers and employees or consultants of the Company or any of its Restricted Subsidiaries in the ordinary course of business not to exceed $1,000,000 at any time outstanding; and (v) Restricted Payments permitted by the Indenture. Additional Subsidiary Guarantees. If the Company or any of its Restricted Subsidiaries transfers or causes to be transferred, in one transaction or a series of related transactions, any property to any Restricted Subsidiary (other than a Foreign Subsidiary, unless the Company elects to have a Foreign Subsidiary execute a Guarantee) that is not a Subsidiary Guarantor, or if the Company or any Restricted Subsidiary shall organize, acquire or otherwise invest in or hold an Investment in a Restricted Subsidiary (other than a Foreign Subsidiary, unless the Company elects to have a Foreign Subsidiary execute a Guarantee) having total consolidated assets with a book value in excess of $500,000, then such transferee or acquired or other Restricted Subsidiary shall (a) execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall unconditionally guarantee jointly and severally with the other Subsidiary Guarantors, on a senior subordinated basis, all of the Company's obligations under the Exchange Notes and the Indenture on the terms set forth in the Indenture and (b) deliver to the Trustee an opinion of counsel that such supplemental indenture has been duly authorized, executed and delivered by such Restricted Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a Subsidiary Guarantor for all purposes 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 reasonably related to the businesses in which the Company and its Restricted Subsidiaries are engaged on the Issue Date. Reports to Holders. The Indenture will provide that the Company will deliver to the Trustee within 15 days after the filing of the same 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. The Indenture further provides that, 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. The Company will also comply with the other provisions of TIA (S)314(a). Limitation on Designations of Unrestricted Subsidiaries. The Company may designate any Subsidiary of the Company (other than a Subsidiary of the Company which owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary) as an "Unrestricted Subsidiary" under the Indenture (a "Designation") only if: (a) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such Designation; (b) the Company would be permitted under the Indenture to make an Investment at the time of Designation (assuming the effectiveness of such Designation) in an amount (the "Designation Amount") equal to the sum of (i) fair market value of the Capital Stock of such Subsidiary owned by the Company and the Restricted Subsidiaries on such date and (ii) the aggregate amount of other Investments of the Company and the Restricted Subsidiaries in such Subsidiary on such date; and (c) the Company would be permitted to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "--Limitation on Incurrence of Additional Indebtedness" at the time of Designation (assuming the effectiveness of such Designation). 94 In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment pursuant to the covenant described under "--Limitation on Restricted Payments" for all purposes of the Indenture in the Designation Amount. The Indenture will further provide that the Company shall not, and shall not permit any Restricted Subsidiary to, at any time (x) provide direct or indirect credit support for or a guarantee of any Indebtedness of any Unrestricted Subsidiary (including a guarantee of any undertaking, agreement or instrument evidencing such Indebtedness), (y) be directly or indirectly liable with respect to any Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly liable with respect to any Indebtedness which provides that the holder thereof may (upon notice, lapse of time or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity upon the occurrence of a default with respect to any Indebtedness of any Unrestricted Subsidiary (including any right to take enforcement action against such Unrestricted Subsidiary), except, in the case of clause (x) or (y), to the extent permitted under the covenant described under "--Limitation on Restricted Payments." The Indenture will further provide that the Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"), whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if: (a) no Default or Event of Default shall have occurred and be continuing at the time of and after giving effect to such Revocation; and (b) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred for all purposes of the Indenture. All Designations and Revocations must be evidenced by Board Resolution of the Company certifying compliance with the foregoing provisions which shall be filed with the Trustee. EVENTS OF DEFAULT The following events are defined in the Indenture as "Events of Default": (i) the failure to pay interest on any Notes when the same becomes due and payable and the default continues for a period of 30 days; (ii) the failure to pay the principal on any Notes, when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer); (iii) a 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 Exchange Notes (except in the case of a default with respect to the "Merger, Consolidation and Sale of Assets" 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 (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness of the Company or any Restricted Subsidiary of the Company, or the acceleration of the final stated maturity of any such Indebtedness 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, aggregates $10.0 million or more at any time; (v) one or more judgments in an aggregate amount in excess of $10.0 million shall have been rendered against the Company or any of its Restricted Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable; 95 (vi) certain events of bankruptcy affecting the Company or any of its Significant Subsidiaries; or (vii) any of the Guarantees of a Subsidiary 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, in each case by a court of competent jurisdiction in a final non-appealable judgment, or any of such Subsidiary Guarantors denies in writing its liability under its Guarantee (other than by reason of release of any such Subsidiary 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 relating 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 on all the Exchange 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 shall become immediately due and payable; provided, however, that so long as any Indebtedness permitted to be incurred under the Indenture pursuant to the Bank Facility shall be outstanding, no such acceleration shall be effective until the earlier of (i) acceleration of any such Indebtedness under the Bank Facility or (ii) five business days after giving notice to the Representative under the Bank Facility of such acceleration. If an Event of Default specified in clause (vi) above relating to the Company occurs and is continuing, then all unpaid principal of, and premium, if any, and accrued and unpaid interest on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Indenture will provide that, at any time after a declaration of acceleration with respect to the Exchange Notes as described in the preceding paragraph, the Holders of a majority in principal amount of the Exchange 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 non-payment 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 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. The Holders of a majority in principal amount of the Exchange 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 on any Notes. Holders of the Exchange Notes may not enforce the Indenture or the Exchange 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. 96 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No director, officer, employee, incorporator or stockholder of the Company or its Subsidiaries, as such, shall have any liability for any obligations of the Company under the Exchange Notes, the Guarantees, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Exchange Notes and the Guarantees. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have its obligations and the obligations of the Subsidiary Guarantors discharged with respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, except for (i) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Exchange Notes when such payments are due, (ii) the Company's obligations with respect to the Exchange 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, trust, duties and immunities of the Trustee and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Exchange 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 Exchange 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 on the Exchange Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the Indenture 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 shall 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 97 precedent provided for or 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 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 with respect to a Legal Defeasance 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 Exchange Notes, as expressly provided for in the Indenture) as to all outstanding Notes when (i) either (a) all the Exchange Notes theretofore 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 theretofore 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 entire Indebtedness on the Exchange Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Exchange Notes to the date of deposit together with irrevocable 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 Subsidiary 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 adversely affect the rights of any of the Holders in any material respect. 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 Exchange 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 of the subordination provisions of the Indenture or the related definitions in a manner that would adversely affect the Holders, or (viii) release all of the Subsidiary Guarantors at any one time from all of their obligations under the Guarantees otherwise than in accordance with the terms of the Indenture. 98 GOVERNING LAW The Indenture will provide that it and the Exchange Notes and the Guarantees will be governed by, and construed in accordance with, 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 The Indenture will provide that, 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 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. The Indenture and the provisions of the TIA contain certain limitations on the rights of the Trustee, should it become a creditor of the Company, 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. Subject to the TIA, the Trustee will be permitted to engage in other transactions; provided that if the Trustee acquires any conflicting interest as described in the TIA, 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 is Subsidiaries 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 Restricted Subsidiaries or 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. "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 of 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) 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 of less than $500,000 and (ii) the sale, lease, conveyance, disposition or other transfer of 99 all or substantially all of the assets of the Company as permitted under "-- Certain Covenants--Merger, Consolidation and Sale of Assets." "Bank Facility" means the Second Amended and Restated Credit Agreement, dated as of December 2, 1997, among the Company, the Subsidiaries of the Company, the lenders party thereto in their capacities as lenders thereunder, Bankers Trust Company, as issuing bank, and BT Commercial Corporation, as agent, as amended, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be further amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement or agreements extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder (provided that such increase in borrowings is permitted by the "Limitation on Incurrence of Additional Indebtedness" covenant above) 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. "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. "Borrowing Base" means, with respect to any Foreign Subsidiary as of any date, an amount equal to the sum of (a) 85% of the net book value of accounts receivable (other than intercompany receivables) owned by such Foreign Subsidiary as of such date that are not more than 90 days past due and (b) 85% of the value (the lower of net book value or orderly liquidation value) of all rental equipment owned by such Foreign Subsidiary as of such date, all calculated on a consolidated basis for such Foreign Subsidiary and its Restricted Subsidiaries in accordance with the method of accounting used for financial calculations under the applicable credit facility for such Foreign Subsidiary. To the extent that information is not available as to the amount of accounts receivable or rental equipment as of a specific date, a Foreign Subsidiary may utilize the most recent available information provided to the lenders under the applicable credit facility for the purpose of calculating the Borrowing Base. "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 (1) 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 one year 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 100 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 $250,000,000; (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 or 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 the Principals and their Related Parties; (ii) any Person or Group (other than the Principals and their Related Parties) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 35% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company and the Principals and their Related Parties beneficially own, directly or indirectly, shares representing a lesser percentage of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors; or (iii) 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 non-cash 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 for which internal financials are available (the "Four Quarter Period") ending on or 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 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, 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 101 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 (including any pro forma expense and cost reductions as determined in accordance with Regulation S-X under the Exchange Act) 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 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 (but not the numerator) 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 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 (but excluding any write-offs of deferred financing fees in connection with any refinancing or retirement of the Bank Facility undertaken in conjunction with the offering of the Exchange Notes on the Issue Date), (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) after-tax gains from Asset Sales or abandonments or reserves relating thereto, (b) after-tax items classified as extraordinary or nonrecurring gains, (c) the net income 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 Wholly Owned Restricted Subsidiary of the referent Person by such Person, (f) any restoration to income of any contingency reserve, except to the extent that provision for 102 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. "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 of any such charge which requires an accrual of or a reserve for cash charges for any future period). "Currency Swap Obligations" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Restricted Subsidiaries 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 Indebtedness" means (i) Indebtedness under or in respect of the Bank Facility and (ii) any other Indebtedness constituting Senior Indebtedness or Guarantor Senior Indebtedness which, at the time of determination, has an aggregate principal amount of at least $25,000,000 and is specifically designated in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by the Company. "Designation" has the meaning set forth under "--Certain Covenants-- Limitation on Designations of Unrestricted Subsidiaries." "Designation Amount" has the meaning set forth under "--Certain Covenants-- Limitation on Designations of Unrestricted Subsidiaries." "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 Exchange Notes. "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 in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Company delivered to the Trustee. "Foreign Subsidiary" means any Restricted Subsidiary that is not organized under the laws of the United States of America or any state thereof or the District of Columbia. "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 103 may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. "Guarantee" means the guarantee of the Exchange Notes by the Subsidiary Guarantors. "Guarantor Senior Indebtedness" means with respect to any Subsidiary Guarantor, (i) 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 Subsidiary 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 Subsidiary Guarantor. Without limiting the generality of the foregoing, "Guarantor Senior Indebtedness" 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 of every nature of the Company under the Bank Facility, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities, (y) all Interest Swap Obligations and (z) all Currency Swap Obligations, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall not include (i) any Indebtedness of such Subsidiary Guarantor to a Restricted Subsidiary of such Subsidiary Guarantor, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of such Subsidiary Guarantor or any Restricted Subsidiary of such Subsidiary 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, (iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by such Subsidiary Guarantor, (vi) Indebtedness incurred in violation of the Indenture provisions set forth under "--Certain Covenants--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 Subsidiary Guarantor. Notwithstanding anything to the contrary contained herein, no Indebtedness incurred at any time under the Bank Facility (as such facility is in existence on the Issue Date) shall be considered subordinate in right of payment to any other Indebtedness incurred under the Bank Facility (as such facility is in existence on the Issue Date). "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 and other accrued liabilities arising in the ordinary course of business and payable in accordance with customary terms or that are not overdue by 90 days or more or are being contested in good faith), (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 interest swap agreements 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 104 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. "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 (other than an interest in less than 1% of the Company's Common Stock or any other publicly traded securities of 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 a portion (proportionate to the Company's equity interest in such Subsidiary) of 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 a portion (proportionate to the Company's equity interest in such Subsidiary) of 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 Investment by the Company or any of its Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs, 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 such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, at least 51% of the outstanding Common Stock of such 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 Restricted Subsidiary not sold or disposed of. "Investment Grade Rating" means a rating of BBB- or higher by Standard & Poor's Ratings Group (or its successor) and Baa3 or higher by Moody's Investors Service, Inc. or the equivalent of such rating by such rating agencies. "Issue Date" means the date of original issuance of the Exchange 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). 105 "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 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 is required to be repaid in connection with such Asset Sale and (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. "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Permitted Indebtedness" means, without duplication, each of the following: (i) Indebtedness represented by the Exchange Notes in an aggregate principal amount not to exceed $200.0 million, and the Guarantees thereof, issued in the Offering; (ii) Indebtedness of the Company and the Subsidiary Guarantors (A) incurred pursuant to the revolving credit provisions of the Bank Facility or one or more other credit facilities in an aggregate principal amount at any time outstanding not to exceed $500.0 million; provided that such amount shall be reduced by any amounts applied to the permanent reduction of such Indebtedness pursuant to "--Certain Covenants--Limitation on Asset Sales" and (B) incurred pursuant to the term loan provisions of the Bank Facility or one or more other credit facilities in an aggregate principal amount at any time outstanding not to exceed $100.0 million, less any amounts applied to the permanent reduction of such Indebtedness pursuant to "--Certain Covenants--Limitation on Asset Sales" and less the amount of any scheduled amortization payments or mandatory prepayments when actually paid or permanent reductions thereof (excluding any such payments to the extent refinanced at the time of payment under any Refinancing of the Bank Facility); (iii) other Indebtedness of the Company and its Restricted Subsidiaries outstanding on the Issue Date; (iv) Interest Swap Obligations or Currency Swap Obligations of the Company covering Indebtedness of the Company or any of the Subsidiary Guarantors and Interest Swap Obligations or Currency Swap Obligations of any Subsidiary Guarantor covering Indebtedness of such Subsidiary Guarantor; provided, however, that (a) such Interest Swap Obligations are entered into to protect the Company and the Subsidiary Guarantors from fluctuations in interest rates on Indebtedness incurred in accordance with the Indenture and (b) such Currency Swap Obligations are entered into to protect the Company and the Subsidiary Guarantors from fluctuations in currency values; (v) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company to the Company or to a Wholly Owned 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 or a Wholly Owned Restricted Subsidiary of the Company, or other than a Lien on the related intercompany note securing Indebtedness under the Bank Facility; provided that if as of any date any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness, other than a lien on the related intercompany note securing Indebtedness under the Bank Facility, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; 106 (vi) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by a Wholly Owned Restricted Subsidiary of the Company, in each case subject to no Lien, other than a Lien on the related intercompany note securing Indebtedness under the Bank Facility; provided that (a) any Indebtedness of the Company to any Wholly Owned Restricted Subsidiary of the Company is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Indenture and the Exchange Notes and (b) if as of the date any Person other than a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, other than a lien on the related intercompany note securing Indebtedness under the Bank Facility, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Company; (vii) Indebtedness of the Company and the Subsidiary Guarantors 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; (viii) Indebtedness of the Company and the Subsidiary Guarantors represented by letters of credit for the account of the Company or such Subsidiary Guarantors, 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; (ix) Indebtedness of the Company or a Subsidiary Guarantor in connection with one or more standby letters of credit, guarantees, performance bonds or other reimbursement obligations, in each case, issued in the ordinary course of business and not in connection with the borrowing of money; (x) Indebtedness of the Company or a Subsidiary Guarantor arising from agreements of the Company or a Subsidiary Guarantor providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the acquisition or disposition of any business, assets or a Subsidiary; (xi) Indebtedness of the Company and the Subsidiary Guarantors represented by Capitalized Lease Obligations and Purchase Money Indebtedness incurred in the ordinary course of business in an amount not to exceed $20.0 million at any one time outstanding; (xii) Refinancing Indebtedness; (xiii) guarantees by the Company of Indebtedness of a Restricted Subsidiary permitted to be incurred under the Indenture and guarantees by a Subsidiary Guarantor of Indebtedness of the Company or any Restricted Subsidiary permitted to be incurred under the Indenture; (xiv) additional Indebtedness of the Company and any Subsidiary Guarantor in an aggregate principal amount not to exceed $15.0 million at any one time outstanding; and (xv) Indebtedness of a Foreign Subsidiary other than a Foreign Subsidiary which is a Subsidiary Guarantor which, when aggregated with the principal amount of all other Indebtedness of such Foreign Subsidiary then outstanding and incurred pursuant to this clause (xv), does not exceed the amount of the Borrowing Base of such Foreign Subsidiary. For purposes of determining whether any Indebtedness is Permitted Indebtedness, (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described above. "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 107 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 subordinated, pursuant to a written agreement, to the Company's obligations under the Exchange 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 $1,000,000 at any one time outstanding; (v) Interest Swap Obligations or Currency 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; (vii) promissory notes or other securities accepted from trade creditors or customers in the ordinary course of business; (viii) guarantees by the Company or any Subsidiary Guarantor of Indebtedness otherwise permitted to be incurred under the Indenture; (ix) Investments made by the Company or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with the "Limitation on Asset Sales" covenant; and (x) Investments in joint ventures and Unrestricted Subsidiaries in an aggregate amount at any one time not to exceed $15.0 million. "Permitted Liens" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) 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 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 provisions, 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, including any Lien securing letters of credit issued in the ordinary course of business in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (v) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (vi) 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; (vii) 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 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 and proceeds thereof and (B) the Lien securing such Indebtedness shall be created within 90 days of such acquisition; 108 (viii) 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; (ix) 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; (x) 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; (xi) Liens securing Interest Swap Obligations or Currency Swap Obligations which Interest Swap Obligations or Currency Swap Obligations, as the case may be, relate to Indebtedness that is otherwise permitted under the Indenture; (xii) 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 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 of the Company or a Restricted Subsidiary of the Company; and (xiii) Liens not permitted by clauses (i) through (xii) that are incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $5,000,000 at any one time outstanding. "Person" means an individual, partnership, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "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. "Principals" means each officer or employee of the Company and any spouse, sibling, child or grandchild of the foregoing (in each case, whether such relationship arises from birth, adoption or through marriage). "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. "Qualified Equity Interest" means any Qualified Capital Stock and all warrants, options or other rights to acquire Qualified Capital Stock (but excluding any debt security or Disqualified Capital Stock that is convertible into or exchangeable for Qualified 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 Subsidiary Guarantor of Indebtedness incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant (other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), or (ix) of the definition of Permitted Indebtedness), 109 in each case 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 premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable 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 of the Company or a Subsidiary Guarantor, then such Refinancing Indebtedness shall be Indebtedness solely of the Company or a Subsidiary Guarantor and (y) if such Indebtedness being Refinanced is subordinate or junior to the Exchange Notes, then such Refinancing Indebtedness shall be subordinate to the Exchange Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced. "Related Party" with respect to any Principal means (A) any controlling stockholder or 80% (or more) owned Subsidiary of such Principal or (B) trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (A). "Restricted Subsidiary" means any Subsidiary of the Company that has not been designated by the Board of Directors of the Company, by a Board Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with the covenant described under "--Certain Covenants-- Limitation on Designations of Unrestricted Subsidiaries." Any such Designation may be revoked by a Board Resolution of the Company delivered to the Trustee subject to the provisions of such covenant. "Revocation" has the meaning set forth under "--Certain Covenants-- Limitation on Designations of Unrestricted Subsidiaries." "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. "Senior Indebtedness" 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 Exchange Notes. Without limiting the generality of the foregoing, "Senior Indebtedness" 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 of every nature of the Company under the Bank Facility, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities, (y) all Interest Swap Obligations and (z) all Currency Swap Obligations, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i) any Indebtedness of the Company to a Restricted Subsidiary of the Company, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of the Company or any Restricted 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, (iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by the Company, (vi) Indebtedness incurred in violation of the Indenture provisions set forth under "--Certain Covenants-- Limitation on Incurrence of Additional Indebtedness," (vii) Indebtedness which, when incurred and without 110 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. Notwithstanding anything to the contrary contained herein, no Indebtedness incurred at any time under the Bank Facility (as such facility is in existence on the Issue Date) shall be considered subordinate in right of payment to any other Indebtedness incurred under the Bank Facility (as such facility is in existence on the Issue Date). "Significant Subsidiary," with respect to any Person, means any Restricted Subsidiary of such Person that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Exchange 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. "Subsidiary Guarantor" means (i) each of the Company's Restricted Subsidiaries existing on the Issue Date and (ii) each of the Company's Restricted Subsidiaries (other than any Foreign Subsidiary, unless the Company elects to have a Foreign Subsidiary execute a Guarantee) created or acquired after the Issue Date that executes a supplemental indenture pursuant to "-- Certain Covenants--Additional Subsidiary Guarantees." "Unrestricted Subsidiary" means any Subsidiary of the Company designated as such pursuant to and in compliance with the covenant described under "-- Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries." Any such designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of such covenant. "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. 111 MATERIAL FEDERAL INCOME TAX CONSIDERATIONS The following discussion, to the extent that it constitutes matters of law, summaries of legal matters or legal conclusions, is the opinion of Latham & Watkins, counsel to the Company, as to the material federal income tax consequences expected to result to Holders whose Private Notes are exchanged for Exchange Notes in the Exchange Offer. Such opinion is based upon current provisions of the Internal Revenue Code of 1986, as amended, applicable Treasury regulations, judicial authority and administrative rulings and practice. There can be no assurance that the Internal Revenue Service (the "Service") will not take a contrary view, and no ruling from the Service has been or will be sought with respect to the Exchange Offer. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conclusions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to Holders. Certain Holders (including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, foreign corporations, and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. EACH HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS. The exchange of Private Notes for Exchange Notes will be treated as a "non- event" for federal income tax purposes (that is, the exchange will not be treated as an exchange for federal income tax purposes because the Exchange Notes will not be considered to differ materially in kind or extent from the Private Notes). As a result, no material federal income tax consequences will result to Holders exchanging Private Notes for Exchange Notes. PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with the resale of Exchange Notes received in exchange for Private Notes where such Private Notes were acquired as a result of market- making activities or other trading activities. The Company has agreed that for a period of up to 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer that requests such document in the Letter of Transmittal for use in connection with any such resale. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers or any other persons. Exchange 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 Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company has agreed to pay all expenses incident to the Company's performance of, or compliance with, the Registration Rights Agreement and will indemnify the Holders of Private Notes (including any broker- 112 dealers), and certain parties related to such Holders, against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the Exchange Notes offered hereby will be passed upon for the Company by Latham & Watkins, Los Angeles, California. Certain partners of Latham & Watkins, members of their families, related persons and others have an indirect interest in, through a limited partnership, less than 1% of the Common Stock of the Company. Such persons do not have the power to vote or dispose of such shares. EXPERTS The consolidated financial statements and financial statement schedules of Rental Service Corporation as of December 31, 1996 and 1997, and for each of the three years in the period ended December 31, 1997, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing herein and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of Acme Holdings Inc. as of December 31, 1993 and 1994, and for each of the three years in the period ended December 31, 1994, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing herein and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The combined financial statements of Industrial Air Tool as of March 31, 1996 and 1997 and for the years 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 herein and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The financial statements of Brute Equipment Co., d/b/a Foxx Hy- Reach, Inc., as of December 31, 1995 and 1996, and for the years then ended, appearing in this Prospectus and Registration Statement, have been audited by McGladrey & Pullen, LLP, independent auditors, as set forth in their report thereon appearing herein and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The combined financial statements of Rent-It-Center, Inc. and Affiliates d/b/a Center Rental & Sales as of October 31, 1996, and 1997, and for each of the three years in the period ended October 31, 1997, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing herein and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The financial statements of JDW Enterprises, Inc. d/b/a Valley Rentals as of December 31, 1996 and 1997 and for the years then ended, appearing in this Prospectus and Registration Statement, have been audited by Weintraub & Morrison, P.C., independent auditors, as set forth in their report thereon appearing herein and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 113 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Consolidated Financial Statements of Rental Service Corporation Report of Independent Auditors.......................................... F-3 Consolidated Balance Sheets--December 31, 1996 and 1997, and March 31, 1998 (unaudited)....................................................... F-4 Consolidated Statements of Operations--for the years ended December 31, 1995, 1996 and 1997, and for the three months ended March 31, 1997 and 1998 (unaudited)....................................................... F-5 Consolidated Statements of Redeemable Preferred Stock and Common Stockholders' Equity (Deficit)--for the years ended December 31, 1995, 1996 and 1997, and for the three months ended March 31, 1998 (unaudited).................. F-6 Consolidated Statements of Cash Flows--for the years ended December 31, 1995, 1996 and 1997, and for the three months ended March 31, 1997 and 1998 (unaudited)....................................................... F-7 Notes to Consolidated Financial Statements--December 31, 1997, and March 31, 1998 (unaudited)................................................... F-8 Consolidated Financial Statements of Acme Holdings Inc. Report of Independent Auditors.......................................... F-28 Consolidated Balance Sheets--December 31, 1993 and 1994, and June 30, 1995 (unaudited)....................................................... F-29 Consolidated Statements of Operations--for the years ended December 31, 1992, 1993 and 1994, and for the six months ended June 30, 1994 and 1995 (unaudited)....................................................... F-30 Consolidated Statements of Shareholders' Deficit--for the years ended December 31, 1992, 1993 and 1994, and for the six months ended June 30, 1995 (unaudited) ...................................................... F-31 Consolidated Statements of Cash Flows--for the years ended December 31, 1992, 1993 and 1994, and for the six months ended June 30, 1994 and 1995 (unaudited)....................................................... F-32 Notes to Consolidated Financial Statements--December 31, 1994, and June 30, 1995 (unaudited)................................................... F-34 Combined Financial Statements of Industrial Air Tool Report of Independent Auditors.......................................... F-46 Combined Balance Sheets--March 31, 1996 and 1997........................ F-47 Combined Statements of Operations--for the years ended March 31, 1996 and 1997 .............................................................. F-48 Combined Statements of Redeemable Stock and Other Stockholders' and Partners' Equity--for the years ended March 31, 1996 and 1997 ......... F-49 Combined Statements of Cash Flows--for the years ended March 31, 1996 and 1997 .............................................................. F-50 Notes to Combined Financial Statements--March 31, 1997.................. F-51 Financial Statements of Brute Equipment Co. d/b/a Foxx Hy-Reach Independent Auditor's Report............................................ F-56 Balance Sheets--December 31, 1995 and 1996, and March 31, 1997 (unaudited)............................................................ F-57 Statements of Operations--for the years ended December 31, 1995 and 1996, and for the three months ended March 31, 1996 and 1997 (unaudited)............................................................ F-58 Statements of Stockholders' Equity--for the years ended December 31, 1995 and 1996, and for the three months ended March 31, 1997 (unaudited) ........................................................... F-59 Statements of Cash Flows--for the years ended December 31, 1995 and 1996, and for the three months ended March 31, 1996 and 1997 (unaudited)............................................................ F-60 Notes to Financial Statements--December 31, 1996, and March 31, 1997 (unaudited)............................................................ F-61
F-1 INDEX TO FINANCIAL STATEMENTS--(CONTINUED)
PAGE ---- Combined Financial Statements of Rent-It-Center, Inc. and Affiliates d/b/a Center Rental and Sales Report of Independent Auditors.......................................... F-66 Combined Balance Sheets--October 31, 1996 and 1997...................... F-67 Combined Statements of Operations--for the years ended October 31, 1995, 1996 and 1997.......................................................... F-68 Combined Statements of Stockholders' and Members' Equity (Deficit)--for the years ended October 31, 1995, 1996 and 1997 ....................... F-69 Combined Statements of Cash Flows--for the years ended October 31, 1995, 1996 and 1997.......................................................... F-70 Notes to Combined Financial Statements--October 31, 1997................ F-71 Financial Statements of JDW Enterprises, Inc. d.b.a. Valley Rentals Independent Auditor's Report............................................ F-80 Balance Sheets--December 31, 1996 and 1997.............................. F-81 Statements of Operations--for the years ended December 31, 1996 and 1997................................................................... F-82 Statements of Changes in Stockholders' Equity--for the years ended December 31, 1996 and 1997............................................................... F-83 Statements of Cash Flows--for the years ended December 31, 1996 and 1997................................................................... F-84 Notes to the Financial Statements--December 31, 1997.................... F-86
F-2 REPORT OF INDEPENDENT AUDITORS Board of Directors Rental Service Corporation We have audited the accompanying consolidated balance sheets of Rental Service Corporation (the "Company") as of December 31, 1996 and 1997, and the related consolidated statements of operations, redeemable preferred stock and common stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Rental Service Corporation at December 31, 1996 and 1997, and the consolidated 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. /s/ ERNST & YOUNG LLP Phoenix, Arizona February 12, 1998 F-3 RENTAL SERVICE CORPORATION CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------- MARCH 31, 1996 1997 1998 ------------ ------------ ------------ (UNAUDITED) ASSETS ------ Cash and cash equivalents............... $ 1,452,000 $ 8,932,000 $ 4,462,000 Accounts receivable, net of allowance for doubtful accounts of $2,165,000 and $2,925,000 at December 31, 1996 and 1997, respectively, and $3,630,000 at March 31, 1998......................... 20,856,000 62,028,000 65,490,000 Other receivables and prepaid expense... 3,170,000 3,217,000 4,479,000 Income tax receivable................... 1,563,000 638,000 638,000 Parts and supplies inventories, net of reserve for obsolescence of $782,000 and $2,181,000 at December 31, 1996 and 1997, respectively, and $3,286,000 at March 31, 1998......................... 10,099,000 31,714,000 35,825,000 Deferred taxes (Note 11)................ 8,645,000 15,241,000 15,241,000 Rental equipment, principally machinery, at cost, net of accumulated depreciation of $24,743,000 and $54,506,000 at December 31, 1996 and 1997, respectively, and $67,192,000 at March 31, 1998 (Note 6)................ 116,921,000 314,696,000 403,266,000 Operating property and equipment, at cost, net (Note 4)..................... 20,043,000 35,799,000 41,106,000 Intangible assets, net (Note 5)......... 34,801,000 220,166,000 287,651,000 Other assets, primarily deferred financing costs, net................... 1,383,000 6,895,000 6,718,000 ------------ ------------ ------------ $218,933,000 $699,326,000 $864,876,000 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Accounts payable........................ $ 20,302,000 $ 34,911,000 $ 53,006,000 Payroll and other accrued expenses...... 21,540,000 31,937,000 33,040,000 Accrued interest payable................ 514,000 2,179,000 1,781,000 Income taxes payable (Note 11).......... 48,000 1,686,000 5,812,000 Deferred taxes (Note 11)................ 12,863,000 30,857,000 30,857,000 Bank debt and long term obligations (Note 6)............................... 68,594,000 306,975,000 433,140,000 ------------ ------------ ------------ Total liabilities....................... 123,861,000 408,545,000 557,636,000 Commitments and contingencies (Notes 6 and 9) Stockholders' equity (Note 7): Preferred stock, $.01 par value: Authorized shares--500,000 Issued and outstanding shares--none... -- -- -- Common stock, $.01 par value: Authorized shares--40,000,000 Issued and outstanding shares-- 11,376,378 and 19,833,437 at December 31, 1996 and 1997, respectively, and 20,421,968 at March 31, 1998......... 114,000 198,000 204,000 Additional paid-in capital............ 93,917,000 270,927,000 284,155,000 Common stock issuable--284,108 shares at December 31, 1997 and 184,050 shares at March 31, 1998............. -- 6,000,000 3,741,000 Retained earnings..................... 1,041,000 13,656,000 19,140,000 ------------ ------------ ------------ Total stockholders' equity.............. 95,072,000 290,781,000 307,240,000 ------------ ------------ ------------ $218,933,000 $699,326,000 $864,876,000 ============ ============ ============
See accompanying notes. F-4 RENTAL SERVICE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, -------------------------------------- ------------------------- 1995 1996 1997 1997 1998 ----------- ----------- ------------ ----------- ------------ (UNAUDITED) Revenues: Equipment rentals...... $47,170,000 $94,218,000 $170,704,000 $27,527,000 $ 70,179,000 Sales of parts, supplies and new equipment............. 14,621,000 21,919,000 70,957,000 9,165,000 27,227,000 Sales of used equipment............. 4,126,000 12,217,000 19,602,000 4,617,000 11,257,000 ----------- ----------- ------------ ----------- ------------ Total revenues....... 65,917,000 128,354,000 261,263,000 41,309,000 108,663,000 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation.......... 27,854,000 55,202,000 87,552,000 14,316,000 37,073,000 Depreciation, equipment rentals..... 7,691,000 17,840,000 37,413,000 6,306,000 15,461,000 Cost of sales of parts, supplies and new equipment......... 10,439,000 15,582,000 54,739,000 6,737,000 21,249,000 Cost of sales of used equipment............. 2,178,000 8,488,000 12,927,000 2,972,000 7,944,000 ----------- ----------- ------------ ----------- ------------ Total cost of revenues............ 48,162,000 97,112,000 192,631,000 30,331,000 81,727,000 ----------- ----------- ------------ ----------- ------------ Gross profit............ 17,755,000 31,242,000 68,632,000 10,978,000 26,936,000 Selling, general and administrative expense................ 6,421,000 12,254,000 20,996,000 3,784,000 5,659,000 Depreciation and amortization, excluding equipment rental depreciation........... 1,186,000 2,835,000 5,373,000 1,068,000 2,024,000 Amortization of intangibles............ 718,000 2,379,000 3,907,000 624,000 2,085,000 ----------- ----------- ------------ ----------- ------------ Operating income........ 9,430,000 13,774,000 38,356,000 5,502,000 17,168,000 Interest expense, net... 3,314,000 7,063,000 14,877,000 1,597,000 7,583,000 ----------- ----------- ------------ ----------- ------------ Income before income taxes and extraordinary items.................. 6,116,000 6,711,000 23,479,000 3,905,000 9,585,000 Provision for income taxes (Note 11)........ 2,401,000 2,722,000 10,330,000 1,722,000 4,101,000 ----------- ----------- ------------ ----------- ------------ Income before extraordinary items.... 3,715,000 3,989,000 13,149,000 2,183,000 5,484,000 Extraordinary items, loss on extinguishment of debt less applicable income tax benefit of $305,000, $822,000 and $386,000 in 1995, 1996 and 1997, respectively (Note 6)............... 478,000 1,269,000 534,000 534,000 -- ----------- ----------- ------------ ----------- ------------ Net income.............. 3,237,000 2,720,000 12,615,000 1,649,000 5,484,000 Redeemable preferred stock accretion........ 1,717,000 1,643,000 -- -- -- ----------- ----------- ------------ ----------- ------------ Net income available to common stockholders.... $ 1,520,000 $ 1,077,000 $ 12,615,000 $ 1,649,000 $ 5,484,000 =========== =========== ============ =========== ============ Earnings per common share (Note 3): Income before extraordinary items... $ .50 $ .34 $ .96 $ .19 $ .27 Extraordinary items.... (.12) (.18) (.04) (.04) -- ----------- ----------- ------------ ----------- ------------ Net income............. $ .38 $ .16 $ .92 $ .15 $ .27 =========== =========== ============ =========== ============ Weighted average common shares................. 4,032,315 6,875,618 13,652,933 11,297,950 20,418,671 =========== =========== ============ =========== ============ Earnings per common share, assuming dilution (Note 3): Income before extraordinary items... $ .49 $ .33 $ .94 $ .19 $ .27 Extraordinary items.... (.12) (.18) (.03) (.05) -- ----------- ----------- ------------ ----------- ------------ Net income............. $ .37 $ .15 $ .91 $ .14 $ .27 =========== =========== ============ =========== ============ Weighted average common shares, assuming dilution............... 4,116,412 7,179,980 13,927,414 11,510,711 20,567,885 =========== =========== ============ =========== ============
See accompanying notes. F-5 RENTAL SERVICE CORPORATION CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
REDEEMABLE PREFERRED STOCK ----------------------------------- TREASURY SHARES AMOUNT STOCK -------- ------------ ----------- Balance at December 31, 1994............ 256,061 $ 27,861,000 $(1,177,000) Issuance of common stock.... -- -- -- Retirement of treasury stock.. (11,256) (1,177,000) 1,177,000 Redeemable preferred stock accretion....... -- 1,717,000 -- Net income...... -- -- -- -------- ------------ ----------- Balance at December 31, 1995............ 244,805 28,401,000 -- Issuance of redeemable preferred stock........... 75,000 7,500,000 -- Issuance of common stock, net of issuance costs of $8,723,000...... -- -- -- Exercise of stock options... -- -- -- Redemption of redeemable preferred stock........... (319,805) (37,874,000) -- Preferred stock adjustment...... -- 330,000 -- Repurchase of common stock warrants........ -- -- -- Redeemable preferred stock accretion....... -- 1,643,000 -- Net income...... -- -- -- -------- ------------ ----------- Balance at December 31, 1996............ -- -- -- Issuance of common stock, net of issuance costs of $9,937,000...... -- -- -- Issuance of common stock in connection with acquisitions.... -- -- -- Common stock issuable in connection with acquisitions.... -- -- -- Exercise of stock options... -- -- -- Tax benefit of stock options... -- -- -- Net income...... -- -- -- -------- ------------ ----------- Balance at December 31, 1997............ -- -- -- Issuance of common stock in connection with acquisitions (unaudited)..... -- -- -- Issuance of common stock issuable in connection with acquisitions (unaudited)..... -- -- -- Exercise of stock options (unaudited)..... -- -- -- Issuance of common stock in connection with the QSP Plan (unaudited)..... -- -- -- Net income (unaudited)..... -- -- -- -------- ------------ ----------- Balance at March 31, 1998 (unaudited)..... -- $ -- $ -- ======== ============ =========== COMMON STOCKHOLDERS' EQUITY (DEFICIT) -------------------------------------------------------------------------------------- COMMON STOCK -------------------------------- ADDITIONAL COMMON RETAINED TREASURY PAID-IN STOCK EARNINGS SHARES AMOUNT STOCK CAPITAL ISSUABLE (DEFICIT) TOTAL ----------- --------- ---------- ------------- ------------ ------------ ------------- Balance at December 31, 1994............ 4,675,320 $ 47,000 $(523,000) $ 52,000 $ -- $(1,050,000) $ (1,474,000) Issuance of common stock.... 278,685 2,000 -- (2,000) -- -- -- Retirement of treasury stock.. (706,275) (7,000) 523,000 (10,000) -- (506,000) -- Redeemable preferred stock accretion....... -- -- -- -- -- (1,717,000) (1,717,000) Net income...... -- -- -- -- -- 3,237,000 3,237,000 ----------- --------- ---------- ------------- ------------ ------------ ------------- Balance at December 31, 1995............ 4,247,730 42,000 -- 40,000 -- (36,000) 46,000 Issuance of redeemable preferred stock........... -- -- -- -- -- -- -- Issuance of common stock, net of issuance costs of $8,723,000...... 7,094,358 71,000 -- 95,152,000 -- -- 95,223,000 Exercise of stock options... 34,290 1,000 -- -- -- -- 1,000 Redemption of redeemable preferred stock........... -- -- -- -- -- -- -- Preferred stock adjustment...... -- -- -- (330,000) -- -- (330,000) Repurchase of common stock warrants........ -- -- -- (945,000) -- -- (945,000) Redeemable preferred stock accretion....... -- -- -- -- -- (1,643,000) (1,643,000) Net income...... -- -- -- -- -- 2,720,000 2,720,000 ----------- --------- ---------- ------------- ------------ ------------ ------------- Balance at December 31, 1996............ 11,376,378 114,000 -- 93,917,000 -- 1,041,000 95,072,000 Issuance of common stock, net of issuance costs of $9,937,000...... 7,345,224 73,000 -- 153,901,000 -- -- 153,974,000 Issuance of common stock in connection with acquisitions.... 1,081,514 11,000 -- 22,788,000 -- -- 22,799,000 Common stock issuable in connection with acquisitions.... -- -- -- -- 6,000,000 -- 6,000,000 Exercise of stock options... 30,321 -- -- 85,000 -- -- 85,000 Tax benefit of stock options... -- -- -- 236,000 -- -- 236,000 Net income...... -- -- -- -- -- 12,615,000 12,615,000 ----------- --------- ---------- ------------- ------------ ------------ ------------- Balance at December 31, 1997............ 19,833,437 198,000 -- 270,927,000 6,000,000 13,656,000 290,781,000 Issuance of common stock in connection with acquisitions (unaudited)..... 450,109 5,000 -- 10,745,000 -- -- 10,750,000 Issuance of common stock issuable in connection with acquisitions (unaudited)..... 100,058 1,000 -- 2,258,000 (2,259,000) -- -- Exercise of stock options (unaudited)..... 30,024 -- -- 53,000 -- -- 53,000 Issuance of common stock in connection with the QSP Plan (unaudited)..... 8,340 -- -- 172,000 -- -- 172,000 Net income (unaudited)..... -- -- -- -- -- 5,484,000 5,484,000 ----------- --------- ---------- ------------- ------------ ------------ ------------- Balance at March 31, 1998 (unaudited)..... 20,421,968 $204,000 $ -- $284,155,000 $ 3,741,000 $19,140,000 $307,240,000 =========== ========= ========== ============= ============ ============ =============
See accompanying notes. F-6 RENTAL SERVICE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------------ --------------------------- 1995 1996 1997 1997 1998 ------------ ------------- ------------- ------------ ------------- (UNAUDITED) OPERATING ACTIVITIES Net income.............. $ 3,237,000 $ 2,720,000 $ 12,615,000 $ 1,649,000 $ 5,484,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......... 9,595,000 23,054,000 46,693,000 7,998,000 19,570,000 Extraordinary items.... 478,000 1,269,000 534,000 534,000 -- Interest paid in kind.................. 710,000 1,706,000 -- -- -- Provision for losses on accounts receivable............ 1,040,000 1,692,000 2,596,000 446,000 428,000 Gain on sale of used equipment............. (1,948,000) (3,729,000) (6,675,000) (1,766,000) (3,313,000) Changes in operating assets and liabilities, net of effect of business acquisitions: Accounts receivable.. (3,346,000) (5,725,000) (20,923,000) (1,677,000) 4,033,000 Other receivables and prepaid expenses.... (1,182,000) (1,703,000) 845,000 341,000 (971,000) Income tax receivable.......... -- (1,563,000) 925,000 39,000 -- Other assets......... 1,351,000 379,000 792,000 68,000 181,000 Parts and supplies inventories......... (1,403,000) (2,444,000) (8,826,000) 88,000 (3,592,000) Accounts payable..... 1,866,000 10,077,000 9,712,000 12,963,000 17,971,000 Payroll and other accrued expenses.... (1,000,000) (3,523,000) (2,776,000) (1,485,000) (4,389,000) Accrued interest payable............. 737,000 (257,000) 1,665,000 227,000 (398,000) Income taxes payable............. (375,000) (172,000) 1,591,000 891,000 4,128,000 Deferred taxes, net.. 132,000 1,713,000 7,217,000 -- -- ------------ ------------- ------------- ------------ ------------- Net cash provided by operating activities... 9,892,000 23,494,000 45,985,000 20,316,000 39,132,000 INVESTING ACTIVITIES Acquisitions of rental operations, net of cash acquired (Note 2)...... (42,057,000) (27,270,000) (278,883,000) (12,015,000) (107,753,000) Cash purchases of rental equipment and operating property and equipment.............. (23,632,000) (86,842,000) (165,123,000) (44,119,000) (70,664,000) Proceeds from sale of used equipment......... 4,126,000 12,695,000 19,602,000 4,617,000 11,257,000 Proceeds from assets held for sale.......... 2,652,000 16,668,000 -- -- -- ------------ ------------- ------------- ------------ ------------- Net cash used in investing activities... (58,911,000) (84,749,000) (424,404,000) (51,517,000) (167,160,000) FINANCING ACTIVITIES Proceeds from bank debt................... 114,826,000 225,335,000 628,478,000 71,400,000 216,904,000 Payments on bank debt... (69,108,000) (213,511,000) (489,870,000) (38,262,000) (93,568,000) Payments of debt issuance costs......... (2,024,000) (984,000) (6,402,000) (1,702,000) -- Proceeds from long term obligations............ 10,000,000 -- 100,000,000 -- -- Payments on long term obligations............ (3,873,000) (13,493,000) (366,000) (109,000) (3,000) Proceeds from issuance of redeemable preferred stock.................. -- 7,500,000 -- -- -- Redemption of redeemable preferred stock........ -- (37,874,000) -- -- -- Proceeds from issuance common stock, net of issuance costs......... -- 95,223,000 153,974,000 -- -- Proceeds from exercise of stock options....... -- 1,000 85,000 -- 53,000 Proceeds from QSP Plan offering............... -- -- -- -- 172,000 Repurchase of common stock warrants......... -- (945,000) -- -- -- ------------ ------------- ------------- ------------ ------------- Net cash provided by financing activities... 49,821,000 61,252,000 385,899,000 31,327,000 123,558,000 ------------ ------------- ------------- ------------ ------------- Net increase (decrease) in cash and cash equivalents............ 802,000 (3,000) 7,480,000 126,000 (4,470,000) Cash and cash equivalents at beginning of period.... 653,000 1,455,000 1,452,000 1,452,000 8,932,000 ------------ ------------- ------------- ------------ ------------- Cash and cash equivalents at end of period................. $ 1,455,000 $ 1,452,000 $ 8,932,000 $ 1,578,000 $ 4,462,000 ============ ============= ============= ============ ============= Supplemental disclosure of cash flow information: Cash paid for interest.. $ 1,863,000 $ 5,614,000 $ 13,212,000 $ 1,369,000 $ 7,981,000 Cash paid for income taxes.................. $ 1,545,000 $ 1,850,000 $ 279,000 $ 67,000 $ --
See accompanying notes. F-7 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND MARCH 31, 1998 (THE INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 1. ACCOUNTING POLICIES Basis of Presentation Rental Service Corporation ("RSC" or the "Company"), a Delaware corporation, operates in a single industry segment: the short-term rental of equipment, including ancillary sales of parts, supplies and equipment, through a network of rental locations throughout the United States. 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 material intercompany accounts and transactions have been eliminated. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Certain amounts in the prior year financial statements have been reclassified to conform with the current year financial statement presentation. Revenue Recognition Equipment rental revenue is recorded as earned under the operating method. Equipment rentals in the consolidated statements of operations includes revenues earned on equipment rentals, fuel sales and rental equipment delivery fees. Revenue from the sale of parts, supplies and new equipment and revenue from the sale of used equipment is recorded at the time of delivery to or pick-up by the customer. Credit Policy Most of the Company's business is on a credit basis. The Company extends credit to its commercial customers based on evaluations of their financial condition and generally no collateral is required, although in many cases mechanics' liens are filed to protect the Company's interests. Invoices are generated when a piece of rental equipment is returned by the customer or in any event after 21 days. The Company has diversified its customer base by operating rental locations in 26 states. The Company maintains reserves it believes are adequate for potential credit losses. Parts and Supplies Inventories Parts and supplies inventories consist principally of parts, commodity type supplies and small- to medium-sized equipment for sale. All inventories are valued at the lower of cost (first-in, first-out) or market. F-8 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Depreciation and Amortization Rental equipment and operating property and equipment are being depreciated using the straight-line method over the following estimated useful lives: Rental equipment............................................. 3-7 years Operating property and equipment............................. 3-36 years Leasehold improvements....................................... Term of lease
Rental equipment and operating property and equipment is depreciated to a salvage value of 10% of cost. Amortization of assets under capital leases is included in depreciation expense. Intangible Assets Intangible assets are recorded at cost and are amortized using the straight- line method over their estimated useful lives; usually one to three years for covenants not to compete and 30 to 40 years for goodwill. The recoverability of goodwill attributable to the Company's acquisitions is analyzed annually based on actual and projected levels of profitability and cash flows of the locations acquired on an undiscounted basis. Income Taxes The Company utilizes the liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. Under the liability 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 of realization in future periods. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Advertising Expense The cost of advertising is expensed as incurred. The Company incurred $491,000, $1,050,000, $1,108,000, $233,000 and $424,000 in advertising costs during the years ended December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and 1998, respectively. Debt Costs Deferred financing costs are amortized using the straight-line method over the lives of the related debt. Recorded deferred financing costs are written off in connection with refinancings if there are substantive changes in the terms of the related debt. Interest expense for the Company's increasing interest rate Bank Note (see Note 6) was determined based on the average effective interest rate payable over the period in which the debt was expected to be outstanding, which was three years. Stock Based Compensation The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and, accordingly, recognizes no compensation expense for stock option grants. F-9 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and trade accounts receivable. The Company maintains cash and cash equivalents with various financial institutions located throughout the country in order to limit exposure to any one institution. The Company performs periodic evaluations of the relative credit standing of those financial institutions considered in the Company's investment strategy. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers. Fair Values of Financial Instruments The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of long-term debt is determined using current applicable 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. 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. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the requirements of SFAS No. 128, as well as 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. Interim Financial Statements The accompanying consolidated balance sheet at March 31, 1998 and the consolidated statements of operations, redeemable preferred stock and common stockholders' equity and cash flows for the three-month periods ended March 31, 1997 and 1998 are unaudited and have been prepared on the same basis as the audited consolidated financial statements included herein. In the opinion of management, such unaudited consolidated financial statements include all adjustments necessary to present fairly the information set forth therein, which consist solely of normal recurring adjustments. The results of operations for such interim periods are not necessarily indicative of results for the full year. Impact of Recently Issued Accounting Standards In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, which was required to be adopted in the first quarter of 1998. SFAS No. 130 established standards for the reporting and display of comprehensive income and its components. Comprehensive income includes certain non-owner changes in equity that are currently excluded from net income. Because the Company historically has not experienced transactions that would be included in comprehensive income, the adoption of SFAS No. 130 did not have a material effect on the consolidated financial position, results of operations or cash flows of the Company. F-10 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. BUSINESS ACQUISITIONS A principal component of the Company's business strategy is to continue to grow through acquisitions that augment its present operations as well as provide entry into new geographic markets. In keeping with this strategy, the Company has made several acquisitions of rental operations. These acquisitions have been accounted for as purchases and, accordingly, the acquired tangible and identifiable intangible assets and liabilities have been recorded at their estimated fair values at the dates of acquisition with any excess purchase price reflected as goodwill in the accompanying consolidated financial statements. Purchase accounting values for all acquisitions are 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 are included in the consolidated statements of operations from the date of acquisition, except as described below. The following table sets forth, for the periods indicated, the net assets acquired, liabilities assumed, common stock issued or issuable and cash purchase price for these acquisitions.
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED --------------------------------------- MARCH 31, 1995 1996 1997 1998 ------------ ----------- ------------ ------------ (UNAUDITED) Assets acquired......... $ 50,109,000 $20,316,000 $142,043,000 $ 54,508,000 Goodwill and covenants not to compete......... 19,513,000 12,221,000 189,206,000 69,489,000 Less: common stock issued or issuable..... -- -- (28,799,000) (10,750,000) Less: liabilities assumed................ (27,565,000) (5,267,000) (23,567,000) (5,494,000) ------------ ----------- ------------ ------------ Cash purchase price..... $ 42,057,000 $27,270,000 $278,883,000 $107,753,000 ============ =========== ============ ============ Number of acquisitions.. 5 11 22 7
The following table sets forth the unaudited pro forma results of operations for each year in which acquisitions occurred and for the immediately preceding year as if the above acquisitions were consummated at the beginning of the immediately preceding year:
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED ------------------------------------------- MARCH 31, 1995 1996 1997 1998 ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) Total revenues.......... $118,954,000 $320,897,000 $443,644,000 $118,583,000 Income before non- recurring and extraordinary items ... 1,660,000 2,256,000 11,985,000 5,331,000 Net income.............. 47,030,000 (a) 987,000 11,451,000 5,331,000 Earnings (loss) per com- mon share: Income (loss) before non-recurring and extraordinary items.. (.01) .07 .79 .26 Net income (loss)..... 11.24 (a) (.08) .75 .26 Earnings (loss) per common share, assuming dilution: Income (loss) before non-recurring and extraordinary items.. (.01) .07 .77 .25 Net income (loss)....... 11.01 (a) (.08) .74 .25
- -------- (a) Net income in 1995 includes non-recurring and extraordinary items related to RHI's prepackaged bankruptcy of $45,370,000 ($11.25 per share; $11.02 per share, assuming dilution), including a gain on extinguishment of debt of $52,079,000 and charges for fresh start accounting adjustment and reorganization items of $6,709,000. F-11 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On September 12, 1995, the Company acquired all of the assets and assumed all of the liabilities of Acme Holdings Inc. (renamed as RSC Holdings, Inc.) ("RHI") and its subsidiaries. RHI and its subsidiaries had filed a prepackaged joint plan of reorganization under Chapter 11 of title 11 of the United States Code on July 13, 1995, which was subsequently approved by the court on August 24, 1995 and became effective on September 12, 1995. Pursuant to the approved plan, RHI was merged into a wholly owned subsidiary of the Company, the Company entered into the Revolver and Bank Note agreements (see Note 6), and used proceeds therefrom of $35,350,000 to pay in full satisfaction old outstanding notes payable of RHI that had an aggregate principal balance at that time of approximately $78,000,000. Additionally, the Company paid RHI's debtor-in-possession facility of approximately $3,795,000 and assumed the remaining liabilities of RHI in exchange for full releases from substantially all of RHI's note holders. In connection with the acquisition of RHI, the Company decided to sell, close or dispose of RHI's rental locations in California, as they did not meet the Company's financial performance criteria and were not part of the Company's strategic plans. The assets related to those rental locations, consisting primarily of rental equipment and accounts receivable, were classified as assets held for sale in the Company's consolidated balance sheet at December 31, 1995. The Company accrued the expected cash outflows from operations of the rental locations through the expected date of disposal as part of the allocation of the purchase price. The initial accrual of $2,492,000 included $1,404,000 of allocated interest expense. The pre-tax income during the period from September 12, 1995 through December 31, 1995 was $508,000, which included allocated interest expense of $422,000 and a gain on disposal of assets of $649,000, and was credited to the accrual. The pre-tax loss during the year ended December 31, 1996 was $3,380,000, which included allocated interest expense of $751,000 and a gain on disposal of assets of $513,000, and was charged to the accrual. In 1996, the Company revised its estimates of the operating cash outflows expected to be incurred as part of the disposal of the California locations and accrued an additional $1,292,000, which was recorded as an adjustment to goodwill. During 1996, the Company sold or closed all of the California locations, and had a remaining balance in the accrual of $912,000 at December 31, 1996. During the year ended December 31, 1997, the remaining accrual was utilized for expenses relating to the disposal of the California locations. On April 25, 1997, the Company acquired all of the outstanding stock of Comtect, Inc. and subsidiaries d/b/a Industrial Air Tool ("IAT") for $32.6 million in cash and 189,189 shares of RSC common stock. Up to an additional 108,108 shares of RSC common stock may be paid to the sellers over a three year period if certain performance objectives are met, of which 36,036 shares were earned and payable at December 31, 1997. Such contingent shares will be valued and recorded at the date such contingencies are resolved. IAT was an "on-site" small tool provider, rental management company and maintenance, repair and operations ("MRO") supplier, operating in Texas and Louisiana. IAT's balance sheet was consolidated with the Company's as of April 25, 1997. This acquisition resulted in approximately $25.1 million in goodwill, which is being amortized over 40 years. Pursuant to the acquisition agreement, the Company assumed effective control of IAT's operations on March 1, 1997 and has included IAT's revenues, costs and expenses from such date in its consolidated statements of operations, net of related imputed purchase price adjustments. On June 5, 1997, the Company acquired substantially all of the assets of Brute Equipment Co. d/b/a Foxx Hy-Reach Company ("Foxx") for $32.7 million in cash and 284,250 shares of RSC common stock, of which 233,034 shares were issued to the Seller at closing, with the remaining 51,216 shares to be issued one year from the date of closing. Up to an additional 89,630 shares of RSC common stock may be paid to the seller over a three year period if certain performance objectives are met, of which 29,877 shares were earned and payable at December 31, 1997. Such contingent shares will be valued and recorded at the date such contingencies are resolved. Foxx specialized in the rental and sale of aerial equipment to construction and industrial customers and operated in Iowa and Illinois. This acquisition resulted in approximately $22.3 million in goodwill, which is being amortized over 40 years. F-12 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On June 17, 1997, the Company acquired substantially all of the assets of Central States Equipment, Inc. and Equipment Lessors, Inc. (collectively, "Central") for approximately $18.0 million in cash and 204,867 shares of RSC common stock, of which 102,435 shares of RSC common stock will be issued to the sellers over a five year period, and may be accelerated to three years if certain performance objectives are met (of which 34,145 shares were payable at December 31, 1997). Central specialized in the rental and sale of aerial equipment, ladders and scaffolding and operated in Kansas, Missouri and Oklahoma. This acquisition resulted in approximately $11.7 million in goodwill, which is being amortized over 40 years. On December 2, 1997, the Company acquired all of the outstanding stock of Rent-It-Center, Inc. d/b/a Center Rentals and Sales and substantially all of the assets of certain affiliated entities (collectively, "Center") for approximately $116.9 million in cash (including the payoff of approximately $16.0 million of assumed debt) and 482,315 shares of RSC common stock (of which 64,544 shares will be issued over seven years, subject to earlier issuance within three years if certain performance objectives are achieved). Center was an independent equipment rental company that also sold a variety of equipment ranging from small tools to heavy equipment, including related commodity supplies. Center operated in Colorado, New Mexico, Texas, Kansas, Missouri and Nebraska. Center's balance sheet was consolidated with the Company's as of December 2, 1997. This acquisition resulted in approximately $90.6 million in goodwill, which is being amortized over 40 years. Pursuant to the acquisition agreements, the Company assumed effective control of Center's operations on November 1, 1997 and has included Center's revenues, costs and expenses from such date in its consolidated statements of operations, net of related imputed purchase price adjustments. On December 12, 1997, the Company acquired all of the outstanding stock of Siems Rental & Sales Co., Inc. ("Siems") for approximately $21.3 million in cash (including the payoff of approximately $13.3 million of assumed debt) and 126,315 shares of RSC common stock. Siems was an independent equipment rental company engaged in the rental, sales and service of various types of construction and industrial equipment, operating in Maryland, Delaware, Pennsylvania and Virginia. Siems' balance sheet is consolidated with the Company's as of December 12, 1997. This acquisition resulted in approximately $6.8 million in goodwill, which is being amortized over 40 years. Pursuant to the acquisition agreement, the Company assumed effective control of Siems' operations on November 1, 1997 and has included Siems' revenues, costs and expenses from such date in its consolidated statements of operations, net of related imputed purchase price adjustments. On February 3, 1998, the Company acquired substantially all of the assets of JDW Enterprises, Inc. d/b/a Valley Rentals ("Valley") for $93.6 million in cash and 435,602 shares of RSC common stock. Valley was an independent equipment rental company operating in Arizona and New Mexico. This acquisition resulted in approximately $57.0 million in goodwill, which is being amortized over 40 years. The common stock issuable in the accompanying consolidated balance sheets is associated with the common stock relating to the acquisitions of Foxx (51,216 shares), Central (102,435 shares) and Center (64,544 shares) that vests over future time periods, and the common stock relating to the acquisitions of IAT (36,036 shares) and Foxx (29,877 shares) that was earned and payable at December 31, 1997 based on the achievement of performance objectives. During the first quarter of 1998, 100,058 shares of the common stock issuable were paid to the sellers of IAT (36,036 shares), Foxx (29,877 shares) and Central (34,145 shares). F-13 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. EARNINGS PER SHARE The following table sets forth the computation of earnings per share and earnings per share, assuming dilution:
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------- ------------------------ 1995 1996 1997 1997 1998 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) Numerator: Income before extraordinary items.. $ 3,715,000 $ 3,989,000 $13,149,000 $ 2,183,000 $ 5,484,000 Preferred stock accretion............ (1,717,000) (1,643,000) -- -- -- ----------- ----------- ----------- ----------- ----------- Income before extraordinary items available to common stockholders......... $ 1,998,000 $ 2,346,000 $13,149,000 $ 2,183,000 $ 5,484,000 =========== =========== =========== =========== =========== Net income............ $ 3,237,000 $ 2,720,000 $12,615,000 $ 1,649,000 $ 5,484,000 Preferred stock accretion............ (1,717,000) (1,643,000) -- -- -- ----------- ----------- ----------- ----------- ----------- Net income available to common stockholders......... $ 1,520,000 $ 1,077,000 $12,615,000 $ 1,649,000 $ 5,484,000 =========== =========== =========== =========== =========== Denominator: Weighted average shares outstanding... 4,116,412 7,020,405 13,637,747 11,376,378 20,173,845 Common stock issuable in connection with acquisitions......... -- -- 89,088 -- 250,755 Unvested restricted stock outstanding.... (84,097) (144,787) (73,902) (78,428) (5,929) ----------- ----------- ----------- ----------- ----------- Denominator for earnings per share.............. 4,032,315 6,875,618 13,652,933 11,297,950 20,418,671 Effect of dilutive securities: Add-back of unvested restricted stock outstanding.......... 84,097 144,787 73,902 78,428 5,929 Common stock options.. -- 120,414 182,016 134,333 134,840 Unvested restricted stock not yet outstanding.......... -- -- -- -- 8,445 Common stock issuable in connection with acquisitions based on the achievement of performance objectives........... -- -- 16,478 -- -- Common stock to be issued in connection with the QSP Plan.... -- -- 2,085 -- -- Common stock warrants............. -- 39,161 -- -- -- ----------- ----------- ----------- ----------- ----------- Dilutive potential common shares...... 84,097 304,362 274,481 212,761 149,214 ----------- ----------- ----------- ----------- ----------- Denominator for earnings per share, assuming dilution............... 4,116,412 7,179,980 13,927,414 11,510,711 20,567,885 =========== =========== =========== =========== ===========
In accordance with SFAS No. 128, weighted average common shares excludes the effects of the potential issuance of all shares contingent on the achievement of performance objectives, until the related objectives have been achieved. F-14 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. OPERATING PROPERTY AND EQUIPMENT Operating property and equipment consist of the following:
DECEMBER 31, ----------------------- MARCH 31, 1996 1997 1998 ----------- ----------- ----------- (UNAUDITED) Vehicles, machinery and equipment........ $14,638,000 $30,539,000 $35,192,000 Leasehold improvements................... 2,695,000 4,391,000 4,876,000 Furniture, fixtures and computer equipment............................... 5,385,000 8,269,000 9,519,000 Land and buildings....................... 1,828,000 2,277,000 2,296,000 ----------- ----------- ----------- Total.................................. 24,546,000 45,476,000 51,883,000 Less: accumulated depreciation and amortization............................ 4,503,000 9,677,000 10,777,000 ----------- ----------- ----------- $20,043,000 $35,799,000 $41,106,000 =========== =========== ===========
5. INTANGIBLE ASSETS Intangible assets consist of the following:
DECEMBER 31, ------------------------ MARCH 31, 1996 1997 1998 ----------- ------------ ------------ (UNAUDITED) Covenants not to compete............... $ 2,281,000 $ 3,201,000 $ 3,499,000 Goodwill............................... 34,766,000 223,052,000 292,306,000 ----------- ------------ ------------ Total................................ 37,047,000 226,253,000 295,805,000 Less: accumulated amortization......... 2,246,000 6,087,000 8,154,000 ----------- ------------ ------------ $34,801,000 $220,166,000 $287,651,000 =========== ============ ============
The Company has entered into non compete agreements with the former owners of certain acquired businesses. The agreements are generally for terms of one to three years and prohibit the former owners from competing with the Company in the business of renting equipment in certain counties located in the area of the acquired business. F-15 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. BANK DEBT AND LONG TERM OBLIGATIONS Bank debt and long term obligations consist of the following:
DECEMBER 31, ------------------------ MARCH 31, 1996 1997 1998 ----------- ------------ ------------ (UNAUDITED) $500,000,000 Revolving Line of Credit (the "Revolver") with banks; interest at the prime rate plus 0.25%, due monthly, or the Eurodollar rate plus 1.75%, due on demand, at the Company's option; principal due December 2, 2002. The interest rate in effect at December 31, 1996 and 1997 and March 31, 1998 was 8.3%, 7.8% and 7.5%, respectively....... $67,867,000 $206,475,000 $329,810,000 $100,000,000 Term Loan (the "Term Loan") with banks; interest at the prime rate plus 1.0%, due monthly, or the Eurodollar rate plus 2.5%, due on demand, at the Company's option; principal due in annual installments of $1,000,000 on each of the first six anniversaries, with the remaining principal balance due on December 2, 2004. The interest rate in effect at December 31, 1997 and March 31, 1998 was 8.5% and 8.2%, respectively............. -- 100,000,000 100,000,000 Other.................................... 727,000 500,000 3,330,000 ----------- ------------ ------------ $68,594,000 $306,975,000 $433,140,000 =========== ============ ============
On December 2, 1997, the Company amended and restated the Revolver to increase its total available financing to $600.0 million. This increase consisted of an increase in the availability under the Revolver to $500.0 million and the implementation of the new $100.0 million Term Loan (together with the Revolver, the "Bank Facility"). In addition, this new financing package extended the maturity date of the Revolver to December 2, 2002; changed the methodology for determining the interest rate margins; increased the allowed levels of capital expenditures and investments to $160.0 million in 1997, $150.0 million in each of 1998, 1999 and 2000, $160.0 million in 2001, $180.0 million in 2002, $225.0 million in 2003 and $240.0 million in 2004 (plus amounts reinvested from asset sales); and amended several covenants, including the computation methodology of certain financial covenants. The amended and restated Revolver contains provisions to periodically adjust the prime and Eurodollar interest rate margins based on the Company's achievement of specified total debt to EBITDA ratios. The total amount of credit available under the Revolver is limited to a borrowing base equal to the sum of (i) 85% of eligible accounts receivable of the Company's subsidiaries and (ii) 100% of the value (lower of net book value or orderly liquidation value) of eligible rental equipment through December 31, 1998; 90% of the value of eligible rental equipment from January 1, 1999 through December 31, 1999; 85% of the value of eligible rental equipment from January 1, 2000 through December 31, 2000; and 80% of the value of eligible rental equipment from January 1, 2001 through the expiration date of the Revolver. The Term Loan consists of a $100.0 million seven-year term loan facility, which requires mandatory principal payments of $1.0 million on each of its first six anniversaries, with the remaining principal balance due at maturity. The Term Loan matures on December 2, 2004. Interest on the Term Loan is payable monthly at either the prime rate plus 1.0% or the Eurodollar rate plus 2.5% (at the Company's option). F-16 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Bank Facility has financial covenants for RSC regarding debt incurrence, interest coverage, capital expenditures and investments (including acquisitions), rental equipment utilization and minimum EBITDA levels. The Bank Facility also contains covenants and provisions that restrict, among other things, the ability of the Company and its subsidiaries to: (i) incur additional indebtedness; (ii) incur liens on their property, (iii) enter into contingent obligations; (iv) make certain capital expenditures and investments; (v) engage in certain sales of assets; (vi) merge or consolidate with or acquire another person or engage in other fundamental changes; (vii) enter into leases; (viii) engage in certain transactions with affiliates; and (ix) declare or pay dividends. As of March 31, 1998, the Company was in compliance with all covenants of the Bank Facility. Borrowings under the Bank Facility are secured by all of the personal property of the Company's subsidiaries and a pledge of the capital stock and intercompany debt of the Company's subsidiaries. RSC is a guarantor of the obligations of its subsidiaries under the Bank Facility, and has granted liens on substantially all of its assets (including the stock of its subsidiaries) to secure such guaranty. The Bank Facility also restricts the Company from declaring or paying dividends on its Common Stock. In addition, the Company's subsidiaries are guarantors of the obligations of the other subsidiaries under the Bank Facility. The Bank Facility includes a $2.0 million letter of credit facility, with a fee equal to the applicable margin on Eurodollar Rate loans under the Revolver (1.75% at March 31, 1998) multiplied by the face amount of letters of credit payable to the lenders and other customary fees payable to the issuer of the letter of credit. A commitment fee equal to 0.25% of the unused commitment, excluding the face amount of all outstanding and undrawn letters of credit, is also payable monthly in arrears. The obligation of the lenders to make loans or issue letters of credit under the Bank Facility is subject to certain customary conditions. The amounts outstanding under the Revolver at December 31, 1996 and 1997 and March 31, 1998 were $67.9 million, $206.5 million and $329.8 million, respectively, with approximately $28.9 million, $138.0 million and $102.3 million, respectively, available based on the borrowing base. Outstanding letters of credit totaled $0, $200,000 and $200,000 at December 31, 1996 and 1997 and March 31, 1998, respectively. In connection with an amendment to the Revolver in January 1997, the Company wrote-off the related unamortized deferred financing costs and recorded a loss on extinguishment of debt of $920,000, net of income taxes of $386,000, which has been classified as an extraordinary item in the accompanying consolidated statements of operations for the year ended December 31, 1997. In connection with the implementation of an amendment to the Revolver in September 1996, the Company wrote off the related deferred financing costs and recorded a loss on extinguishment of debt of $2.5 million which has been classified as an extraordinary item, net of income taxes of $964,000, in the accompanying consolidated statements of operations for the year ended December 31, 1996. The Company entered into a redeemable note and warrant purchase agreement (the "Bank Note") on September 12, 1995 with a financial institution that provided $10.0 million of 13% senior secured notes. Additionally, the financial institution was issued warrants entitling the purchase of 87,120 shares of common stock. On September 24, 1996, the Company repaid the Bank Note and repurchased the related warrants for $13.0 million, utilizing proceeds from its initial public offering. This repayment resulted in a reduction of additional paid-in capital of $945,000 and a gain on extinguishment of debt of $362,000, which has been classified as an extraordinary item, net of income taxes of $142,000, in the accompanying consolidated statements of operations for the year ended December 31, 1996. In 1995, the Company paid off the borrowings under a previous revolver upon entering into the Revolver, resulting in a loss on extinguishment of such debt of $783,000, which has been classified as an extraordinary item, net of income taxes of $305,000, in the accompanying consolidated statements of operations for the year ended December 31, 1995. F-17 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The aggregate annual maturities of bank debt and long term obligations as of December 31, 1997 are as follows:
REVOLVER TERM LOAN OTHER TOTAL ------------ ------------ -------- ------------ 1998....................... $ -- $ 1,000,000 $238,000 $ 1,238,000 1999....................... -- 1,000,000 27,000 1,027,000 2000....................... -- 1,000,000 27,000 1,027,000 2001....................... -- 1,000,000 27,000 1,027,000 2002....................... 206,475,000 1,000,000 27,000 207,502,000 Thereafter................. -- 95,000,000 154,000 95,154,000 ------------ ------------ -------- ------------ $206,475,000 $100,000,000 $500,000 $306,975,000 ============ ============ ======== ============
7. PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY Preferred Stock The Company's Board of Directors, without approval of the holders of the common stock, is authorized to fix the number of shares of any series of preferred stock and to designate for issuance up to 500,000 shares of preferred stock, par value $.01 per share, in such number of series and with such rights, preferences, privileges and restrictions (including without limitations voting rights) as the Board of Directors may from time to time determine. The Company had outstanding at December 31, 1995, 244,805 shares of a series of cumulative redeemable preferred stock (the "Redeemable Preferred Stock"). On September 24, 1996, the Company utilized proceeds from its initial public offering to redeem all outstanding shares of this preferred stock, including accumulated dividends, for $37.9 million. The Redeemable Preferred Stock was cumulative at a rate of 6% per annum, computed on a quarterly basis. No dividends could be paid on the common stock in any quarter until the accumulated dividends on the Redeemable Preferred Stock had been paid for all quarters ending prior to the date of payment of dividends on the common stock. Increase in Authorized Common Stock On November 3, 1997, the Company began soliciting written consent of its stockholders for the approval of an increase in the number of authorized shares of its common stock, $.01 par value, from 20 million to 40 million shares. Stockholder approval of the increase became effective on November 28, 1997. On December 11, 1997, the Company amended its Certificate of Incorporation to effect such increase. Stock Purchase Agreements In 1995, the Company entered into stock purchase agreements with the current chairman and a current senior vice president of operations (the former chief financial officer) for the sale of 278,685 shares of common stock at $.01 per share. The stock was issued subject to certain vesting requirements over generally a four to five year period. However, the vesting for a portion of the stock which otherwise vested in the last two years could be accelerated if the Company achieved certain performance targets, as determined by the Company's Board of Directors. Upon a change of control (as defined), any unvested shares generally immediately vested. In the event the participant terminated employment with the Company, the Company generally has the option to repurchase any unvested shares at the original issuance price. At December 31, 1996 and 1997 and March 31, 1998, there were 81,923, 9,529 and none of these shares, respectively, which had not yet vested and were subject to the Company's repurchase option at $.01 per share. F-18 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Stock Option Plans The Company has elected to follow APB 25 and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, Accounting for Stock-Based Compensation, requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. On July 25, 1995, the Board of Directors of the Company adopted a Stock Option Plan (the "1995 Plan") whereby officers, directors, and key employees may be granted options to purchase the Company's common stock at a price set by the option committee not to be less than 100% of the fair market value of such shares on the date such option is granted, further, not to exceed 110% of the fair market price on the date such option is granted. The aggregate number of such shares that may be issued upon exercise of options under the 1995 Plan may not exceed 324,000. Generally, the stock options granted under the 1995 Plan will expire ten years from the date such options were granted. The options currently outstanding under the 1995 Plan generally become exercisable in various amounts over either a four or five year period; however, the vesting for certain portions of the options may be accelerated if the employee and the Company achieve certain performance targets, as determined by the Company's option committee. At March 31, 1998, no shares were available for future stock option grants under the 1995 Plan. On February 5, 1997, the Company's stockholders approved and the Company adopted the 1996 Equity Participation Plan of Rental Service Corporation (the "1996 Plan"). The 1996 Plan authorizes the issuance of not more than 1,000,000 shares of the Company's common stock (or the equivalent in other equity securities) upon the exercise of options, stock appreciation rights and other awards, or upon vesting of restricted or deferred stock awards ("Awards"). Under the 1996 Plan, Awards may be granted to officers, non-employee directors, key employees and consultants of the Company at a price not to be less than 100% of the fair market price on the date such award is granted. Generally, the stock options granted under the 1996 Plan will expire ten years from the date such options were granted. The options currently outstanding under the 1996 Plan generally become exercisable in equal installments over a four-year period from the date of grant. At March 31, 1998, 7,453 shares of common stock were available for future Awards under the 1996 Plan. On January 14, 1998, the Company granted its current chairman, 190,000 stock options and 10,000 shares of restricted stock under the 1996 Plan. The options and restricted stock are subject to vesting in equal installments over four years, however, the options may vest earlier if certain performance criteria are met. The options were granted at an exercise price equal to the fair market value of the Company's common stock on the date of grant. On February 25, 1998, the chairman surrendered to the Company options to purchase 57,000 shares of common stock in order to ensure the number of shares of common stock available for issuance pursuant to the 1996 Plan was sufficient to allow certain grants of stock options to other officers. On February 25, 1998, 183,820 options were granted under the 1996 Plan at an exercise price equal to the fair market value of the Company's common stock on the date of grant ($22.875 per share). These options vest in equal installments over a four-year period from the date of grant. F-19 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A summary of the Company's stock option activity, and related information, for the years ended December 31, 1995, 1996 and 1997 and the three months ended March 31, 1998 follows:
OUTSTANDING OPTIONS ----------------------------------- WEIGHTED AVERAGE EXERCISE SHARES PRICE AVAILABLE NUMBER EXERCISE PRICE PER FOR OPTIONS OF SHARES PER SHARE SHARE ----------- --------- --------------- -------- Balance at December 31, 1994.. -- -- $ -- $ -- Authorized Shares--1995 Plan.. 324,000 -- -- -- Grants--1995 Plan............. (129,690) 129,690 .01 .01 --------- --------- ------- Balance at December 31, 1995.. 194,310 129,690 .01 .01 Grants--1995 Plan............. (209,190) 209,190 7.032--21.00 17.12 Exercises--1995 Plan.......... -- (34,290) .01 .01 Forfeitures--1995 Plan........ 16,740 (16,740) .01 .01 Cancellations--1995 Plan...... -- (12,510) .01 .01 --------- --------- ------- Balance at December 31, 1996.. 1,860 275,340 .01--21.00 13.01 Authorized Shares--1996 Plan.. 1,000,000 -- -- -- Grants--1996 Plan............. (717,913) 717,913 18.00--26.875 20.66 Exercises--1995 Plan.......... -- (30,321) .01--14.11 2.82 Forfeitures--1996 Plan........ 80,580 (80,580) 18.00--20.25 18.72 Cancellations--1995 Plan...... -- (5,400) 14.11 14.11 --------- --------- ------- Balance at December 31, 1997.. 364,527 876,952 .01--26.875 19.09 Grants--1995 Plan (unaudited).................. (1,860) 1,860 22.875 22.875 Grants--1996 Plan (unaudited).................. (425,402) 425,402 20.1875-22.875 21.48 Restricted Stock Grants--1996 Plan (unaudited)............. (10,000) 10,000 0.01 0.01 Exercises--1995 Plan (unaudited).................. -- (30,024) .01--7.032 1.79 Forfeitures--1996 Plan (unaudited).................. 80,188 (80,188) 18.00--25.875 21.83 --------- --------- ------- Balance at March 31, 1998 (unaudited).................. 7,453 1,204,002 $ 0.01--26.875 $ 20.03 ========= ========= =======
Options outstanding at December 31, 1997 have exercise prices ranging from $.01 to $26.875 per share, with a weighted average exercise price of $19.09 per share, as outlined in the following table:
WEIGHTED WEIGHTED AVERAGE WEIGHTED AVERAGE EXERCISE AVERAGE EXERCISE NUMBER OF PRICE REMAINING NUMBER OF PRICE RANGE OF OPTIONS PER CONTRACTUAL OPTIONS PER EXERCISE PRICES OUTSTANDING SHARE LIFE EXERCISABLE SHARE --------------- ----------- -------- ----------- ----------- -------- $.01.................. 45,675 $ .01 7.56 23,745 $ .01 $7.032--$14.11........ 73,944 12.16 8.19 19,325 12.06 $18.00--$21.00........ 637,070 19.99 9.12 55,000 19.64 $24.75--$26.875....... 120,263 25.81 9.70 -- -- ------- ------ ---- ------ ------ Totals.............. 876,952 $19.09 9.04 98,070 $13.39 ======= ====== ==== ====== ======
The weighted average fair value of options granted during the years ended December 31, 1995, 1996 and 1997 was $.01, $10.23 and $9.23, respectively. F-20 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Employee Stock Purchase Plan On April 28, 1997 at the Company's Annual Meeting of Stockholders, the Company's stockholders approved, and the Company adopted, the Employee Qualified Stock Purchase Plan of Rental Service Corporation (the "QSP Plan"). Under the QSP Plan, the Company has reserved 250,000 shares of common stock for sale to employees. The QSP Plan allows eligible employees of the Company to purchase shares of common stock at the lesser of 85% of the fair market value of such shares at the beginning of each semiannual offering period or 85% of the fair market value of such shares on the date of exercise of an installment of the purchase right. Purchases are limited to 15% of an employee's eligible compensation, subject to a maximum purchase of 1,500 shares in any semiannual offering period. The QSP Plan commenced on July 1, 1997. At March 31, 1998, 241,660 shares of common stock remain available under the QSP Plan. Pro Forma Information Pro forma information regarding net income and earnings per share is required by SFAS 123, which also requires that the information be determined as if the Company has 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 with the following weighted average assumptions for 1995, 1996 and 1997: risk-free interest rates of 6.28%, 6.28% and 5.71%, respectively; a dividend yield of 0%; volatility factors of the expected market price of the Company's Common Stock of .641, .641 and .415, respectively; and a weighted average expected life of the option of five years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company's employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
YEAR ENDED DECEMBER 31, --------------------------------- 1995 1996 1997 ---------- ---------- ----------- Pro forma net income................... $3,237,000 $2,597,000 $10,964,000 Pro forma net income per share......... .38 .14 .80 Pro forma net income per share, assuming dilution..................... .37 .13 .79
Because SFAS 123 is applicable only to options granted after December 31, 1994, its pro forma effect is not fully reflected until 1997. The effects of applying SFAS 123 for the years ended December 31, 1995, 1996 and 1997 are not likely to be representative of the effects on reported net income for future years. F-21 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. EMPLOYEE BENEFIT PLANS The Company maintains a Section 401(k) employee savings plan (Savings Plan) covering substantially all full-time employees upon completion of at least 1,000 hours of service and nine months of continuous employment. The Savings Plan is a defined contribution plan and provides for the Company to make discretionary contributions as deemed appropriate by the administrative committee. During the years ended December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and 1998, the Company made discretionary contributions totaling $0, $150,000, $436,000, $100,000 and $230,000, respectively. 9. COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases certain operating premises and equipment under operating leases. Substantially all of the property leases require the Company to pay maintenance, insurance, taxes and certain other expenses in addition to the stated rentals. Certain of the real property leases provide for escalation of future rental payments based upon increases in the consumer price index. Rental expense under such operating leases totaled $2,397,000, $3,081,000, $5,353,000, $1,060,000 and $2,252,000 for the years ended December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and 1998, respectively. 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: 1998........................................................... $ 8,018,000 1999........................................................... 7,136,000 2000........................................................... 6,089,000 2001........................................................... 4,797,000 2002........................................................... 3,282,000 Thereafter..................................................... 4,831,000 ----------- $34,153,000 ===========
Purchase Obligations At March 31, 1998, the Company was obligated, under noncancellable purchase commitments, to purchase $43.1 million of equipment. Risk Management The Company currently has an insurance deductible of $5,000 per occurrence for physical damage or loss to its rental equipment, and is self-insured for physical damage or loss to its delivery vehicles. Presently, the Company has an insurance deductible of $50,000 per occurrence for claims related to general and vehicle liability. The general and vehicle policy includes per occurrence and annual aggregate liability limits of $1.0 million, with excess umbrella coverage up to $100.0 million. Environmental The Company and its operations are subject to a variety of federal, state and local laws and regulations governing, among other things, worker safety, air emissions, water discharge and the generation, handling, storage, transportation, treatment and disposal of hazardous substances and wastes. Under such laws, an F-22 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 related costs of investigation and property damage. The Company incurs ongoing expenses associated with the removal of underground storage tanks and the performance of appropriate remediation at certain of its locations. The Company has accrued $763,000, $652,000 and $594,000 at December 31, 1996 and 1997 and March 31, 1998, respectively, related to the removal of underground tanks at the Company's locations. The actual costs of remediating these environmental conditions may be different than that accrued by the Company due to the difficulty in estimating such costs and due to potential changes in the status of legislation and state reimbursement programs. The Company does not believe such removal and remediation will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. Legal Proceedings The Company and its subsidiaries are parties to various litigation matters, in most cases involving ordinary and routine claims incidental to the business of the Company. The ultimate legal and financial liability of the Company with respect to such pending litigation cannot be estimated with certainty, but the Company believes, based on its examination of such matters, that such ultimate liability will not have a material adverse effect on the business, or the consolidated financial position, results of operations or cash flows of the Company. 10. RELATED PARTY TRANSACTIONS During 1995, the Company paid RHI approximately $742,000 in connection with certain management services. Also during 1995, certain expenses incurred by RHI were paid by the Company and vice versa. One of the stockholders of the Company receives an investment banking fee from the Company in connection with certain of the Company's acquisitions. The fee was calculated at 1.5% of the total of the purchase price plus acquisition costs plus planned first year capital expenditures less one-seventh of the seller's original cost of rental equipment. Such fees paid to the stockholder during the years ended December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and 1998 totaled $663,000, $388,000, $1,084,000, $0 and $0, respectively. Effective November 1, 1993, the stockholder also received a monitoring fee, which equaled 1% of the aggregate amount of debt and equity interest of or by the stockholder in the Company. Such fees paid to the stockholder during the years ended December 31, 1995, 1996 and 1997 totaled $235,000, $235,000 and $0, respectively, and are included in general and administrative expense. The Company's obligation to pay such investment banking and monitoring fees terminated in September 1996, in conjunction with the Company's initial public offering, however, the Company, at its discretion, may utilize the stockholder's investment banking services under the same fee arrangement. In connection with the acquisition of Center, the Company entered into leases for certain of Center's facilities with David P. Lanoha, a director of the Company, and certain partnerships affiliated with Mr. Lanoha. The leases initially expire in 2002, with options to extend for three periods of five years each. The aggregate annual rent under such leases is $720,000. Prior to the acquisition of Center, these locations had been leased by Center from Mr. Lanoha and his affiliates. The previous leases were terminated in connection with the acquisition of Center. From time to time, the Company also leases facilities from former owners of acquired businesses, who may be current employees of the Company. F-23 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11. INCOME TAXES The provision for income taxes is comprised of the following:
YEAR ENDED DECEMBER 31, --------------------------------- 1995 1996 1997 ---------- ---------- ----------- Current: Federal................................. $1,135,000 $ -- $ 2,669,000 State................................... 337,000 187,000 279,000 ---------- ---------- ----------- 1,472,000 187,000 2,948,000 Deferred: Federal................................. 581,000 1,550,000 6,402,000 State................................... 43,000 163,000 594,000 ---------- ---------- ----------- 624,000 1,713,000 6,996,000 Extraordinary item........................ 305,000 822,000 386,000 ---------- ---------- ----------- $2,401,000 $2,722,000 $10,330,000 ========== ========== ===========
For interim periods, the provision for income taxes is based upon the estimated income tax rate for the full fiscal year. Deferred income taxes reflect the tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of deferred tax assets and liabilities are as follows:
DECEMBER 31, -------------------------- 1996 1997 ------------ ------------ Deferred tax assets: Accrued liabilities........................... $ 3,310,000 $ 5,004,000 Inventory reserve............................. 677,000 1,496,000 Bad debt reserve.............................. 1,245,000 504,000 Net operating loss carryforwards.............. 6,563,000 7,948,000 Alternative minimum tax credit................ 1,590,000 4,776,000 Valuation allowance........................... (4,740,000) (4,487,000) ------------ ------------ 8,645,000 15,241,000 Deferred tax liabilities: Depreciation and amortization................. (12,863,000) (30,857,000) ------------ ------------ Net deferred tax liability...................... $ (4,218,000) $(15,616,000) ============ ============
The Company's effective income tax rate varied from the statutory U.S. federal income tax rate (34% in 1995 and 1996, 35% in 1997) as follows:
YEAR ENDED DECEMBER 31, ------------------------------------ 1995 1996 1997 ----------- ---------- ----------- Expected provision using the statutory tax rate............................. $ 2,079,000 $2,282,000 $ 8,218,000 State taxes, net of federal tax benefit.............................. 290,000 204,000 753,000 Permanent differences, primarily amortization of intangibles.......... 213,000 341,000 732,000 Other................................. (181,000) (105,000) 627,000 ----------- ---------- ----------- $ 2,401,000 $2,722,000 $10,330,000 =========== ========== ===========
F-24 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1997, the Company had net operating loss carryforwards for federal income tax purposes of approximately $18.4 million that expire in years 2005 through 2012. In addition the Company had combined state net operating loss carryforwards of approximately $20.1 million that expire in years 1998 through 2012. Approximately $8.5 million of the federal carryforwards and $800,000 of the state carryforwards are attributable to the Company's acquisition of RHI. For financial reporting purposes a valuation allowance of approximately $4.0 million and $3.7 million at December 31, 1996 and 1997, respectively, has been recognized to offset the deferred tax assets related to those carryforwards. These separate company net operating loss carryforwards are subject to restrictions in accordance with Internal Revenue Service Code Section 382, and the ultimate utilization of the net operating losses is further limited based on the future profitability of certain subsidiaries of RHI. In connection with the 1997 acquisitions of IAT, Center and Siems, approximately $4.5 million of net deferred tax liabilities were assumed by the Company. As a result of these acquisitions, the Company also obtained approximately $500,000 of alternative minimum tax credit carryovers. The separate company alternative minimum tax credit carryovers are subject to restrictions in accordance with Internal Revenue Service Code Section 383, and the ultimate utilization of the alternative minimum tax credits is further limited based upon the future profitability of the acquired companies. The Company also has alternative minimum tax credit carryovers of approximately $4.6 million for federal and $165,000 for state of California income tax purposes which are available to offset future regular income tax that is in excess of the alternative minimum tax in such year. Approximately $600,000 of the federal and all of the state alternative minimum tax credit carryovers resulted from the Company's acquisition of RHI. For financial reporting purposes a valuation allowance of approximately $800,000 has been recognized to offset the deferred tax assets related to all alternative minimum tax credit carryovers. Limitations similar to those restricting the use of the net operating losses also restrict the use of the credit carryovers. The valuation allowances decreased approximately $3.1 million in 1996 and $253,000 in 1997. The decrease in the 1996 valuation allowance is principally due to an approximately $9.5 million decrease in the estimated net operating loss that is not expected to be realized from the Company's discontinued California operations. The decrease in the 1997 valuation allowance is principally due to a decrease in the estimated state net operating loss that is not expected to be realized from the Company's discontinued California operations. Any tax benefit resulting from the utilization of the net operating loss carryforwards or the tax credit carryovers obtained in the acquisition of RHI will be accounted for as a reduction of the purchase price in the periods they are realized. F-25 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH YEAR-TO- QUARTER QUARTER QUARTER QUARTER DATE -------- ------- ------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenues: 1996........................... $ 27,197 $31,267 $34,631 $35,259 $128,354 1997........................... 41,309 58,554 72,469 88,931 261,263 1998........................... 108,663 N/A N/A N/A 108,663 Gross profit: 1996........................... 6,048 7,758 8,318 9,118 31,242 1997........................... 10,978 14,870 18,841 23,943 68,632 1998........................... 26,936 N/A N/A N/A 26,936 Income before extraordinary items: 1996........................... 330 897 952 1,810 3,989 1997........................... 2,183 2,855 3,920 4,191 13,149 1998........................... 5,484 N/A N/A N/A 5,484 Net income (loss): 1996........................... 330 897 (317) 1,810 2,720 1997........................... 1,649 2,855 3,920 4,191 12,615 1998........................... 5,484 N/A N/A N/A 5,484 Earnings (loss) per common share: 1996 Income (loss) before extraordinary items........... $ (.04) $ .06 $ .07 $ .16 $ .34 Extraordinary items............ -- -- (.21) -- (.18) -------- ------- ------- ------- -------- Net income (loss).............. $ (.04) $ .06 $ (.14) $ .16 $ .16 ======== ======= ======= ======= ======== 1997 Income before extraordinary items......................... $ .19 $ .23 $ .26 $ .26 $ .96 Extraordinary items............ (.04) -- -- -- (.04) -------- ------- ------- ------- -------- Net income..................... $ .15 $ .23 $ .26 $ .26 $ .92 ======== ======= ======= ======= ======== 1998 Income before extraordinary items......................... $ .27 $ .27 Extraordinary items............ -- -- -------- -------- Net income..................... $ .27 N/A N/A N/A $ .27 ======== ======== Earnings (loss) per common share, assuming dilution: 1996 Income (loss) before extraordinary items........... $ (.04) $ .06 $ .07 $ .16 $ .33 Extraordinary items............ -- -- (.20) -- (.18) -------- ------- ------- ------- -------- Net income (loss).............. $ (.04) $ .06 $ (.13) $ .16 $ .15 ======== ======= ======= ======= ======== 1997 Income before extraordinary items......................... $ .19 $ .23 $ .26 $ .26 $ .94 Extraordinary items............ (.05) -- -- -- (.03) -------- ------- ------- ------- -------- Net income..................... $ .14 $ .23 $ .26 $ .26 $ .91 ======== ======= ======= ======= ======== 1998 Income before extraordinary items......................... $ .27 $ .27 Extraordinary items............ -- -- -------- -------- Net income..................... $ .27 N/A N/A N/A $ .27 ======== ========
The earnings per share amounts for 1996 and the first three quarters of 1997 have been restated to comply with the requirements of SFAS No. 128. F-26 RENTAL SERVICE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 13. SUBSEQUENT EVENTS (UNAUDITED) On April 1, 1998, the Company acquired all of the outstanding stock of James S. Peterson Enterprises, Inc. d/b/a Metroquip Rental Centers ("Metroquip") for $51.2 million in cash (including the payoff of assumed debt) and 193,090 shares of RSC common stock. Up to an additional 95,727 shares of RSC common stock may be paid to the seller over a three-year period if certain performance objectives are met. Such contingent shares will be valued and recorded at the date such contingencies are resolved. Metroquip rented, sold and supported aerial work platforms and contractors equipment, and operated in Minnesota and Nebraska. Metroquip's balance sheet was consolidated with the Company's as of April 1, 1998. This acquisition is expected to result in approximately $33.0 million in goodwill, which will be amortized over 40 years. Pursuant to the acquisition agreement, the Company assumed effective control of Metroquip's operations on March 1, 1998 and has included Metroquip's revenues, costs and expenses from such date in its consolidated statements of operations, net of related imputed purchase price adjustments. On April 2, 1998, the Company acquired all of the outstanding stock of T&M Rental, Inc. ("T&M") for $21.9 million in cash (including the payoff of assumed debt). Up to 33,132 shares of RSC common stock may be paid to the seller over a three-year period if certain performance objectives are met. Such contingent shares will be valued and recorded at the date such contingencies are resolved. T&M was an independent rental company operating in Indiana. T&M's balance sheet was consolidated with the Company's as of April 2, 1998. This acquisition is expected to result in approximately $16.0 million in goodwill, which will be amortized over 40 years. Pursuant to the acquisition agreement, the Company assumed effective control of T&M's operations on March 1, 1998 and has included T&M's revenues, costs and expenses from such date in its consolidated statements of operations, net of related imputed purchase price adjustments. Subsequent to March 31, 1998, the Company has completed three additional acquisitions for a total combined purchase price of approximately $17.1 million (including 53,693 shares of RSC common stock). On April 29, 1998, the Company's stockholders approved a proposal to increase the number of shares of the Company's common stock authorized for issuance under the 1996 Plan to 2,000,000. On the same date, the Company granted its current chairman 40,411 stock options and 16,589 shares of restricted stock under the 1996 Plan. The options and restricted stock are subject to vesting in equal installments over four years, however, the options may vest earlier if certain performance criteria are met. The options were granted at an exercise price equal to the fair market value of the Company's common stock on the date of grant. On May 13, 1998, the Company completed a $200.0 million private placement of 9% senior subordinated notes due 2008 (the "Private Notes"). Interest on the Private Notes is payable semi-annually on May 15th and November 15th, commencing on November 15, 1998. In connection with the completion of the offering of the Private Notes, the Company amended its Revolver to (i) reduce the interest rate margins by 0.25%, (ii) increase the allowed levels of capital expenditures and investments to $220.0 million in 1998, $235.0 million in 1999, $250.0 million in 2000, $270.0 million in 2001 and $340.0 million in each of 2002, 2003 and 2004 (plus amounts reinvested from asset sales), (iii) change certain financial and other covenants and (iv) permit the issuance of the Private Notes. As of June 5, 1998, the Company was party to non-binding letters of intent to acquire three equipment rental businesses for a total combined purchase price of approximately $33.2 million (including the assumption of approximately $7.4 million of debt). These acquisitions are subject to a number of closing conditions, including the execution of definitive purchase agreements, RSC board of directors approval and, in some cases, expiration or early termination of the waiting period under the Hart-Scott-Rodino Act. F-27 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Acme Holdings Inc. We have audited the accompanying consolidated balance sheets of Acme Holdings Inc. ("Holdings") as of December 31, 1993 and 1994, and the related consolidated statements of operations, shareholders' deficit, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Holdings' 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 consolidated financial position of Holdings at December 31, 1993 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that Holdings will continue as a going concern. Holdings has incurred recurring losses and has a net capital deficiency. In addition, as more fully described in Note 3, Holdings has not complied with certain covenants of loan agreements and has not made an interest payment due on December 1, 1994. These conditions raise substantial doubt about the ability of Acme Holdings Inc. to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note 9 to the consolidated financial statements, in 1993 Acme Holdings Inc. changed its method of accounting for income taxes. /s/ ERNST & YOUNG LLP Orange County, California March 30, 1995 F-28 ACME HOLDINGS INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------------- JUNE 30, 1993 1994 1995 ------------ ------------ ------------ (UNAUDITED) ASSETS (NOTE 3) --------------- Cash and cash equivalents (Note 1).. $ 599,000 $ 3,183,000 $ 1,627,000 Accounts receivable, net of allowance for doubtful accounts of $1,097,000 in 1993, $1,352,000 in 1994 and $1,786,000 in 1995........ 9,025,000 9,145,000 8,829,000 Other receivables................... 164,000 316,000 235,000 Receivables from related parties (Note 7)........................... 220,000 138,000 298,000 Parts and supplies inventories (Note 1)................................. 1,453,000 1,180,000 1,099,000 Prepaid expenses.................... 609,000 585,000 897,000 Rental equipment, principally machinery, at cost, net of accumulated depreciation of $32,515,000 in 1993, $32,576,000 in 1994 and $33,102,000 in 1995 (Notes 1, 3 and 6)................. 33,027,000 28,277,000 30,049,000 Operating property and equipment, at cost, net of accumulated depreciation of $3,505,000 in 1993, $3,856,000 in 1994 and $4,019,000 in 1995 (Notes 1 and 3)............ 3,931,000 3,067,000 3,698,000 Goodwill, net of accumulated amortization of $724,000 in 1993, $869,000 in 1994 and $941,000 in 1995 (Note 1)...................... 3,646,000 3,501,000 3,429,000 Other assets, net (Notes 1 and 6)... 3,830,000 3,001,000 2,682,000 ------------ ------------ ------------ $ 56,504,000 $ 52,393,000 $ 52,843,000 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' DEFICIT ----------------------------- Accounts payable.................... $ 3,369,000 $ 2,720,000 $ 3,238,000 Unfunded disbursements.............. 1,214,000 1,635,000 3,093,000 Payroll and other accrued expenses.. 7,240,000 8,804,000 8,339,000 Accrued interest payable............ 763,000 5,398,000 10,309,000 Income taxes payable (Note 9)....... 230,000 99,000 81,000 Deferred taxes based on income (Note 9)................................. 425,000 375,000 325,000 Obligations under capital leases (Note 6)........................... 990,000 685,000 505,000 Senior Notes (Note 3)............... 77,566,000 77,618,000 77,644,000 Senior secured borrowings (Note 3).. 5,839,000 5,058,000 4,353,000 ------------ ------------ ------------ Total liabilities................... 97,636,000 102,392,000 107,887,000 Commitments (Note 6) Shareholders' deficit (Notes 1, 4 and 8): Preferred stock, $1.00 par value: Authorized, issued and outstanding shares at December 31, 1993 and 1994 and June 30, 1995--3,000,000....... 3,000,000 3,000,000 3,000,000 Common stock, $.01 par value: Authorized shares--500,000 Issued and outstanding shares--at December 31, 1993 and 1994-- 112,095 and 104,598, respectively and 102,596 at June 30, 1995..... 1,000 1,000 1,000 Additional paid-in capital........ 724,000 724,000 724,000 Accumulated deficit............... (44,857,000) (53,724,000) (58,769,000) ------------ ------------ ------------ Total shareholders' deficit......... (41,132,000) (49,999,000) (55,044,000) ------------ ------------ ------------ $ 56,504,000 $ 52,393,000 $ 52,843,000 ============ ============ ============
See accompanying notes. F-29 ACME HOLDINGS INC. CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------- ------------------------ 1992 1993 1994 1994 1995 ----------- ------------ ----------- ----------- ----------- (UNAUDITED) Revenues: Equipment rentals (Note 1)............. $58,423,000 $ 55,504,000 $57,444,000 $28,296,000 $26,772,000 Sales of parts, supplies and used equipment............ 10,166,000 7,985,000 10,890,000 4,765,000 5,282,000 ----------- ------------ ----------- ----------- ----------- Total revenues.......... 68,589,000 63,489,000 68,334,000 33,061,000 32,054,000 Costs and expenses: Operating expenses.... 36,134,000 40,454,000 37,912,000 18,569,000 17,516,000 Cost of sales of parts, supplies and used equipment....... 7,074,000 6,087,000 8,188,000 3,565,000 3,912,000 General and administrative expense.............. 7,106,000 7,338,000 11,180,000 4,631,000 5,648,000 Depreciation and amortization expense.............. 10,494,000 11,347,000 9,933,000 5,132,000 4,765,000 Restructure costs (Note 2)............. -- 1,887,000 -- -- -- Provision for rental equipment retirements.......... -- 880,000 -- -- -- ----------- ------------ ----------- ----------- ----------- Total costs and expenses............... 60,808,000 67,993,000 67,213,000 31,897,000 31,841,000 ----------- ------------ ----------- ----------- ----------- Operating income (loss)................. 7,781,000 (4,504,000) 1,121,000 1,164,000 213,000 Interest expense........ 8,422,000 9,279,000 9,927,000 4,897,000 5,198,000 ----------- ------------ ----------- ----------- ----------- Loss before income taxes.................. (641,000) (13,783,000) (8,806,000) (3,733,000) (4,985,000) Provision for income taxes (Note 9)......... 427,000 274,000 61,000 124,000 60,000 ----------- ------------ ----------- ----------- ----------- Net loss................ $(1,068,000) $(14,057,000) $(8,867,000) $(3,857,000) $(5,045,000) =========== ============ =========== =========== ===========
See accompanying notes. F-30 ACME HOLDINGS INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
PREFERRED STOCK COMMON STOCK ADDITIONAL -------------------- --------------- PAID-IN ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL --------- ---------- ------- ------ ---------- ------------ ------------ Balance at December 31, 1991...... -- $ -- 111,111 $1,000 $724,000 $(29,732,000) $(29,007,000) Net loss................ -- -- -- -- -- (1,068,000) (1,068,000) Issuance of preferred stock, $1.00 par value.................. 3,000,000 3,000,000 -- -- -- -- 3,000,000 --------- ---------- ------- ------ -------- ------------ ------------ Balance at December 31, 1992...... 3,000,000 3,000,000 111,111 1,000 724,000 (30,800,000) (27,075,000) Net loss................ -- -- -- -- -- (14,057,000) (14,057,000) Issuance of common stock, $.01 par value.. -- -- 5,985 -- -- -- -- Forfeiture of common shares under Restricted Stock Agreement (Note 4)..................... -- -- (5,001) -- -- -- -- --------- ---------- ------- ------ -------- ------------ ------------ Balance at December 31, 1993................... 3,000,000 3,000,000 112,095 1,000 724,000 (44,857,000) (41,132,000) Net loss................ -- -- -- -- -- (8,867,000) (8,867,000) Forfeiture of common shares under Restricted Stock Agreement (Note 4)..................... -- -- (7,497) -- -- -- -- --------- ---------- ------- ------ -------- ------------ ------------ Balance at December 31, 1994................... 3,000,000 3,000,000 104,598 1,000 724,000 (53,724,000) (49,999,000) --------- ---------- ------- ------ -------- ------------ ------------ Net loss (unaudited).... -- -- -- -- -- (5,045,000) (5,045,000) Forfeiture of common shares under Restricted Stock Agreement (Note 4) (unaudited)......... -- -- (2,002) -- -- -- -- --------- ---------- ------- ------ -------- ------------ ------------ Balance at June 30, 1995 (unaudited)............ 3,000,000 $3,000,000 102,596 $1,000 $724,000 $(58,769,000) $(55,044,000) ========= ========== ======= ====== ======== ============ ============
See accompanying notes. F-31 ACME HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------- ------------------------ 1992 1993 1994 1994 1995 ----------- ------------ ----------- ----------- ----------- (UNAUDITED) OPERATING ACTIVITIES Net loss................ $(1,068,000) $(14,057,000) $(8,867,000) $(3,857,000) $(5,045,000) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization......... 10,327,000 11,394,000 9,985,000 5,157,000 4,792,000 Interest payable financed through borrowings........... 2,648,000 421,000 -- -- -- Provision for doubtful accounts............. 726,000 1,252,000 816,000 400,000 434,000 (Gain) loss on sale of equipment............ (409,000) 1,666,000 (679,000) (230,000) (333,000) Increase (decrease) in deferred taxes....... 233,000 (26,000) (50,000) -- -- Write-off of deferred financing fees....... -- 329,000 -- -- -- Changes in operating assets: (Increase) decrease in accounts receivable......... (2,307,000) 51,000 (936,000) (35,000) (119,000) Decrease in income tax refund receivable......... 211,000 -- -- -- -- Increase in other and related party receivables........ (153,000) (52,000) (70,000) (440,000) (79,000) (Increase) decrease in parts and supplies inventories........ (201,000) 367,000 273,000 193,000 81,000 (Increase) decrease in prepaid expenses........... (115,000) (97,000) 24,000 47,000 (313,000) (Increase) decrease in other assets.... 37,000 (97,000) 259,000 (198,000) 94,000 Increase (decrease) in accounts payable and unfunded disbursements...... (405,000) 83,000 (228,000) (1,016,000) 1,976,000 Increase (decrease) in payroll and other accrued expenses........... (1,205,000) 3,042,000 1,564,000 1,035,000 (471,000) Increase (decrease) in accrued interest payable............ 1,219,000 (1,066,000) 4,635,000 27,000 4,911,000 Increase (decrease) in income taxes payable............ 349,000 (119,000) (131,000) (51,000) (66,000) ----------- ------------ ----------- ----------- ----------- Net cash provided by operating activities... 9,887,000 3,091,000 6,595,000 1,032,000 5,862,000 INVESTING ACTIVITIES Proceeds from sale of rental equipment and operating plant and equipment.............. 1,500,000 2,194,000 5,122,000 1,866,000 2,204,000 Cash purchases of rental equipment and operating plant and equipment.... (3,287,000) (4,219,000) (5,653,000) (1,322,000) (8,737,000) Financed purchases of rental equipment and operating equipment.... (3,163,000) (3,789,000) (2,394,000) (2,535,000) -- ----------- ------------ ----------- ----------- ----------- Net cash used in investing activities... (4,950,000) (5,814,000) (2,925,000) (1,991,000) (6,533,000)
See accompanying notes. F-32 ACME HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------- -------------------------- 1992 1993 1994 1994 1995 ------------ ------------ ------------ ------------ ------------ (UNAUDITED) FINANCING ACTIVITIES Borrowings under revolving facility..... $ 71,325,000 $ 40,238,000 $ 55,078,000 $ 23,766,000 $ 36,321,000 Payments under revolving facility............... (71,840,000) (53,336,000) (55,952,000) (22,182,000) (36,109,000) Proceeds from secured borrowings............. 3,015,000 2,765,000 2,242,000 2,409,000 -- Payments on secured borrowings............. (9,387,000) (28,664,000) (2,149,000) (1,339,000) (917,000) Payments on subordinated debt................... -- (33,828,000) -- -- -- Payments of loan origination costs...... (678,000) (3,074,000) -- -- -- Proceeds from capital lease borrowings....... 148,000 1,024,000 152,000 126,000 -- Payments on capital lease obligations...... (324,000) (648,000) (457,000) (266,000) (180,000) Proceeds from sale of preferred stock........ 3,000,000 -- -- -- -- Proceeds from issuance of Senior Notes........ -- 77,544,000 -- -- -- ------------ ------------ ------------ ------------ ------------ Net cash provided (used) in financing activities............. (4,741,000) 2,021,000 (1,086,000) 2,514,000 (885,000) ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents............ 196,000 (702,000) 2,584,000 1,555,000 (1,556,000) Cash and cash equivalents at beginning of period.... 1,105,000 1,301,000 599,000 599,000 3,183,000 ------------ ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period................. $ 1,301,000 $ 599,000 $ 3,183,000 $ 2,154,000 $ 1,627,000 ============ ============ ============ ============ ============
See accompanying notes. F-33 ACME HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994 AND JUNE 30, 1995 (THE INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED) 1. ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements include the accounts of Acme Holdings Inc., a Delaware corporation, and its wholly owned subsidiaries (together, "Holdings") Acme Rents, Inc. ("Acme Rents"), Acme Duval Inc. ("Acme Duval") and Acme Dixie Inc. ("Acme Dixie"). All material intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to prior years' amounts to conform to the current year presentation. Holdings operates in a single industry segment: the rental of equipment through a network of rental center locations in California, Florida, Texas and Louisiana, including sales of equipment, parts, supplies and used rental equipment. The nature of Holdings' 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. Interim Financial Statements The accompanying consolidated balance sheet at June 30, 1995 and the consolidated statements of operations, shareholders' deficit and cash flows for the six-month periods ended June 30, 1994 and 1995 are unaudited and have been prepared on the same basis as the audited consolidated financial statements included herein. In the opinion of management, such unaudited consolidated financial statements include all adjustments necessary to present fairly the information set forth therein, which consist solely of normal recurring adjustments. The results of operations for such interim period are not necessarily indicative of results for the full year. Operations During the years ended December 31, 1992, 1993 and 1994, and six months ended June 30, 1994 and June 30, 1995 Holdings had operating income (loss) of $7,781,000, ($4,504,000), $1,121,000, $1,164,000 and $213,000 and net loss of $1,068,000, $14,057,000, $8,867,000, $3,857,000 and $5,045,000, respectively. The losses are primarily attributable to the interest expense associated with Holdings' debt level. The results for the year ended December 31, 1994 and six months ended June 30, 1995 include expenses related to discussions with holders of Holdings' 11.75% $78,000,000 Senior Notes due 2000 (the Senior Notes) regarding a possible recapitalization (Note 3). In the fourth quarter of 1993, Holdings implemented a restructuring plan and recorded a charge of $1,887,000 (Note 2). Effective March 31, 1992, Holdings sold 3,000,000 shares of newly authorized preferred stock for $3,000,000 cash, and restructured the terms of its financing agreements with its lenders as more fully described in Notes 3 and 4. The restructured agreements reduced the amounts available to borrow, accelerated certain bank principal payments, deferred certain subordinated debt interest payments and modified certain loan terms, conditions and covenants. The restructured agreements were amended in March and April 1993 to defer certain principal and interest payments and extend the term of the revised covenant provisions. In June 1993, Holdings issued the Senior Notes (Note 3). Proceeds from this issuance were used to pay off all then existing bank debt, senior subordinated notes payable and junior subordinated notes payable. Holdings did not make an interest payment on the Senior Notes in the amount of $4,582,500 which was due December 1, 1994 and another payment due June 1, 1995 for the accrued interest on the Senior F-34 ACME HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Notes since December 1, 1994. The failure to make such payments constitutes an event of default under the terms of the indenture to the Senior Notes (Note 3). Simultaneously with the offering of Senior Notes, Holdings established a revolving credit facility (the New Credit Facility) with Citicorp USA Inc. and other lenders (Citicorp). As of December 31, 1994 and June 30, 1995 Holdings was not in compliance with the interest coverage ratio, fixed charges ratio, leverage ratio, and capital expenditure limits in the covenant provisions contained in the New Credit Facility agreement. In addition, Holdings' failure to make the December 1, 1994 and June 1, 1995 interest payments on the Senior Notes constitute an event of default under the terms of the New Credit Facility. As of June 30, 1995, and July 12, 1995, Citicorp was making discretionary advances to Holdings under the terms of the New Credit Facility without any assurance that it would make such discretionary advances in the future. In August 1994, Holdings hired Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") as its financial advisor to help Holdings explore alternatives for restructuring the Senior Notes and to identify long term solutions to strengthen Holdings' financial position (Note 3). Also, in August 1994, certain holders of the Senior Notes formed an unofficial committee (the "Unofficial Committee") to evaluate and respond to proposals. On April 28, 1995, Holdings reached an agreement in principle with the Unofficial Committee of the holders of the Senior Notes on a financial restructuring of Holdings. On July 11, 1995, Holdings received and accepted the requisite number of votes from holders of the Senior Notes approving the contemplated financial restructuring plan. As part of the plan, on July 13, 1995, Holdings filed a prepackaged joint plan of reorganization involving Holdings and its wholly-owned subsidiaries under Chapter 11 of the Bankruptcy Code ("Chapter 11 Filing"). Simultaneous with the Chapter 11 Filing, the Bankruptcy Court approved and Holdings established a $5,000,000 DIP Facility with Citicorp USA, Inc. The DIP Facility paid off the $1,835,000 outstanding under Holdings' New Credit Facility. An order confirming the Plan was entered by the Court on August 24, 1995 and the Plan became effective September 11, 1995 (the "Effective Date"). For each $1,000.00 principal amount of Holdings' 11% Senior Notes, holders received a total of $525.75 consisting of $497.81 as payment for the Senior Notes and $28.94 as payment for the Releases solicited with the Plan. All of the notes were canceled pursuant to the Plan. The Plan provided that the holders of Holdings' Preferred Stock, Common Stock, warrants and all other options to acquire Holdings' stock and securities claims were not entitled to receive or retain any property under the Plan and were deemed to reject the Plan, which was approved by the Court. All applicable shares were canceled, annulled and extinguished on the Effective Date. The other classes of claims and interests were unimpaired under the Plan. The Plan provided for the payment of 100% of their claims in the ordinary course of business, with the exception of two rejected real estate leases. On September 12, 1995, Holdings was merged into a subsidiary of Rental Service Corporation, and the Senior Notes, DIP Facility and certain equipment financing were paid off. Revenue Recognition Equipment rental revenue is recorded as earned under the operating method. Equipment rentals in the consolidated statements of operations include revenues earned on fuel sales and equipment delivery fees. Revenue from the sale of parts, supplies and equipment are recorded at the time of delivery to or pick-up by the customer. Parts and Supplies Inventories Parts and supplies inventories consist principally of parts, supplies and small- to medium-sized equipment for sale. All inventories are valued at the lower of cost (first-in, first-out) or market. F-35 ACME HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Depreciation and Amortization Rental equipment and operating property and equipment are being depreciated for financial statement purposes primarily using the straight-line method over the following estimated useful lives: Rental equipment............................................. 3-7 years Operating property and equipment............................. 3-7 years Leasehold improvements....................................... Term of lease
Rental equipment costing less than $400 is immediately expensed at date of purchase. Goodwill Goodwill represents the excess of purchase price over fair market value of net assets acquired and is amortized using the straight-line method over the estimated periods to be benefited, ranging from five to thirty years. Included in depreciation and amortization expense for the years ended December 31, 1992, 1993 and 1994 and the six months ended June 30, 1994 and 1995 is $175,000, $167,000, $145,000, $73,000 and $72,000, respectively, of such amortization expense. It is Holdings' policy to account for goodwill and all other intangible assets at the lower of amortized cost or fair value. The carrying value of goodwill is reviewed periodically (at least annually) based on the undiscounted cash flows of the entity over the remaining amortization period. Should this review indicate that goodwill will not be recoverable, Holdings' carrying value of goodwill will be reduced by the estimated short fall of undiscounted cash flows. In addition, management reviews the valuation and amortization of other intangible assets, taking into consideration any events and circumstances which might have diminished fair value. Other Assets Other assets consist of the following:
DECEMBER 31, --------------------- JUNE 30, 1993 1994 1995 ---------- ---------- ----------- (UNAUDITED) Recapitalization and deferred finance costs, net of accumulated amortization of $277,000, $726,000 and $955,000 in 1993, 1994 and 1995 respectively................. $2,813,000 $2,364,000 $2,135,000 Noncompetition and consulting agreements, net of accumulated amortization of $1,951,000 in 1993......................... 121,000 -- -- Other, primarily deposits................... 896,000 637,000 547,000 ---------- ---------- ---------- $3,830,000 $3,001,000 $2,682,000 ========== ========== ==========
In March 1992 Holdings entered into revised credit agreements (Note 3), and amended the terms of the subordinated notes (the Refinancing). Costs incurred in connection with the Refinancing were being amortized over two years, the estimated benefit period. In June 1993 Holdings issued Senior Notes (Note 3), therefore unamortized costs of $320,000 in connection with the 1992 refinancing were written off in 1993. Noncompetition and consulting agreements are amortized ratably over the terms of the agreements (two to five years). Included in depreciation and amortization expense for the years ended December 31, 1992, 1993 and 1994 and the six months ended June 30, 1994 and 1995 is $919,000, $1,217,000, $574,000, $344,000 and $229,000, respectively, of other assets' amortization expense. F-36 ACME HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Statements of Cash Flows For purposes of the statements of cash flows, Holdings considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Supplemental disclosures of cash flow information:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------- ------------------- 1992 1993 1994 1994 1995 ---------- ---------- ---------- ---------- -------- (UNAUDITED) Cash paid during the year for: Interest.............. $4,550,000 $9,924,000 $5,240,000 $4,876,000 $297,000 Income taxes.......... 160,000 282,000 381,000 324,000 54,000
Concentration of Credit Risk Holdings extends credit to its commercial customers based on evaluations of their financial condition and generally no collateral is required, although in many cases mechanics' liens are filed to protect Holdings' interests. Holdings has diversified its customer base by operating rental center locations in California, Florida, Texas and Louisiana. Customers of the Texas and Louisiana and certain California rental center locations are primarily large petrochemical companies or the maintenance contractors working therein. Holdings maintains adequate reserves for potential credit losses and such losses have been within management's estimates. 2. RESTRUCTURING PLAN In the fourth quarter of 1993, Holdings implemented a restructuring plan which focused on critical aspects of its business. As a result, Holdings recorded a charge to operations of $1,887,000. Costs applied against the reserve in the fourth quarter were $466,000, resulting in a reserve balance at December 31, 1993 of $1,421,000. The restructuring charge includes $356,000 of noncash items and $1,531,000 of cash items, of which $112,000 of noncash items and $354,000 of cash items were realized in 1993. The primary components of the restructuring charge are as follows: Closure and realignment of rental center locations (includes future lease commitments and the write down to net realizable value of owned locations)...................................... $1,398,000 Severance or relocation of 19 employees......................... 489,000 ---------- $1,887,000 ==========
For the year ended December 31, 1994, Holdings applied $1,166,000 of costs against the restructuring reserve of which $866,000 related to cash items and $300,000 related to noncash items. As of December 31, 1994 and June 30, 1995, the restructuring reserve was $255,000 and $195,000 respectively, which related to the incremental costs associated with the sublet of the Hollywood, California location, which is a future cash item. F-37 ACME HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. FINANCING AGREEMENTS Secured and unsecured debt consists of the following:
DECEMBER 31, ----------------------- JUNE 30, 1993 1994 1995 ----------- ----------- ----------- (UNAUDITED) Bank debt under revolving advances... $ 1,919,000 $ 1,045,000 $ 1,257,000 Equipment contracts payable.......... 3,920,000 4,013,000 3,096,000 ----------- ----------- ----------- Senior secured borrowings............ 5,839,000 5,058,000 4,353,000 11.75% senior notes due 2000......... 77,566,000 77,618,000 77,644,000 ----------- ----------- ----------- $83,405,000 $82,676,000 $81,997,000 =========== =========== ===========
Bank Debt On March 30, 1992, Holdings entered into a revised credit agreement (the 1992 Credit Agreement) with its banks which consisted of $20 million available ($18 million at December 31, 1992) through a revolving line of credit, a $22 million acquisition note and an $8.9 million equipment note; the amounts available decreased over the term of the agreement. Amounts outstanding under the 1992 Credit Agreement bore interest, due monthly, at the bank's prime rate plus 2.25% or LIBOR plus 3.50% (8.25% or 7.5%, effective rate at December 31, 1992), provided that not more than 80% of such amounts outstanding could be at LIBOR plus 3.50%. The bank debt was paid off in June 1993 with proceeds from the issuance of the Senior Notes. Simultaneous with the issuance of Senior Notes in June 1993, Holdings established the $10,000,000 New Credit Facility with a financial institution. Holdings may borrow, on a revolving basis, up to the amount of a borrowing base calculated as a percentage of eligible accounts receivable and a percentage of resale inventory. The financial institution has a security interest in all of Holdings' accounts receivable, inventory, and proceeds thereof. The New Credit Facility is available for general corporate purposes, including working capital requirements. Interest is due monthly at a rate of 1.25% over the financial institution's prime rate or 2.50% over the LIBOR rate (9.75% or 9.0%, effective rate at December 31, 1994 and 10.25% or 9.0%, effective rate at June 30, 1995), at Holdings' option. Availability on the revolving facility and principal borrowings outstanding were $5,027,000 and $1,045,000, respectively, at December 31, 1994 and $4,134,000 and $1,257,000, respectively, at June 30, 1995. Commitment fees on the unused portion of the revolving credit facility at the rate of one-half of 1% per annum, payable in arrears on March 1, June 1, September 1, and December 1, are due commencing September 1, 1993. Principal is due in its entirety on June 2, 1998, unless accelerated prior thereto. Up to $1,000,000 of letters of credit may be issued under the New Credit Facility. Outstanding letters of credit totaled $114,000 and $14,000 at December 31, 1994 and June 30, 1995, respectively. Fees at the rate of 2.5% per annum are paid upon issuance of letters of credit. Certain financial covenants and other affirmative and negative covenants are required to be maintained as called for by the New Credit Facility agreement. The financial covenants were amended in 1993 and again on March 29, 1994. As of December 31, 1994 and June 30, 1995, Holdings was not in compliance with the interest coverage ratio, fixed charges ratio, leverage ratio and capital expenditure limits of the covenant provisions. Holdings' failure to make the interest payment on the Senior Notes is also an event of default under the terms of its New Credit Facility. As of March 15, 1995, Citicorp acknowledged all the covenant non-compliance and defaults, did not waive such defaults and reserved any and all rights and remedies under or with respect to the New Credit Facility and the Loan Documents (as defined in the credit agreement) resulting from such event of default. Moreover, because the covenants are based on the trailing 12 months' earnings, pursuant to F-38 ACME HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Management's estimates for 1995, Holdings anticipates not being in compliance with covenant provisions of the New Credit Facility at the end of any quarter during 1995. As of June 30, 1995 and July 12, 1995, Citicorp was making discretionary advances under the New Credit Facility without assurance that it would make discretionary advances or issue a waiver or continue to preserve their rights for any future defaults. If Holdings is not able to obtain an advance or a waiver in the future and a default is declared and demand is made for the payment of all amounts outstanding under the New Credit Facility, Holdings does not believe it will be able to satisfy such demand. In this event, Citicorp under the New Credit Facility would also be entitled to exercise their rights and remedies under the related Security Agreement, which include all rights and remedies of a secured party upon default under the New York Uniform Commercial Code. There can be no assurance that demand for payment of all amounts outstanding under the New Credit Facility will not be made or how much longer Citicorp will continue to make discretionary advances under the New Credit Facility or that funds will otherwise be available under the New Credit Facility. Subordinated Notes Payable In 1990, Holdings issued $25 million in senior subordinated notes to a financial institution for cash, and granted a warrant to purchase 27,778 shares of Holdings' common stock at an exercise price of $146.25 per share (the Original Warrant); the Original Warrant was valued at $500,000. On April 1, 1993, the senior subordinated note agreement was amended to allow Holdings to issue 13.5% senior subordinated interest notes (the Interest Notes) in lieu of its July 15, 1991, January 15, 1992 and July 15, 1992 interest payments. In conjunction with amending the senior subordinated note agreement and in exchange for the Original Warrant, Holdings issued to the holder of the senior subordinated notes a warrant to purchase 27,778 shares of Holdings' common stock at an exercise price of $0.10 per share (Replacement Warrant) for the Original Warrant. The exercise price of the Replacement Warrant was based on the estimated fair market value of Holdings' common stock at the date of the amendment as determined by Holdings' Board of Directors. If exercised, the related shares would represent 21% of the outstanding shares of common stock at December 31, 1994. The warrant is fully exercisable, in whole or in part, and expires on January 15, 2000. Holdings also had unsecured promissory notes payable, principally to its shareholders, aggregating $2,250,000 at December 31, 1992 bearing simple interest at 10% to 12%. The notes were subordinated to obligations outstanding under the 1992 Credit Agreement with the bank and the amended senior subordinated note agreement. In accordance with a subordination agreement dated as of March 31, 1992, the principal and interest on the junior subordinated notes could not be paid until all obligations outstanding under the 1992 Credit Agreement and the amended senior subordinated note agreement were paid in full. All Senior and Junior subordinated notes payable were paid off with proceeds from the issuance of the Senior Notes. 11.75% Senior Notes Due 2000 On June 1, 1993, Holdings sold $78,000,000 of 11.75% Senior Notes due 2000 less a discount of $455,000 in a public debt offering. Each of Holdings' wholly owned subsidiaries guarantee the Senior Notes on a full, unconditional, and joint and several basis. The Senior Notes are senior obligations of Holdings and rank pari passu with all unsubordinated indebtedness of Holdings. Proceeds of the Senior Notes were used for the repayment of all bank debt, senior subordinated notes payable, and junior subordinated notes payable outstanding at June 1, 1993. The Senior Notes are redeemable, in whole or in part, at the option of Holdings, at any time on or after June 1, 1996, at certain agreed upon redemption prices. In addition, until June 1, 1996, upon an Initial Public Offering of Holdings' stock, up to 20% of the originally issued aggregate principal amount of Senior F-39 ACME HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Notes may be redeemed at the option of Holdings at a certain agreed upon price. The indenture relating to the Senior Notes (Indenture) contains certain covenants that, among other things, limit the type and amount of additional indebtedness that may be incurred by Holdings and certain of its subsidiaries and imposes limitation on investments, loans, advances, the payment of dividends and the making of certain other payments, the creation of liens, certain transactions with affiliates and certain mergers. Interest, at a rate of 11.75%, is due semiannually on June 1 and December 1. The interest payments on the Senior Notes are in the amount of $4,582,500. To date, Holdings has not made the interest payment on the Senior Notes due December 1, 1994 and is in default with the terms of the Senior Notes Indenture. Since an event of default under the Indenture has occurred and is continuing, the holders of at least 25 percent in aggregate principal amount of the outstanding Senior Notes may, by written notice to Holdings and the Trustee under the Indenture, and the Trustee upon the written request of such holders, can declare the principal amount of and accrued interest on all of the outstanding Senior Notes due and payable immediately. If an event of default under the Indenture occurs related to the bankruptcy of Holdings or any Holdings subsidiary of Holdings, then the principal of and accrued interest on the Senior Notes shall become immediately due and payable. If the indebtedness under the Senior Notes is accelerated, Holdings would not be able to pay such amounts. In such event, the Trustee is entitled to pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Senior Notes or to enforce the performance of any provision of the Senior Notes or the Indenture. If not accelerated before such date, principal under the Senior Notes, in its entirety, is due June 1, 2000. Equipment Contracts Payable The equipment contracts bear interest at rates ranging from 7% to 14%, are secured by equipment purchased and are payable in various monthly principal installments. Debt Maturities The aggregate annual maturities of debt as of December 31, 1994, are as follows:
BANK EQUIPMENT SENIOR DEBT(A) CONTRACTS NOTES(B) TOTAL ---------- ---------- ----------- ----------- 1995......................... $ -- $1,708,000 $ -- $ 1,708,000 1996......................... -- 1,399,000 -- 1,399,000 1997......................... -- 797,000 -- 797,000 1998......................... 1,045,000 109,000 -- 1,154,000 1999......................... -- -- -- -- Thereafter................... -- -- 77,618,000 77,618,000 ---------- ---------- ----------- ----------- $1,045,000 $4,013,000 $77,618,000 $82,676,000 ========== ========== =========== ===========
- -------- (A) Currently, the New Credit Facility is in default and if the outstanding principal is not accelerated, then the principal in its entirety is due June 2, 1998. (B) Currently, the Senior Notes are in default and if not accelerated, then the principal in its entirety is due June 1, 2000. F-40 ACME HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. SHAREHOLDERS' DEFICIT On March 31, 1992, in connection with the 1992 Credit Agreement (Note 3) Holdings issued and sold 3,000,000 shares of Series A preferred stock, par value $1.00, (the Preferred Stock) for $3,000,000 cash. Each share of the Preferred Stock is entitled to .005 (five one-thousandths) of one vote. No dividends may be paid on common stock in any fiscal year unless Holdings has first paid to the Preferred Stock shareholders a dividend of not less than $0.06 per share, which is noncumulative. Any additional dividends declared shall be declared on the common stock only. Upon liquidation, the Preferred Stock carries a liquidation preference of $1.00 per share, plus an amount equal to all declared and unpaid dividends thereon. After the payment or distribution to the Preferred Stock shareholders of the full preferential amounts, the common shareholders are entitled to all remaining assets of Holdings to be distributed. Concurrent with the issuance of the Preferred Stock, Holdings' Board of Directors declared a one-for-ten reverse stock split of Holdings' stock outstanding on such date. The authorized shares of Holdings' common stock was changed to 500,000 shares, $.01 par value. Additionally, Holdings entered into a restricted stock agreement with its former Chairman and Chief Executive Officer subjecting 25,005 shares of Holdings' common stock owned by him to forfeiture. The restrictions on 10,002 of such shares were to lapse based on ratable monthly vesting over 36 months. The restrictions on the remaining 15,003 shares were to lapse ratably each year if certain earnings levels were achieved for fiscal years 1992, 1993 and 1994. At December 31, 1993, restrictions on 10,839 of the shares had lapsed and 5,001 shares were forfeited and returned to Holdings. As of December 31, 1994, restrictions on 12,507 of the shares had lapsed and 12,498 were forfeited and returned to Holdings. On December 31, 1994, AAC purchased all of the former Chairman's outstanding common and preferred shares in Holdings for a total consideration of $10. On December 28, 1993, Holdings entered into a stock purchase agreement with the former President (Management Participant) whereby the Management Participant purchased 5,985 shares of Holdings' authorized but unissued common stock at $.01 per share. One-half of the shares are referred to as Employment Stock and the remaining one-half of the shares are referred to as Eligible Time Accelerated Stock (ETA Stock). The shares of common stock subject to this agreement are held in escrow until such time as the shares vest. The Employment Stock vests at the rate of 25% on December 31, 1993, 1994, 1995 and 1996. The ETA Stock vests at the rate of 25% on December 31, 1993, 1997, 1998 and 1999, however, the vesting may be accelerated if Holdings achieves certain performance targets, as determined by Holdings' Board of Directors. As of December 31, 1994, 1,496 shares of Employment Stock and 748 shares of ETA Stock had vested. 5. EMPLOYEE BENEFIT PLANS Holdings has a Section 401(k) employees savings plan (the Savings Plan) covering substantially all full-time employees upon completion of at least 500 hours of service and six-months of continuous employment. The Savings Plan is a defined contribution plan and provides for Holdings to make discretionary contributions as deemed appropriate by the Savings Plan administrative committee. No contributions were made by Holdings to the Savings Plan during the years ended December 31, 1992, 1993 or 1994 or the six months ended June 30, 1995. Holdings also has a group medical and dental insurance plan (the Health Plan) covering substantially all full time employees (and their eligible dependents) as defined, who have completed a minimum of three months of continuous service (12 months of service to qualify for dental benefits). Holdings is insured for individual and aggregate claims in excess of defined stop-loss limits and has provided reserves for amounts it believes are sufficient to cover claims which have been incurred but not reported as of December 31, 1994 and June 30, 1995. F-41 ACME HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. COMMITMENTS Obligations Under Capital Leases Holdings has entered into capital lease obligations in connection with acquiring certain rental equipment with aggregate costs and accumulated amortization of $1,463,000 and $230,000 at December 31, 1993, and $1,553,000 and $355,000 at December 31, 1994, respectively. Future minimum lease payments under the capital leases and the present value of the minimum lease payments as of December 31, 1994 are as follows: 1995............................................................ $482,000 1996............................................................ 251,000 1997............................................................ 23,000 1998............................................................ 7,000 1999............................................................ -- Thereafter...................................................... -- -------- Total minimum future lease payments............................. 763,000 Less amount representing interest............................... 73,000 -------- Present value of net minimum future lease payments.............. $690,000 ========
Obligations Under Operating Leases At December 31, 1994, Holdings had minimum annual lease commitments for property and equipment under noncancelable operating leases as follows: 1995.......................................................... $ 3,686,000 1996.......................................................... 2,997,000 1997.......................................................... 2,045,000 1998.......................................................... 1,141,000 1999.......................................................... 948,000 Thereafter.................................................... 2,649,000 ----------- $13,466,000 ===========
The property leases require Holdings to pay certain property taxes and insurance costs. Certain of the real property leases provide for escalation of future rental payments based upon increases in the consumer price index. Rental expense under all operating leases totaled $3,631,000, $4,022,000, $4,380,000, $2,224,000 and $2,110,000 for the years ended December 31, 1992, 1993, 1994, and six months ended June 30, 1994 and 1995, respectively. Holdings leases all or a portion of one of its California locations from a partnership that is comprised of certain present and former shareholders and directors of Holdings and leases property which is part of a second California location from certain present and former shareholders and directors of Holdings. The corporate offices in California are leased from a former officer and director of Holdings. Two locations in Louisiana are leased from a former officer of Acme Dixie. The leases require monthly lease payments aggregating approximately $43,000. Total rent expense attributable to these leases and included in operations was $421,000, $532,000 and $533,000 for the years ended December 31, 1992, 1993 and 1994, respectively and $231,000 and $231,000 for the six months ended June 30, 1994 and 1995, respectively. Purchase Commitments As of December 31, 1994 and June 30, 1995, Holdings had commitments to purchase equipment of approximately $2,395,000 and $1,977,000, respectively. F-42 ACME HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Noncompetition Agreements Holdings in the past has entered into noncompetition and/or consulting agreements with the former owners of certain businesses it has acquired, some of which require cash payments in future periods. The agreements are for terms of two to five years and prohibit the former owners from competing with Holdings in the business of renting equipment in certain California, Texas and Louisiana counties. The present values of these future cash payments have been capitalized and included in other assets (Note 1) with the corresponding liabilities included in other accrued expenses in the accompanying balance sheets. Any breach of the agreements by the former owners terminates Holdings' obligations. Amounts charged to expense, including amortization expense on capitalized costs, were approximately $546,000, $376,000, $121,000, $121,000 and $0, for the years ended December 31, 1992, 1993 and 1994, and the six months ended June 30, 1994 and 1995, respectively. 7. RELATED PARTY TRANSACTIONS In July 1992, Holdings entered into a five-year management agreement (Management Agreement) with a company owned by certain shareholders of Holdings (AAC) that is acquiring equipment rental businesses. Under the Management Agreement, Holdings locates potential acquisition opportunities, provides administrative assistance in connection with acquisitions and manages, supervises and provides administrative and accounting support for the operation of AAC's rental locations. Pursuant to the Management Agreement, Holdings has agreed, until April 1, 1995, to make available first to such company any opportunities which come to its attention for acquiring additional rental locations. During 1992, 1993 and 1994, Holdings assisted AAC in making six acquisitions. AAC reimburses Holdings for any costs incurred by Holdings to acquire the companies. Additionally, AAC pays Holdings a management fee based on a percentage of the acquisition cost for each acquisition and the performance of the companies acquired. As of December 31, 1993, the miscellaneous receivable and the management fee receivable were $45,000 and $146,000, respectively and as of December 31, 1994, the net miscellaneous payable and the management fee receivable were $117,000 and $255,000, respectively, and as of June 30, 1995, the net miscellaneous payable and the management fee receivable were $82,000 and $381,000, respectively. As a result of the chairman's resignation in June 1994, AAC at its discretion may terminate the Management Agreement between AAC and Holdings. AAC has not notified Holdings as to its intentions with respect to the termination or continuation of the Management Agreement. Total management fee revenue, included as a reduction in general and administrative expense, was $162,000, $1,082,000, $1,496,000, $718,000 and $524,000, for the years ended December 31, 1992, 1993 and 1994, and the six months ended June 30, 1994 and 1995, respectively. In addition, Holdings and AAC have agreed to rerent equipment to each other in the event the other party does not have sufficient rental equipment at a given rental center location to meet a customer's requirements. The party making such equipment available receives 70% of the gross rental receipts received by the other party related to such rerental. For the years ended December 31, 1992, 1993 and 1994 and the six months ended June 30, 1994 and 1995, rerent revenue received by Holdings from AAC was $13,000, $151,000, $39,000, $6,000 and $16,000, respectively, and rerent expense paid by Holdings to AAC was $37,000, $111,000, $230,000, $62,000 and $35,000, respectively. Holdings also leases certain facilities owned by certain of Holdings' present and former officers, directors and shareholders (Note 6). F-43 ACME HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. STOCK OPTION PLAN In May 1990, Holdings' Board of Directors approved the Acme Holdings Inc. 1990 Stock Option Plan which authorizes the granting of options to various directors, officers, employees and outside consultants to purchase, within a period of 10 years from date of grant, up to 7,310 shares of common stock at an exercise price to be determined at the time of grant by Holdings' Board of Directors. The exercise price shall be not less than fair market value on the date of grant for incentive stock options (ISOs), and not less than 85% of the fair market value on the date of grant for nonstatutory stock options (NSOs). Any otherwise eligible participant who owns more than 10% of the total combined voting power of all classes of outstanding stock of Holdings is not eligible to receive options under the plan unless the exercise price is at least 110% of the fair market value of such shares on the date of grant and the options are exercisable for a term of only five years from the date of grant. Options vest in such increments as determined by Holdings' Board of Directors. ISOs to purchase 3,290 shares of common stock at $.10 per share were granted in March 1992 to replace previously issued and canceled options. In January 1993, 1,097 ISOs to purchase shares of common stock at $2.69 per share were granted. Such ISOs become exercisable at various dates commencing July 1993. ISOs covering 1,097 shares are exercisable at December 31, 1994. On March 31, 1992, NSOs to purchase 365 shares of common stock at $27.00 per share were granted to replace previously issued and canceled options; such exercise price was based upon isolated negotiations with a single option holder and bore no relationship to the fair market value of the common stock. The NSOs were fully exercisable at date of grant. No options were granted during 1994. 9. INCOME TAXES Effective January 1, 1993, Holdings changed its method of accounting for income taxes from the deferred method to the liability method required by Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (Statement No. 109). Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. As permitted under Statement No. 109, Holdings has elected not to restate the financial statements of any prior years. There was no effect from this change on net income for the year ended December 31, 1993 or on the deferred tax balance at December 31, 1992. The provision (benefit) for income taxes is comprised of the following:
1992 1993 1994 -------- -------- -------- Current: Federal..................................... $ -- $ -- $ -- State....................................... 400,000 300,000 111,000 -------- -------- -------- 400,000 300,000 111,000 Deferred: Federal..................................... -- -- -- State....................................... 27,000 (26,000) (50,000) -------- -------- -------- 27,000 (26,000) (50,000) -------- -------- -------- $427,000 $274,000 $ 61,000 ======== ======== ========
F-44 ACME HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In 1994, deferred income taxes reflect the tax effects of temporary differences between the value of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of Holdings' net deferred tax assets and liabilities are as follows:
DECEMBER 31, ------------------------- 1993 1994 ----------- ------------ Deferred tax assets: Net operating loss carryforwards............... $ 8,614,000 $ 11,899,000 Alternative minimum tax credit................. 754,000 754,000 Allowance for doubtful accounts................ 384,000 501,000 Accrued health & general insurance............. 1,298,000 1,257,000 State taxes, net............................... 297,000 123,000 Other accruals................................. 1,733,000 1,183,000 ----------- ------------ Total deferred tax assets...................... 13,080,000 15,717,000 Valuation allowance for deferred tax assets.... (7,396,000) (11,596,000) ----------- ------------ Net deferred tax assets.......................... 5,684,000 4,121,000 Deferred tax liabilities: Depreciation, tax over book.................... (5,904,000) (4,146,000) Other accruals................................. (205,000) (350,000) ----------- ------------ Total deferred tax liabilities................... (6,109,000) (4,496,000) ----------- ------------ Net deferred tax liabilities..................... $ (425,000) $ (375,000) =========== ============
A reconciliation between the provision for income taxes computed by applying the federal statutory tax rate to loss before taxes for the years ended December 31 is as follows:
YEAR ENDED DECEMBER 31, ----------------------------------- 1992 1993 1994 --------- ----------- ----------- Federal tax benefit at statutory rate................................. $(218,000) $(4,686,000) $(2,994,000) Losses without benefit............... 218,000 4,686,000 2,994,000 State taxes.......................... 427,000 274,000 61,000 --------- ----------- ----------- $ 427,000 $ 274,000 $ 61,000 ========= =========== ===========
At December 31, 1994, Holdings has approximately $29,300,000 of net operating loss carryforwards for federal income tax purposes that expire $9,500,000 in 2005, $6,000,000 in 2006, $1,700,000 in 2007 and $6,800,000 in 2008 and $5,300,000 in 2009. In addition, Holdings has net operating loss carryforwards for California income tax purposes of approximately $17,800,000 which are available to offset taxable income starting in 1993 and expire $4,300,000 in 1996, $5,800,000 in 1997, $3,900,0000 in 1998 and $3,800,000 in 1999. The ultimate realization of the benefit of these loss carryforwards is dependent on Holdings achieving proper levels of operating profits in the future. Holdings also has alternative minimum tax credit carryovers of approximately $590,000 for federal income tax purposes and $164,000 for California income tax purposes which are available to offset future regular income tax that is in excess of the alternative minimum tax in such year. The credits carry over indefinitely. Pursuant to the Tax Reform Act of 1986, use of Holdings' net operating loss carryforwards and other tax attributes may be substantially limited if a cumulative change in ownership of more than 50% occurs within any three year period. As of December 31, 1994, a cumulative change of more than 50% occurred which could significantly impact the future benefit of the federal and state net operating loss carryforwards under Internal Revenue Service Code Section 382. 10. SUBSEQUENT EVENT Holdings has decided to relocate its corporate office to Scottsdale, Arizona during the second and third quarters of 1995. F-45 REPORT OF INDEPENDENT AUDITORS Board of Directors Rental Service Corporation We have audited the accompanying combined balance sheets of the corporations and partnerships listed in Note 1 (the Company) as of March 31, 1997 and 1996 and the related combined statements of operations, redeemable stock and other stockholders' and partners' equity and cash flows for the years then ended. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined 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 combined financial statements referred to above present fairly, in all material respects, the combined financial position of the corporations and partnerships listed in Note 1 at March 31, 1997 and 1996, and the combined results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Phoenix, Arizona May 6, 1997 F-46 INDUSTRIAL AIR TOOL COMBINED BALANCE SHEETS
MARCH 31, ------------------------ 1996 1997 ----------- ----------- ASSETS Cash and cash equivalents............................. $ 1,816,726 $ 7,164,847 Investments, at market value (cost of $2,687,731)..... 2,813,546 -- Accounts receivable, net of allowance for doubtful accounts of $120,000 at March 31, 1996 and 1997...... 7,482,984 6,993,000 Inventory............................................. 6,843,218 6,663,676 Prepaid expenses and other assets..................... 306,003 217,400 Rental equipment, at cost, net of accumulated depreciation of $2,086,440 and $1,835,658 at March 31, 1996 and 1997.................................... 1,103,985 1,010,027 Operating property and equipment, at cost, net of accumulated depreciation............................. 1,350,901 1,377,166 Other assets.......................................... 764,371 716,238 ----------- ----------- $22,481,734 $24,142,354 =========== =========== LIABILITIES, REDEEMABLE STOCK, AND OTHER STOCKHOLDERS' AND PARTNERS' EQUITY ---------------------------------------- Accounts payable...................................... $ 2,717,936 $ 2,513,777 Payroll and other accrued expenses.................... 1,120,553 1,232,929 Notes payable to stockholders......................... 705,127 705,127 ----------- ----------- Total liabilities..................................... 4,543,616 4,451,833 Commitments and contingencies Class B common stock--redeemable, at liquidation value................................................ 11,399,437 10,774,506 Other stockholders' and partners' equity: Unrealized gain on investments available for sale... 125,815 -- Preferred stock, at liquidation value............... 890,800 890,800 Class A common stock................................ 10,000 10,000 Common stock--Bayview............................... 2,500 2,500 Partners' equity.................................... 6,021,363 7,781,958 Retained earnings (deficit)......................... (511,797) 230,757 ----------- ----------- Total other stockholders' and partners' equity........ 6,538,681 8,916,015 ----------- ----------- $22,481,734 $24,142,354 =========== ===========
See accompanying notes. F-47 INDUSTRIAL AIR TOOL COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, ------------------------ 1996 1997 ----------- ----------- Revenues: Sales of parts, supplies and equipment............ $38,159,436 $41,694,541 Equipment rentals................................. 6,848,704 7,318,643 ----------- ----------- Total revenues...................................... 45,008,140 49,013,184 Cost of revenues: Cost of sales of parts, supplies and equipment.... 30,377,393 33,306,804 Cost of equipment rentals, excluding equipment rental depreciation.............................. 4,624,537 5,169,571 Depreciation, equipment rentals................... 528,926 445,504 ----------- ----------- Total cost of revenues.............................. 35,530,856 38,921,879 ----------- ----------- Gross profit........................................ 9,477,284 10,091,305 Selling, general and administrative expenses........ 6,366,204 7,107,647 Depreciation and amortization, excluding equipment rental depreciation................................ 205,742 164,243 ----------- ----------- Operating income.................................... 2,905,338 2,819,415 Other income (expense): Interest income................................... 159,477 204,263 Gain on sale of investments....................... -- 251,540 Interest expense.................................. (48,661) (67,070) Other, net........................................ 10,496 (82,379) ----------- ----------- 3,026,650 3,125,769 Provision for income taxes.......................... 100,000 150,000 ----------- ----------- Net income.......................................... $ 2,926,650 $ 2,975,769 =========== ===========
See accompanying notes. F-48 INDUSTRIAL AIR TOOL COMBINED STATEMENTS OF REDEEMABLE STOCK AND OTHER STOCKHOLDERS' AND PARTNERS' EQUITY
COMTECT, INC. BAYVIEW ------------------------------ ------------- REDEEMABLE CLASS B CLASS A COMMON STOCK PREFERRED STOCK COMMON STOCK COMMON STOCK ------------------ --------------- -------------- ------------- PARTNERS' SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL ------ ----------- ------ -------- ------ ------- ------ ------ ---------- Balance at March 31, 1995........ 10,000 $11,158,316 8,908 $890,800 10,000 $10,000 2,500 $2,500 $3,889,279 Net income...... -- -- -- -- -- -- -- -- 2,638,684 Change in liquidation value of redeemable stock........... -- 241,121 -- -- -- -- -- -- -- Unrealized appreciation on investments..... -- -- -- -- -- -- -- -- -- Distributions to stockholders and partners........ -- -- -- -- -- -- -- -- (506,600) ------ ----------- ----- -------- ------ ------- ----- ------ ---------- Balance at March 31, 1996........ 10,000 11,399,437 8,908 890,800 10,000 10,000 2,500 2,500 6,021,363 Net income...... -- -- -- -- -- -- -- -- 2,657,487 Change in liquidation value of redeemable stock........... -- (624,931) -- -- -- -- -- -- -- Liquidation of investment portfolio....... -- -- -- -- -- -- -- -- -- Distributions to stockholders and partners........ -- -- -- -- -- -- -- -- (896,892) ------ ----------- ----- -------- ------ ------- ----- ------ ---------- Balance at March 31, 1997........ 10,000 $10,774,506 8,908 $890,800 10,000 $10,000 2,500 $2,500 $7,781,958 - -------------------------------------------------- ====== =========== ===== ======== ====== ======= ===== ====== ========== UNREALIZED TOTAL GAINS (LOSSES) OTHER ON INVESTMENTS RETAINED STOCKHOLDERS' AVAILABLE FOR EARNINGS AND PARTNERS' SALE (DEFICIT) EQUITY -------------- ---------- ------------- Balance at March 31, 1995........ $(159,812) $(159,643) $ 4,473,124 Net income...... -- 287,966 2,926,650 Change in liquidation value of redeemable stock........... -- (241,121) (241,121) Unrealized appreciation on investments..... 285,627 -- 285,627 Distributions to stockholders and partners........ -- (398,999) (905,599) -------------- ---------- ------------- Balance at March 31, 1996........ 125,815 (511,797) 6,538,681 Net income...... -- 318,282 2,975,769 Change in liquidation value of redeemable stock........... -- 624,931 624,931 Liquidation of investment portfolio....... (125,815) -- (125,815) Distributions to stockholders and partners........ -- (200,659) (1,097,551) -------------- ---------- ------------- Balance at March 31, 1997........ $ -- $ 230,757 $ 8,916,015 - -------------------------------------------------- ============== ========== =============
See accompanying notes. F-49 INDUSTRIAL AIR TOOL COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31, ------------------------ 1996 1997 ----------- ----------- OPERATING ACTIVITIES Net income.......................................... $ 2,926,650 $ 2,975,769 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation...................................... 734,668 609,747 Gain on sale of investments available for sale.... -- (251,540) Provision for deferred taxes...................... (105,000) 60,000 Changes in operating assets and liabilities: Accounts receivable............................. (1,760,654) 489,984 Prepaid expenses and other assets............... (68,793) 76,736 Inventory....................................... (748,832) 179,542 Accounts payable ............................... (159,262) (204,159) Payroll and other accrued expenses.............. 502,565 112,376 ----------- ----------- Net cash provided by operating activities........... 1,321,342 4,048,455 INVESTING ACTIVITIES Proceeds from the sale of investments available for sale, net.......................................... 321,927 2,939,271 Acquisition of property and equipment .............. (871,473) (542,054) ----------- ----------- Net cash provided by (used in) investing activities......................................... (549,546) 2,397,217 FINANCING ACTIVITIES Distributions to stockholders and partners.......... (905,599) (1,097,551) Principal repayments of notes payable............... (284,873) -- ----------- ----------- Net cash used by financing activities............... (1,190,472) (1,097,551) ----------- ----------- Net increase (decrease) in cash and cash equivalents........................................ (418,676) 5,348,121 Cash and cash equivalents at beginning of year...... 2,235,402 1,816,726 ----------- ----------- Cash and cash equivalents at end of year............ $ 1,816,726 $ 7,164,847 =========== ===========
See accompanying notes. F-50 INDUSTRIAL AIR TOOL NOTES TO COMBINED FINANCIAL STATEMENTS MARCH 31, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying combined financial statements include the accounts of the following companies (collectively, Industrial Air Tool or IAT): .Comtect Inc. (Comtect), a Nevada Corporation, and its wholly owned subsidiaries: -- IAT interests of Nevada, Inc., a Nevada corporation. -- RNJB, Inc., a Nevada corporation. -- CFTSIJC., Inc., a Nevada corporation. -- Industrial Air Tool Pasadena, Inc., a Texas corporation. -- Industrial Air Tool Texas City, Inc., a Texas corporation. -- PST, Inc. of Louisiana, A Louisiana corporation. -- LRB Supply, Inc., a Texas corporation. .GT Financial Ltd., a Texas limited partnership .Shield Pt., Ltd. (Shield), a Texas limited partnership .Bayview Interests, Inc. (Bayview), a Nevada Corporation Each of these companies and partnerships are owned by substantially the same shareholders and partners. All material intercompany accounts and transactions have been eliminated. Comtect sells maintenance, repair, and operations (MRO) equipment and supplies, and rents equipment to customers throughout the world from its locations in Texas and Louisiana. Comtect grants credit to customers, the majority of whom are in the petrochemical or construction industries. GT Financial purchases certain accounts receivable from Comtect. Shield owns land and buildings which are leased to Comtect. Bayview is a domestic international sales corporation which has received a commission of 4 percent (to a maximum commission of $400,000) on all export sales. 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. Revenue Recognition Revenue from the sale of parts, supplies and equipment are recorded at the time of delivery to or pick-up by the customer. Equipment rental revenue is recorded as earned under the operating method. Cash and Cash Equivalents. IAT considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. F-51 INDUSTRIAL AIR TOOL NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Credit Policy IAT extends credit to its customers based on evaluations of their financial condition. Collateral generally is not required. IAT maintains reserves which it believes are adequate for potential credit losses. Inventories Inventories consist principally of equipment, parts, and supplies. All inventories are valued at the lower of cost or market using the specific identification last-in, first-out (LIFO) method of accounting, which approximates the first-in, first-out method of accounting. Depreciation and Amortization Rental equipment and operating property and equipment are stated at cost and are depreciated using the straight-line method over the following estimated useful lives: Rental equipment............................................... 5-7 years Operating property and equipment............................... 5 years Buildings and leasehold improvements........................... 28-40 years
All rental equipment costing more than $500 and greater than one year useful life is capitalized at the date of purchase. Income Taxes Comtect utilizes the liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under the liability 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. Deferred tax assets are recognized and measured based on the likelihood of realization of the related tax benefits in the future. GT Financial Ltd. and Shield are Texas limited liability partnerships, and, accordingly, taxes related to their income are the responsibility of the individual partners. Advertising Expense Advertising costs are expensed as incurred. Advertising expense was $46,057 and $88,912 for the years ended March 31, 1996 and 1997, respectively. 2. OPERATING PROPERTY AND EQUIPMENT Operating property and equipment consist of the following:
MARCH 31, --------------------- 1996 1997 ---------- ---------- Land and building........................................ $1,424,593 $1,424,593 Vehicles, machinery and equipment........................ 618,069 607,631 Office equipment......................................... 272,747 298,585 ---------- ---------- Total................................................ 2,315,409 2,330,809 Less accumulated depreciation............................ 964,508 953,643 ---------- ---------- $1,350,901 $1,377,166 ========== ==========
F-52 INDUSTRIAL AIR TOOL NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 3. NOTES PAYABLE TO STOCKHOLDERS Notes payable at March 31, 1996 and 1997 are payable by GT Financial Ltd. to two shareholders with interest at 10 percent, and due on demand. No interest was paid in the years ended March 31, 1996 and 1997. 4. EMPLOYEE BENEFIT PLANS IAT maintains the ERISA qualified IAT Interests, Inc. Profit Sharing Plan (the Plan) covering substantially all employees who complete 1,000 hours of service annually. The Plan allows IAT to make discretionary contributions. Contributions are allocated to employee accounts based upon individual wages as compared to total IAT wages. Employees are not permitted or required to make contributions to the Plan. Vesting of an employee's interest in the Plan occurs over a seven year period. Contributions to the Plan were $543,065 and $617,824 for the years ended March 31, 1996 and 1997, respectively. 5. REDEEMABLE STOCK AND OTHER STOCKHOLDERS' EQUITY Comtect has 20,000 shares of preferred stock authorized, $10 par value, with 8,908 shares issued and outstanding at March 31, 1996 and 1997. The preferred stock is nonvoting and is entitled to receive, when and as declared by the board of directors, a noncumulative dividend of $9.00 per share. The preferred stock has a liquidation preference of $100 per share plus any declared and unpaid dividends. Comtect has 20,000 shares of Class A voting common stock authorized, $1.00 par value, with 10,000 shares issued and outstanding at March 31, 1996 and 1997. Comtect also has 20,000 shares of Class B nonvoting common stock, $1.00 par value, with 10,000 shares issued and outstanding at March 31, 1997. The Class B common stock is subordinate to the preferred stock and Class A common stock with respect to dividends and upon liquidation. Bayview has 5,000 shares of common stock authorized, $1.00 par value, with 2,500 shares issued and outstanding at March 31, 1996 and 1997. Pursuant to a buy-sell agreement dated March 31, 1992, Comtect has agreed with the holders of it's Class B common stock to purchase such shares upon the shareholder's termination of employment, death, disability, or at the shareholder's option, at its estimated fair value at the date of purchase, as defined in the agreement. The shareholders have agreed not to sell their shares except to Comtect. 6. COMMITMENTS AND CONTINGENCIES Environmental IAT and its operations are subject to a variety of federal, state and local laws and regulations governing, among other things, worker safety, air emissions, water discharge and the generation, handling, storage, transportation, treatment and disposal of hazardous substances and wastes. Under such laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as related costs of investigation and property damage. IAT incurs ongoing expenses associated with the performance of appropriate remediation at certain of its locations. IAT does not believe that such remediation will have a material adverse effect on IAT's combined financial position, results of operations or cash flows. Legal Proceedings IAT is party to various litigation matters, in most cases involving ordinary and routine claims incidental to the business of IAT. The ultimate legal and financial liability of IAT with respect to such pending litigation F-53 INDUSTRIAL AIR TOOL NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) cannot be estimated with certainty, but IAT believes, based on its examination of such matters, that such ultimate liability will not have a material adverse effect on the business, or the combined financial position, results of operations or cash flows of IAT. 7. INCOME TAXES Income tax expense differs from the amount computed by applying the statutory federal income tax to the income before income taxes due to the effect of state taxes and the portion of IAT's income which is attributable to limited partnerships, which are not subject to income taxes. Deferred tax assets consist of the following:
MARCH 31, ----------------- 1996 1997 -------- -------- Deferred tax assets: Nondeductible reserves and accruals................... $156,000 $131,000 Uniform capitalization adjustment..................... 90,000 86,000 Depreciation and other................................ 104,000 73,000 -------- -------- Total deferred tax assets........................... $350,000 $290,000 ======== ========
The tax provision is comprised of:
YEAR ENDED MARCH 31, ------------------- 1996 1997 --------- -------- Federal: Current.............................................. $ 135,000 $ 30,000 Deferred............................................. (105,000) 60,000 --------- -------- 30,000 90,000 State: Current.............................................. 70,000 60,000 Deferred............................................. -- -- --------- -------- 70,000 60,000 --------- -------- Total.............................................. $ 100,000 $150,000 ========= ========
8. SIGNIFICANT CUSTOMERS A single customer represented 10% and 12% of IAT's revenues for the years ended March 31, 1996 and 1997, respectively. Export sales, primarily to offshore petrochemical operators, totaled $10,801,000 and $13,107,000 during the years ended March 31, 1996 and 1997, respectively. A significant portion of the Company's revenues are generated based on manufacturers' distribution agreements. The loss of any such distributorships could have a material adverse effect on the Company's business. Sales of one manufacturer's products under a distribution arrangement represented 21% and 25% of revenues in the years ended March 31, 1996 and 1997, respectively. F-54 INDUSTRIAL AIR TOOL NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 9. SUBSEQUENT EVENTS Pursuant to a Purchase Agreement signed March 14, 1997, all of the outstanding common and preferred stock of Comtect was purchased on April 25, 1997 by Rental Service Corporation (RSC), effective March 1, 1997, in exchange for $32.6 million in cash and 189,189 shares of RSC Common Stock. Up to an additional 108,108 shares of RSC Common Stock may be paid to the sellers over a three year period if certain performance objectives are met. Under the terms of the Purchase Agreement all previously factored accounts receivable sold to GT Financial Ltd. were repurchased by Comtect, and all real estate owned by Shield and leased to Comtect was purchased by Comtect, effective March 31, 1997, and Bayview ceased its affiliation with Comtect. The transaction closed on April 25, 1997, and IAT's balance sheet was consolidated with RSC's under the purchase method of accounting as of that date. Pursuant to the acquisition agreement, RSC assumed effective control of IAT's operations on March 1, 1997 and has included IAT's revenues of $4,322,000 and costs and expenses of $3,848,000 from such date in its consolidated statements of operations for the three months ended March 31, 1997, net of related imputed purchase price adjustments of $48,000. F-55 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Brute Equipment Co. d/b/a Foxx Hy-Reach, Inc. Moline, Illinois We have audited the accompanying balance sheets of Brute Equipment Co. d/b/a Foxx Hy-Reach, Inc. as of December 31, 1995 and 1996, and the related statements of operations, 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 Brute Equipment Co. d/b/a Foxx Hy-Reach, Inc. as of December 31, 1995 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ McGLADREY & PULLEN, LLP Moline, Illinois April 26, 1997, except for the last paragraph in Note 11 as to which the date is May 1, 1998 F-56 BRUTE EQUIPMENT CO. D/B/A FOXX HY-REACH, INC. BALANCE SHEETS
DECEMBER 31, ----------------------- MARCH 31, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) ASSETS (NOTE 4) Cash...................................... $ 27,250 $ 3,350 $ 3,350 Accounts receivables, less allowance for doubtful accounts December 31, 1995 $20,000; December 31, 1996 $40,475; March 31, 1997 $40,475................... 2,002,199 2,649,607 2,453,143 Parts and supplies inventories............ 142,796 405,161 404,783 Other receivables and prepaid expense..... 42,737 23,986 51,397 Investment, life insurance................ 205,034 230,399 236,740 Rental equipment, net of accumulated depreciation December 31, 1995 $3,826,500; December 31, 1996 $5,098,656; March 31, 1997 $5,368,193................ 11,277,363 14,226,511 13,841,221 Operating equipment and leasehold improvements, net of accumulated depreciation December 31, 1995 $625,695; December 31, 1996 $718,709; March 31, 1997 $717,093 (Note 3)........................ 590,759 492,441 421,874 ----------- ----------- ----------- $14,288,138 $18,031,455 $17,412,508 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable.......................... $ 68,850 $ 560,202 $ 235,905 Accrued expenses.......................... 260,084 338,251 321,961 Litigation judgment liability (Note 9).... -- 2,320,000 2,320,000 Notes payable, including notes to related parties December 31, 1995 $1,567,635; December 31, 1996 $579,355; March 31, 1997 $551,839 (Note 4)................... 4,426,776 3,991,157 2,420,408 ----------- ----------- ----------- Total liabilities..................... 4,755,710 7,209,610 5,298,274 ----------- ----------- ----------- Commitments (Notes 5, 6 and 11) Stockholders' Equity: Common stock, no par value; authorized 100,000 shares issued 1,000 shares, at amounts paid in........................ 100,000 100,000 100,000 Retained earnings....................... 9,432,428 10,721,845 12,014,234 ----------- ----------- ----------- 9,532,428 10,821,845 12,114,234 ----------- ----------- ----------- $14,288,138 $18,031,455 $17,412,508 =========== =========== ===========
See Notes to Financial Statements. F-57 BRUTE EQUIPMENT CO. D/B/A FOXX HY-REACH, INC. STATEMENTS OF OPERATIONS
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ----------------------- --------------------- 1995 1996 1996 1997 ----------- ----------- ---------- ---------- (UNAUDITED) Revenues: Equipment rentals.............. $ 9,465,624 $11,842,440 $2,473,235 $2,856,078 Sales of parts, supplies and equipment..................... 7,774,425 7,976,069 1,961,169 2,241,285 ----------- ----------- ---------- ---------- 17,240,049 19,818,509 4,434,404 5,097,363 ----------- ----------- ---------- ---------- Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation.................. 3,969,880 4,228,171 951,111 1,007,432 Depreciation, equipment rentals....................... 1,940,332 2,718,397 593,398 781,806 Cost of sales of parts, supplies and equipment........ 5,250,625 5,308,453 1,351,574 1,482,261 ----------- ----------- ---------- ---------- Total cost of revenues....... 11,160,837 12,255,021 2,896,083 3,271,499 ----------- ----------- ---------- ---------- Gross profit................. 6,079,212 7,563,488 1,538,321 1,825,864 Selling, general and administrative expense........ 3,107,090 3,461,510 352,700 417,299 Depreciation, excluding equipment rental depreciation.................. 225,877 257,723 63,718 51,840 Litigation judgment expense (Note 9)...................... -- 2,320,000 -- -- ----------- ----------- ---------- ---------- Operating income............. 2,746,245 1,524,255 1,121,903 1,356,725 Interest expense, including amounts paid to related parties December 31, 1995 $57,045; December 31, 1996 $73,840; March 31, 1996 $27,246 March 31, 1997 $11,260.......... 141,539 234,838 68,079 64,336 ----------- ----------- ---------- ---------- Net income................... $ 2,604,706 $ 1,289,417 $1,053,824 $1,292,389 =========== =========== ========== ==========
See Notes to Financial Statements. F-58 BRUTE EQUIPMENT CO. D/B/A FOXX HY-REACH, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON RETAINED STOCK EARNINGS -------- ----------- Balance, December 31, 1994................................ $100,000 $ 6,827,722 Net income.............................................. -- 2,604,706 -------- ----------- Balance, December 31, 1995................................ 100,000 9,432,428 Net income.............................................. -- 1,289,417 -------- ----------- Balance, December 31, 1996................................ 100,000 10,721,845 Net income (unaudited).................................. -- 1,292,389 -------- ----------- Balance, March 31, 1997 (unaudited)....................... $100,000 $12,014,234 ======== ===========
See Notes to Financial Statements. F-59 BRUTE EQUIPMENT CO. D/B/A FOXX HY-REACH, INC. STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, -------------------------- ------------------------ 1995 1996 1996 1997 ------------ ------------ ----------- ----------- (UNAUDITED) Operating Activities: Net income............. $ 2,604,706 $ 1,289,417 $ 1,053,824 $ 1,292,389 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation......... 2,166,209 2,976,120 657,116 833,646 Gain on sale of rental equipment ... (1,866,525) (2,019,108) (457,612) (535,731) Changes in operating assets and liabilities: Accounts receivables ...... (543,772) (647,408) 255,106 196,464 Parts and supplies inventories....... (22,620) (262,365) 394 378 Other receivables and prepaid expense........... (20,702) 18,751 (502) (27,411) Accounts payable and accrued expenses.......... 26,902 569,519 (86,334) (340,587) Litigation judgment liability......... -- 2,320,000 -- -- ------------ ------------ ----------- ----------- Net cash provided by operating activities...... 2,344,198 4,244,926 1,421,992 1,419,148 ------------ ------------ ----------- ----------- Investing Activities: Proceeds from sale of equipment............. 7,225,096 7,350,903 1,831,976 2,076,763 Purchase of equipment.. (11,520,436) (11,158,745) (1,520,970) (1,918,821) Purchase of investment in life insurance..... (25,365) (25,365) (6,341) (6,341) ------------ ------------ ----------- ----------- Net cash provided by (used in) investing activities...... (4,320,705) (3,833,207) 304,665 151,601 ------------ ------------ ----------- ----------- Financing Activities: Borrowings from stockholders.......... 1,833,024 -- -- -- Payments to stockholders.......... (1,122,509) (988,280) (251,444) (27,516) Net borrowings (payments) from note payable............... 1,266,392 (947,339) (1,475,213) (1,543,233) Proceeds from long-term obligations........... -- 1,500,000 -- -- ------------ ------------ ----------- ----------- Net cash provided by (used in) financing activities...... 1,976,907 (435,619) (1,726,657) (1,570,749) ------------ ------------ ----------- ----------- Net increase (decrease) in cash............ 400 (23,900) -- -- Cash balance, beginning of period............... 26,850 27,250 27,250 3,350 ------------ ------------ ----------- ----------- Cash balance, end of period.................. $ 27,250 $ 3,350 $ 27,250 $ 3,350 ============ ============ =========== =========== Supplemental disclosure of cash flow information, cash paid for interest............ $ 145,501 $ 215,184 $ 53,885 $ 61,477
See Notes to Financial Statements. F-60 BRUTE EQUIPMENT CO. D/B/A FOXX HY-REACH, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. ACCOUNTING POLICIES Basis of presentation: Brute Equipment Co. was incorporated in the state of Iowa in May 1984 and qualified to do business under the assumed name of Foxx Hy-Reach, Inc. in the same month. During 1986, the Company, with the consent of its stockholders, elected to be taxed as an S-Corporation. The Company's operations consist principally of the short-term rental and the sale of equipment to the construction industry primarily in the midwest United States. 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 preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount 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. Certain amounts for 1995 have been reclassified to conform with the classifications used in 1996, with no effect on net income or stockholders' equity. Revenue recognition: Equipment rental revenue is recorded as earned under the operating method. Equipment rentals in the statements of operations include revenues earned on equipment rentals, fuel sales and rental equipment delivery fees. Revenue from the sale of parts, supplies and equipment is recorded at the time of delivery to or pick-up by the customer. Credit policy: Substantially all of the Company's business is on a credit basis. The Company extends credit to its commercial customers based on evaluations of their financial condition and generally no collateral is required, although in many cases, mechanics' liens are filed to protect the Company's interests. The Company maintains reserves it believes are adequate for potential credit losses. Parts and supplies inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. Equipment and leasehold improvements: Equipment and leasehold improvements are stated at cost. Depreciation is computed by the straight-line method over the following estimated useful lives:
YEARS ----- Rental equipment..................................................... 6-7 Office and computer equipment........................................ 5-7 Transportation equipment............................................. 3-5 Leasehold improvements............................................... 10
Advertising costs: Advertising costs are expensed as incurred and totaled $35,320 and $36,101 for the years ended December 31, 1995 and 1996, respectively, and $10,030 and $12,217 for the three-months ended March 31, 1996 and 1997 (unaudited), respectively. Concentrations of credit risk: Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of accounts receivable which is limited due to the large number of customers. Fair value of financial instruments: The carrying amount of cash, accounts receivables, litigation judgment liability and accounts payable approximates fair value because of the short maturity of these instruments. The F-61 BRUTE EQUIPMENT CO. D/B/A FOXX HY-REACH, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) carrying amount of notes payable which carry current interest rates and have short maturities approximates fair value. NOTE 2. UNAUDITED INTERIM INFORMATION In the opinion of management, the accompanying unaudited condensed financial information of the Company contains all adjustments, consisting only of those of a recurring nature, necessary to present fairly the Company's financial position as of March 31, 1997, and the results of its operations and its cash flows for the three-months ended March 31, 1996 and 1997. These results are not necessarily indicative of the results to be expected for the full fiscal year. NOTE 3. OPERATING EQUIPMENT AND LEASEHOLD IMPROVEMENTS Operating equipment and leasehold improvements consist of the following:
DECEMBER 31, --------------------- MARCH 31, 1995 1996 1997 ---------- ---------- ----------- (UNAUDITED) Vehicles, machinery and equipment........ $1,086,270 $1,003,294 $ 922,770 Leasehold improvements................... 73,494 73,494 73,494 Furniture, fixtures and computer equipment............................... 56,690 134,362 142,703 ---------- ---------- ---------- 1,216,454 1,211,150 1,138,967 Less accumulated depreciation and amortization............................ 625,695 718,709 717,093 ---------- ---------- ---------- $ 590,759 $ 492,441 $ 421,874 ========== ========== ==========
NOTE 4. PLEDGED ASSETS AND NOTES PAYABLE Long-term obligations consist of the following:
DECEMBER 31, --------------------- 1995 1996 ---------- ---------- Revolving credit agreement with a bank, $2,000,000, ($3,000,000 as of December 31, 1995) interest at 3/8% under the bank's prime rate, (8.5% as of December 31, 1996), due June 30, 1997, collateralized by substantially all assets of the Company and the personal guarantees of the officer-stockholders and the spouse of one of the officer-stockholders. ...... $2,859,141 $1,911,802 Note payable, bank, due in annual installments of $300,000 plus interest at 7.84%, due April 1999, collateralized by substantially all assets of the Company and the personal guarantees of the officer- stockholders and the spouse of one of the officer- stockholders. ....................................... -- 1,500,000 Note payable, officer-stockholders, due on demand, unsecured. The interest rate in effect as of December 31, 1995 and 1996 was 7% and 8%, respectively. ...... 1,567,635 579,355 ---------- ---------- $4,426,776 $3,991,157 ========== ==========
F-62 BRUTE EQUIPMENT CO. D/B/A FOXX HY-REACH, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The Company also has an unused $1,500,000 line-of-credit agreement with a bank that pays interest at 3/8% under the bank's prime rate (8.5% as of December 31, 1996), due April 30, 1997, collateralized by substantially all assets of the Company and the personal guarantees of the officer-stockholders and the spouse of one of the officer-stockholders. NOTE 5. STOCKHOLDERS' AGREEMENT The stockholders of the Company have entered into an agreement which places restrictions on the transfer of their stock during their lifetime. The agreement also contains provisions for the mandatory purchase of shares, by the surviving stockholder, upon the death or disability of a stockholder under the terms and conditions set forth in the agreement. NOTE 6. LEASE COMMITMENTS AND RENTAL EXPENSE The Company leases its Morton, Illinois facility from an officer- stockholder. The agreement expires July 24, 1997 and requires monthly rentals of $2,500 plus the payment of all property taxes, utilities, insurance and maintenance on the property. The Company leases its Moline, Illinois facility from an officer- stockholder. The agreement expires June 30, 1997 and requires monthly rentals of $5,500 plus the payment of all property taxes, utilities, insurance and maintenance on the property. The Company leases a facility in Des Moines, Iowa. The agreement expires May 14, 2000 and requires monthly rentals of $3,500 plus the payment of all property taxes, utilities, insurance and maintenance on the property. The Company also leases a facility in Cedar Rapids, Iowa. The agreement expires May 31, 1998 and requires monthly rentals of $3,000 plus the payment of all property taxes, utilities, insurance and maintenance on the property. The total rental expense for the years ended December 31, 1995 and 1996 was $165,400 and $179,600, respectively, and $45,600 and $44,700 for the three- months ended March 31, 1996 and 1997 (unaudited), respectively. Of the total rent expense, $96,000 was paid to an officer-stockholder for each of the years ended December 31, 1995 and 1996, respectively, and $24,000 for each of the three-months ended March 31, 1996 and 1997 (unaudited). The total minimum rental commitment under these leases as of December 31, 1996 is $242,500 which is due as follows:
YEAR ENDING DECEMBER 31: ------------------------ 1997........................................................ $126,000 1998........................................................ 57,000 1999........................................................ 42,000 2000........................................................ 17,500 -------- $242,500 ========
F-63 BRUTE EQUIPMENT CO. D/B/A FOXX HY-REACH, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 7. DISCRETIONARY BONUSES AND MANAGEMENT FEE The Company pays discretionary bonuses to its officers and key employees. The amount of these bonuses totaled $1,198,500 and $1,107,500 for the years ended December 31, 1995 and 1996, respectively. There were no discretionary bonuses paid to officers or key employees during each of the three-months ended March 31, 1996 and 1997 (unaudited). The Company purchases management services from Knox Rental Stores, Inc. The principal stockholder of Knox Rental Stores, Inc. is also a stockholder of Brute Equipment Co. The amount of these management services purchased totaled $1,000,000 for each of the years ended December 31, 1995 and 1996. NOTE 8. EMPLOYEE BENEFITS AND RETIREMENT PLANS The Company has a group health insurance plan for all of its employees. The plan qualifies as a "cafeteria plan" under Section 125 of the Internal Revenue Code of 1986. The Company has elected to self-insure claims ranging from $100 to $500 whereby the Company pays 80% of all claims within this range. Expenses relating to the plan totaled $10,345 and $9,346 for the years ended December 31, 1995 and 1996, respectively, and $2,050 and $2,320 for the three-months ended March 31, 1996 and 1997 (unaudited), respectively. Effective January 1, 1995, the Company established a 401(k) retirement plan. Employees are eligible to participate in the Plan after completing one year of full-time service and attaining age 21. Eligible employees are allowed to defer up to 15% of their salary. The Company makes matching contributions of 25% of the employee's contribution with a maximum Company contribution of 6% of eligible employee wages. The employee vests in the employer matching contribution at a rate of 20% per year after two years of service. Employees are 100% vested in the employer contribution after six years of service. The Company's contributions to the Plan for the years ended December 31, 1995 and 1996 was $19,734 and $29,534, respectively, and $1,336 and $1,045 for the three-months ended March 31, 1996 and 1997 (unaudited), respectively. NOTE 9. LITIGATION JUDGMENT LIABILITY In November 1996, a $3,200,000 judgment was awarded by a jury to a construction worker injured while using equipment owned by the Company. The Company has insurance coverage for $1,000,000 of this liability and may also have a claim against its insurance provider for the remaining $2,200,000, plus accrued interest. See Note 11 for subsequent settlement. NOTE 10. INCOME TAXES The Company, with the consent of its stockholders has elected to be taxed under sections of the federal and state income tax laws as an S-Corporation. This election provides, that in lieu of corporate income taxes, the stockholders separately account for their pro rata shares of the Company's items of income, deductions, losses and credits. Therefore, these financial statements do not include any provision for corporate income taxes. F-64 BRUTE EQUIPMENT CO. D/B/A FOXX HY-REACH, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The net book value of the Company's assets and liabilities exceeded their tax basis by $2,800,837 and $1,561,420 as of December 31, 1995 and 1996, respectively. The differences between net book value and tax basis as of December 31, 1995 and 1996, by major asset and liability, are as follows:
1995 1996 ----------------------- ----------------------- NET BOOK NET BOOK VALUE TAX BASIS VALUE TAX BASIS ----------- ----------- ----------- ----------- Trade receivables.......... $ 2,002,199 $ 2,022,199 $ 2,737,045 $ 2,757,045 Rental equipment........... 11,277,363 8,475,684 14,226,511 10,311,157 Operating equipment and leasehold improvements.... 590,759 571,601 492,441 506,375 ----------- ----------- ----------- ----------- 13,870,321 11,069,484 17,455,997 13,574,577 Litigation judgment liability................. -- -- 2,320,000 -- ----------- ----------- ----------- ----------- $13,870,321 $11,069,484 $15,135,997 $13,574,577 =========== =========== =========== ===========
NOTE 11. SUBSEQUENT EVENTS On April 25, 1997 the Company agreed to sell substantially all of its operating assets to Rental Service Corporation at an amount greater than their net book value. The closing of this transaction is expected to occur on or before June 30, 1997 and is subject to a number of closing conditions. On May 1, 1998 the litigation referred to in Note 9 was settled prior to final appeal. The Company's portion of the settlement was approximately $250,000. F-65 REPORT OF INDEPENDENT AUDITORS Board of Directors Rental Service Corporation We have audited the accompanying combined balance sheets as of October 31, 1997 and 1996, of Rent-It-Center, Inc. and Affiliates listed in Note 1, and the related combined statements of operations, stockholders' and members' equity (deficit) and cash flows for each of the three years in the period ended October 31, 1997. These financial statements are the responsibility of the companies' management. Our responsibility is to express an opinion on these combined 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 combined financial statements referred to above present fairly, in all material respects, the combined financial position at October 31, 1997 and 1996, of Rent-It-Center, Inc. and Affiliates listed in Note 1, and the combined results of their operations and their cash flows for each of the three years in the period ended October 31, 1997 in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Phoenix, Arizona November 7, 1997 F-66 RENT-IT-CENTER, INC. AND AFFILIATES D/B/A CENTER RENTAL AND SALES COMBINED BALANCE SHEETS
OCTOBER 31 ----------------------- 1996 1997 ----------- ----------- ASSETS ------ Cash..................................................... $ -- $ 283,407 Accounts receivable, net of allowances for doubtful accounts of $96,000 and $192,000 at October 31, 1996 and 1997, respectively...................................... 4,854,397 5,409,613 Parts and supplies inventories........................... 2,013,637 2,993,454 Prepaid and recoverable income taxes..................... 208,668 243,284 Other receivables and prepaid expenses................... 385,177 138,917 Deferred income taxes.................................... 98,991 467,432 Rental equipment, principally machinery, at cost, net of accumulated depreciation of $13,526,000 and $17,849,000 at October 31, 1996 and 1997, respectively.............. 37,134,177 33,752,745 Operating property and equipment, at cost, net........... 3,755,028 4,908,510 Intangible assets, net of accumulated amortization of $79,000 and $203,000 at October 31, 1996 and 1997, respectively............................................ 1,561,279 1,437,954 Cash surrender value of life insurance policies.......... 161,013 -- ----------- ----------- Total assets......................................... $50,172,367 $49,635,316 =========== =========== LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY ------------------------------------------------- Bank overdraft........................................... $ 43,263 $ -- Accounts payable......................................... 2,854,990 3,064,990 Payroll and other accrued expenses....................... 1,904,166 1,279,896 Bank debt and long-term obligations...................... 21,182,250 16,729,243 Deferred income taxes.................................... 3,215,192 4,944,750 ----------- ----------- Total liabilities.................................... 29,199,861 26,018,879 ----------- ----------- Commitments and contingencies Stockholders' and members' equity: Common stock........................................... 11,600 11,600 Retained earnings...................................... 20,377,616 22,460,867 Members' equity........................................ 583,290 1,143,970 ----------- ----------- 20,972,506 23,616,437 ----------- ----------- Total liabilities and stockholders' and members' equity.............................................. $50,172,367 $49,635,316 =========== ===========
See accompanying notes. F-67 RENT-IT-CENTER, INC. AND AFFILIATES D/B/A CENTER RENTAL AND SALES COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED OCTOBER 31, ------------------------------------- 1995 1996 1997 ----------- ----------- ----------- Revenue: Equipment rentals..................... $21,225,254 $25,279,134 $34,791,441 Sales of parts, supplies and new equipment............................ 9,117,503 10,518,131 12,411,690 Sales of used equipment............... 1,852,560 1,253,608 2,593,140 ----------- ----------- ----------- Total revenue....................... 32,195,317 37,050,873 49,796,271 Cost of revenue: Cost of equipment rentals, excluding equipment depreciation............... 8,411,128 10,039,913 16,194,742 Rental equipment depreciation......... 3,147,577 4,426,614 6,364,659 Cost of sales of parts, supplies and new equipment........................ 8,268,688 9,607,343 11,873,647 Cost of sales of used equipment....... 1,030,779 629,056 1,924,962 ----------- ----------- ----------- Total cost of revenue............... 20,858,172 24,702,926 36,358,010 ----------- ----------- ----------- Gross profit........................ 11,337,145 12,347,947 13,438,261 Selling, general and administrative expenses............................. 4,557,859 5,149,382 7,058,017 Operating property and equipment depreciation and amortization........ 356,917 503,245 889,215 Amortization of intangibles........... 21,793 30,301 123,325 ----------- ----------- ----------- Operating income.................... 6,400,576 6,665,019 5,367,704 Other income (expense): Charitable contributions.............. (306,222) (311,970) (6,996) Interest income....................... 51,362 35,855 30,900 Interest expense...................... (316,368) (588,880) (1,599,573) ----------- ----------- ----------- Income before income taxes.......... 5,829,348 5,800,024 3,792,035 Provision for income taxes............ 2,017,136 1,985,530 1,328,504 ----------- ----------- ----------- Net income.......................... $ 3,812,212 $ 3,814,494 $ 2,463,531 =========== =========== ===========
See accompanying notes. F-68 RENT-IT-CENTER, INC. AND AFFILIATES D/B/A CENTER RENTAL AND SALES COMBINED STATEMENTS OF STOCKHOLDERS' AND MEMBERS' EQUITY (DEFICIT) YEARS ENDED OCTOBER 31, 1995, 1996 AND 1997
RENT-IT-CENTER, INC. -------------------------- LANOHA LEASING LIMITED LIABILITY COMPANY, D/B/A COMMON STOCK, CENTER RENTAL AND $1 PAR VALUE, SALES-- CENTER RENTAL AND 50,000 SHARES KANSAS CITY, SALES--OMAHA, ZUNI RENTAL AUTHORIZED L.L.C. L.L.C. ENTERPRISES, L.L.C. -------------- ----------------- ----------------- ------------------- RETAINED MEMBERS' EQUITY MEMBERS' EQUITY MEMBERS' EQUITY SHARES AMOUNT EARNINGS (DEFICIT) (DEFICIT) (DEFICIT) TOTALS ------ ------- ----------- ----------------- ----------------- ------------------- ----------- Balances at November 1, 1994................... 11,600 $11,600 $13,699,475 $(81,323) $(144,752) $ -- $13,485,000 Cash dividends paid.... -- -- (69,600) -- -- -- (69,600) Net income............. -- -- 3,360,550 332,137 119,525 -- 3,812,212 ------ ------- ----------- -------- --------- -------- ----------- Balances at October 31, 1995................... 11,600 11,600 16,990,425 250,814 (25,227) -- 17,227,612 Cash dividends paid.... -- -- (69,600) -- -- -- (69,600) Net income (loss)...... -- -- 3,456,791 160,798 225,178 (28,273) 3,814,494 ------ ------- ----------- -------- --------- -------- ----------- Balances at October 31, 1996................... 11,600 11,600 20,377,616 411,612 199,951 (28,273) 20,972,506 Cash dividends paid.... -- -- (69,600) -- -- -- (69,600) Capital contribution... -- -- -- -- -- 250,000 250,000 Net income (loss)...... -- -- 2,152,851 (83,678) 335,538 58,820 2,463,531 ------ ------- ----------- -------- --------- -------- ----------- Balances at October 31, 1997................... 11,600 $11,600 $22,460,867 $327,934 $ 535,489 $280,547 $23,616,437 ====== ======= =========== ======== ========= ======== ===========
See accompanying notes. F-69 RENT-IT-CENTER, INC. AND AFFILIATES D/B/A CENTER RENTAL AND SALES COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED OCTOBER 31, -------------------------------------- 1995 1996 1997 ----------- ------------ ----------- Operating activities Net income........................... $ 3,812,212 $ 3,814,494 $ 2,463,531 Adjustments to reconcile net income to net cash provided by operating activities: Provisions for (reductions in) allowances for losses on accounts receivable........................ 6,000 (12,832) 96,332 Provision for inventory obsolescence...................... -- -- 156,182 Depreciation and amortization...... 3,526,287 4,960,160 7,377,199 Gain on sales of used equipment.... (821,781) (624,552) (668,178) Deferred income tax expense........ 226,336 1,104,508 1,361,117 Changes in operating assets and liabilities, net of the effect of a business acquisition: Accounts receivable.............. (269,520) (211,783) (651,548) Parts and supplies inventories... (170,870) (340,376) (1,135,999) Prepaid and recoverable income taxes........................... (150,286) (58,382) (34,616) Other receivables and prepaid expenses........................ (63,726) (12,893) 246,260 Accounts payable................. 623,131 550,700 210,000 Payroll and other accrued expenses........................ 469,401 223,242 (624,270) Accrued income taxes............. (59,695) -- -- ----------- ------------ ----------- Net cash provided by operating activities.................... 7,127,489 9,392,286 8,796,010 Investing activities Acquisition of rental operations, net of cash acquired.................... -- (12,945,607) -- Purchases of rental equipment and operating property and equipment.... (8,497,199) (15,053,391) (6,950,886) Proceeds from sales of used equipment........................... 1,852,560 1,253,608 2,593,140 Decrease (increase) in cash surrender value of life insurance policies.... (49,524) (52,432) 161,013 ----------- ------------ ----------- Net cash used in investing activities.................... (6,694,163) (26,797,822) (4,196,733) Financing activities Principal borrowings under long-term debt arrangements................... $ 650,000 $ 22,953,961 $ 2,175,000 Principal payments on long-term debt................................ (1,796,800) (5,313,841) (6,628,007) Increase (decrease) in bank overdraft........................... 208,247 (164,984) (43,263) Capital contribution................. -- -- 250,000 Cash dividends paid.................. (69,600) (69,600) (69,600) ----------- ------------ ----------- Net cash provided by (used in) financing activities.......... (1,008,153) 17,405,536 (4,315,870) ----------- ------------ ----------- Net increase (decrease) in cash.......................... (574,827) -- 283,407 Cash at beginning of year.............. 574,827 -- -- ----------- ------------ ----------- Cash at end of year.................... $ -- $ -- $ 283,407 =========== ============ =========== Supplemental cash flow information: Cash paid for interest............... $ 316,368 $ 482,569 $ 1,664,418 =========== ============ =========== Cash paid for income taxes........... $ 2,000,781 $ 939,404 $ 2,003 =========== ============ ===========
See accompanying notes. F-70 RENT-IT-CENTER, INC. AND AFFILIATES D/B/A CENTER RENTAL AND SALES NOTES TO COMBINED FINANCIAL STATEMENTS OCTOBER 31, 1997 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Rent-It-Center, Inc. and Affiliates d/b/a Center Rental and Sales (hereinafter collectively referred to as "Center") operate in a single industry segment: the short-term rental of equipment, including ancillary sales of parts, supplies and rental equipment, through a network of fourteen rental center locations in Colorado, Kansas, Missouri, Nebraska, New Mexico and Texas. Basis of Presentation The accompanying combined financial statements include the accounts of Rent- It-Center, Inc., a Colorado corporation authorized to do business in Colorado and Wyoming, and the following Affiliates: Lanoha Leasing Limited Liability Company, d/b/a Center Rental and Sales--Kansas City, L.L.C. ("Lanoha Leasing"), a Wyoming limited liability company authorized to do business in Kansas and Missouri, Center Rental and Sales--Omaha, L.L.C. ("Center Rental"), a Colorado limited liability company authorized to do business in Nebraska and Iowa and, effective October 7, 1996, Zuni Rental Enterprises, L.L.C. ("Zuni Rental"), a Colorado limited liability company authorized to do business in Texas and New Mexico. The four entities are controlled by one family and managed by a common executive group. All material inter-affiliate accounts and transactions have been eliminated. The operating agreements for the limited liability companies generally limit each member's personal liability for any debts or losses of the company to the member's corresponding capital contributions. The limited liability companies have only one class of members' interest with equivalent rights, preferences and privileges for all members; however, under certain circumstances, the net losses of the companies are not shared in proportion to the members' capital sharing ratio. The following table summarizes certain information regarding each of the limited liability companies, including the maximum allowable term of the company pursuant to its underlying operating agreement.
MANDATORY MEMBERS' CAPITAL OPERATING AGREEMENT CONTRIBUTIONS DISSOLUTION DATE ---------------- ------------------- Lanoha Leasing......................... $ 10,000 October 30, 2021 Center Rental.......................... 10,000 February 4, 2024 Zuni Rental............................ 250,000 September 20, 2026
The nature of Center'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 give no effect to the proposed transaction described in Note 9 herein. 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. F-71 RENT-IT-CENTER, INC. AND AFFILIATES D/B/A CENTER RENTAL AND SALES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Revenue Recognition Equipment rental revenue is recorded as earned under the operating method. Equipment rentals in the combined statements of operations includes revenues earned on equipment rentals and rental equipment delivery fees. Revenue from the sale of parts, supplies and new equipment, which includes fuel sales, is recorded at the time of delivery or pick-up by the customer. Credit Policy A significant portion of Center's business is on a credit basis. Center extends credit to its commercial customers based on evaluations of their financial condition and their ability to pay. Generally, no collateral is required. Center has diversified its customer base by operating rental locations in six states. Center maintains reserves it believes adequate for potential credit losses. Parts and Supplies Inventories Parts and supplies inventories consist principally of parts, commodity-type supplies and small to medium-sized equipment for sale. All inventories are valued at the lower of cost or market, with cost determined by the weighted average method of inventory costing. Depreciation and Amortization Rental equipment and operating property and equipment are being depreciated using the straight-line method over the estimated useful lives of the underlying assets. Leasehold improvements are amortized using the straight- line method over the lesser of the term of the related lease or the estimated useful lives of the assets. For financial statement purposes Center utilizes the following estimated useful lives: Rental equipment............................................... 5 to 7 years Vehicles, machinery and equipment.............................. 5 years Leasehold improvements......................................... 5 to 15 years
Rental equipment is depreciated to a salvage value of approximately 30-35% of cost. Center expenses repairs and maintenance as incurred and all acquisitions less than $1,000. Intangible Assets Goodwill is recorded at cost and amortized using the straight-line method over 15 years. The recoverability of goodwill, which had a net book value of approximately $1,421,000 at October 31, 1997, is analyzed annually based on actual and projected levels of profitability and cash flows of the locations acquired on an undiscounted basis. Organizational costs are recorded at cost and amortized over a five year period commencing with the opening of the related rental facility. Income Taxes Center utilizes the liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under the liability 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 of realization in future periods. F-72 RENT-IT-CENTER, INC. AND AFFILIATES D/B/A CENTER RENTAL AND SALES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Lanoha Leasing, Center Rental, and Zuni Rental are treated as if they are partnerships and, accordingly, the members of such companies recognize the companies' net income or loss on their personal income tax returns in proportion to their ownership interests therein. Advertising Costs of advertising, including radio, print and sales catalogue expenditures, are expensed as incurred. Advertising expenses were approximately $272,000, $336,000 and $570,000 for the years ended October 31, 1995, 1996 and 1997, respectively. Concentrations of Credit Risk Financial instruments that potentially subject Center to significant concentrations of credit risk consist principally of cash investments and trade accounts receivable. Center maintains cash with various financial institutions located throughout the country in order to limit exposure to any one institution; however, Center occasionally maintains funds on deposit with banks which exceed the available federally insured limits. Center performs periodic evaluations of the relative credit standing of those financial institutions that are considered in Center's investment strategy. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number and geographic diversity of Center's customer base. Additionally, at October 31, 1996, approximately $830,000 of Center's accounts receivable were subject to full recourse against the seller of the rental business operations described in Note 6. Fair Values of Financial Instruments The carrying amounts reported in the combined balance sheets for cash, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of long-term debt is determined using current applicable 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 or are at rates which reasonably approximate Center's current rate of borrowing for similar secured and unsecured financings. Cash Surrender Value of Life Insurance Policies Prior to October 31, 1997, Center maintained three split-dollar life insurance policies on the combined group's chief executive officer. Center was neither the owner nor the beneficiary of such policies; however, the chief executive officer and Center had a verbal agreement whereby Center would be reimbursed the lesser of the policies' cash surrender values or the cumulative premiums paid by Center. In connection with such agreement, the chief executive officer liquidated Center's interests in the life insurance policies in October 1997 with a cash payment of approximately $215,000. F-73 RENT-IT-CENTER, INC. AND AFFILIATES D/B/A CENTER RENTAL AND SALES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 2. PARTS AND SUPPLIES INVENTORIES Inventories consisted of the following:
OCTOBER 31 ----------------------- 1996 1997 ----------- ----------- Parts for resale................................... $ 1,329,060 $ 2,335,510 Parts and supplies for internal consumption........ 684,577 657,944 ----------- ----------- $ 2,013,637 $ 2,993,454 =========== =========== 3. OPERATING PROPERTY AND EQUIPMENT Operating property and equipment consisted of the following: OCTOBER 31 ----------------------- 1996 1997 ----------- ----------- Vehicles, machinery and equipment.................. $ 4,665,594 $ 5,827,410 Leasehold improvements............................. 506,016 1,024,213 Other.............................................. 152,709 173,398 ----------- ----------- 5,324,319 7,025,021 Less accumulated depreciation and amortization..... 1,569,291 2,116,511 ----------- ----------- $ 3,755,028 $ 4,908,510 =========== =========== 4. BANK DEBT AND LONG-TERM OBLIGATIONS Bank debt and long-term obligations consisted of the following: OCTOBER 31 ----------------------- 1996 1997 ----------- ----------- Revolving line of credit........................... $15,153,957 $ 6,375,000 8.0% unsecured bank loans, principal and interest due on December 31, 1997.......................... -- 6,225,000 9.3% secured bank loan, dated November 8, 1995, principal and interest payable monthly, maturing November 8, 2000.................................. 2,549,672 2,012,051 8.8% secured bank loan, dated June 18, 1996, principal and interest payable monthly, maturing June 18, 2001..................................... 2,361,933 1,933,359 Various secured equipment notes payable at interest rates not exceeding 7.9%, maturing between November 1996 and October 1998.................... 916,688 183,833 Note payable to a family member of a principal stockholder/member with interest at 9.0%.......... 200,000 -- ----------- ----------- $21,182,250 $16,729,243 =========== ===========
Interest paid on the note payable to a family member of a principal stockholder/member for the years ended October 31, 1995, 1996 and 1997 was approximately $18,000, $18,000 and $15,000, respectively. F-74 RENT-IT-CENTER, INC. AND AFFILIATES D/B/A CENTER RENTAL AND SALES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Principal maturities of long-term debt for the years ending October 31 are as follows: 1998........................................................... $ 7,467,280 1999........................................................... 1,159,513 2000........................................................... 1,769,891 2001........................................................... 6,332,559 ----------- Total........................................................ $16,729,243 ===========
Revolving Line of Credit and Unsecured Bank Loans On September 26, 1996, Rent-It-Center, Inc. entered into an unsecured revolving line of credit agreement with its principal bank in the amount of $17.0 million to be used to acquire the net assets of the equipment rental operations described in Note 6 and for working capital purposes. Effective October 27, 1997, the revolving line of credit agreement was restructured insofar as the then outstanding balance was converted to an unsecured line of credit agreement with a maximum borrowing of $7.5 million by Rent-It Center, Inc. and individual 8.0% unsecured term loans with each of the three limited liability companies aggregating $7.0 million. At October 31, 1997, Center had $6,375,000 and $6,225,000 outstanding under the revolving line of credit agreement and the unsecured term loans, respectively. Accordingly, as of such date, $1,125,000 remains available under the revolving line of credit agreement. Effective October 31, 1997, certain stockholders/members of Center assumed primary responsibility for the unsecured bank term loans held by the Affiliates of Rent-It-Center, Inc. The revolving line of credit, which expires on October 1, 2001, will be permanently reduced to $7.0 million on or before October 1, 2000. Additionally, excess cash flow, as defined in the line of credit agreement, can accelerate the annual principal reduction. Furthermore, the bank, at its sole discretion, can unilaterally demand repayment of the entire balance outstanding under the line of credit agreement at any time; however, the bank has not currently expressed any intent to subjectively accelerate repayment. The line of credit terms provide for a variable rate of interest equal to the bank's prime lending rate less one half of one percent (effective rates of 7.8% and 8.0% at October 31, 1996 and 1997, respectively). Through October 1, 2001, Rent-It-Center, Inc. has the option to permanently set the interest rate on all or a portion of the outstanding principal balance at its discretion, subject to the terms and conditions of the underlying loan agreement. Interest is generally payable monthly. Secured Bank and Other Borrowings Lanoha Leasing maintains two long-term loans, which are secured by a first security interest in the accounts receivable, inventories, equipment and general intangible assets owned by such entity (aggregate net book value of those assets were approximately $5.1 million at October 31, 1997). The total outstanding balance of such secured loans at October 31, 1997 was $3,945,410. The bank may accelerate payments of amounts due thereunder if the bank deems itself insecure for any reason whatsoever; however, the bank has not currently expressed any intent to subjectively accelerate repayment. Additionally, both secured loans include partial and full prepayment penalty provisions that range from 1/4% to 1/2% of the principal balance subject to prepayment (partial prepayments impacted if they exceed $150,000). The prepayment penalties are wholly eliminated in the fifth year of each loan term. Zuni Rental also maintains various secured equipment notes payable, which are collateralized by assets with a net book value of approximately $300,000 at October 31, 1997. F-75 RENT-IT-CENTER, INC. AND AFFILIATES D/B/A CENTER RENTAL AND SALES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Loan Covenants Center's various debt agreements have financial covenants for Center and, in certain instances, individual members of the combined group which cover tangible net worth, leverage ratios, cash flow ratios and debt coverage ratios, most of which are measurable at quarterly and annual intervals. The debt agreements also contain covenants and provisions that restrict, among other things, Center's or individual members of the combined group's ability to i) incur additional indebtedness, ii) incur liens or encumbrances on its property and equipment, iii) make certain investments, loans or guarantees other than in the normal course of business, iv) declare or pay dividends from Rent-It Center, Inc. in excess of $500,000 per annum, v) engage in certain sales of assets, vi) merge, consolidate with or acquire other business entities, and vii) fundamentally alter the underlying nature or scope of the existing business. Additionally, the debt agreements require Center to maintain its material cash accounts, including its cash concentration account, at the lending bank. Substantially all of the debt agreements contain cross default provisions. As of October 31, 1997, Center and the individual members of the combined group are in compliance with all financial and operational covenants of its debt agreements. 5. INCOME TAXES Rent-It Center, Inc. is subject to federal and certain state income taxes. The income tax expense (benefit) is summarized as follows:
YEARS ENDED OCTOBER 31 -------------------------------- 1995 1996 1997 ---------- ---------- ---------- Current: Federal................................ $1,548,305 $ 791,131 $ (32,613) State.................................. 242,495 89,891 -- ---------- ---------- ---------- 1,790,800 881,022 (32,613) Deferred: Federal................................ 195,952 951,269 1,145,838 State.................................. 30,384 153,239 215,279 ---------- ---------- ---------- 226,336 1,104,508 1,361,117 ---------- ---------- ---------- $2,017,136 $1,985,530 $1,328,504 ========== ========== ==========
The income tax expense differs from amounts currently payable because certain revenue and expenses are reported in the statements of income in periods that differ from those in which they are subject to taxation. Reconciliations between the statutory federal income tax rate of 34% and Center's effective tax rates are as follows:
YEARS ENDED OCTOBER 31 ---------------------------------- 1995 1996 1997 ---------- ---------- ---------- Federal statutory income taxes....... $1,981,978 $1,972,008 $1,289,292 Earnings of Rent-It-Center, Inc. Affiliates taxed to individual members............................. (153,565) (121,619) (105,631) State income taxes, net of federal benefit............................. 180,100 160,466 142,084 Other................................ 8,623 (25,325) 2,759 ---------- ---------- ---------- $2,017,136 $1,985,530 $1,328,504 ========== ========== ==========
F-76 RENT-IT-CENTER, INC. AND AFFILIATES D/B/A CENTER RENTAL AND SALES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying values of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of Center's deferred tax assets and liabilities are as follows:
OCTOBER 31 --------------------- 1996 1997 ---------- ---------- Deferred tax assets: Allowances for doubtful accounts................... $ 33,750 $ 57,563 Inventory obsolescence reserves.................... -- 58,568 Inventory overhead capitalization.................. 11,989 17,300 Vacation accrual................................... 53,252 78,110 Alternative minimum tax credit carryforward........ -- 253,472 Other.............................................. -- 2,419 ---------- ---------- 98,991 467,432 ---------- ---------- Deferred tax liabilities: Rental equipment and operating property and equipment, net.................................... 3,015,192 4,744,750 Other.............................................. 200,000 200,000 ---------- ---------- 3,215,192 4,944,750 ---------- ---------- $3,116,201 $4,477,318 ========== ==========
Rent-It-Center, Inc. has an alternative minimum tax credit carryover of approximately $253,000 for federal income tax purposes which is available to offset future regular income tax that is in excess of the alternative minimum tax in such year. If the transaction discussed in Note 9 occurs, the utilization of these alternative minimum tax credits will be subject to restrictions in accordance with Internal Revenue Service Code section 383 and the ultimate utilization is further limited based on the profitability of Rent-It-Center, Inc.; however, the carryforward period for an alternative minimum tax credit carryover is unlimited. At October 31, 1997, the aggregate reported bases for financial statement purposes of Rent-It Center Inc.'s nontaxable affiliates (i.e., the limited liability companies) exceed such entities corresponding bases for income tax purposes by approximately $3.8 million. Such net difference is primarily attributable to accelerated income tax depreciation and amortization. 6. BUSINESS COMBINATION On October 7, 1996, Rent-It-Center, Inc. acquired all the operating assets of three New Mexico and two Texas rental locations for approximately $12.9 million plus assumed liabilities of approximately $911,000. Rent-It-Center, Inc. retained the acquired rental equipment and transferred all the other acquired net assets to Zuni Rental. The acquired rental equipment is leased to Zuni Rental. The transaction was financed through Center's revolving line of credit agreement. This acquisition has been accounted for as a purchase and, accordingly, the acquired tangible and identifiable intangible assets and liabilities have been recorded at their estimated fair values at the date of acquisition with any excess purchase price reflected as goodwill in the accompanying combined financial statements. The operations of the acquired business is included in the combined statements of operations from the date of acquisition. F-77 RENT-IT-CENTER, INC. AND AFFILIATES D/B/A CENTER RENTAL AND SALES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) The following table sets forth the net assets acquired, liabilities assumed and cash purchase price for the acquisition: Assets acquired............................................... $12,324,726 Goodwill...................................................... 1,531,500 Less: liabilities assumed..................................... (910,619) ----------- Cash purchase price........................................... $12,945,607 ===========
The following table sets forth the unaudited pro forma combined results of operations for the years ended October 31, 1995 and 1996 as if the above acquisition was consummated at the beginning of each fiscal year:
YEAR ENDED OCTOBER 31 ----------------------- 1995 1996 ----------- ----------- (UNAUDITED) (UNAUDITED) Total revenue...................................... $43,603,000 $45,802,000 Net income......................................... 5,650,000 4,210,000
7. COMMITMENTS AND CONTINGENCIES Operating Leases Center leases certain operating premises and equipment under noncancellable operating leases. Substantially all of the property leases require Center to pay maintenance, insurance, taxes and certain other expenses in addition to the stated rentals. Certain of the real property leases provide for escalation of future rental payments based upon increases in the consumer price index. Rental expense under such noncancellable operating leases totaled $251,000, $326,000, and $713,000 for the years ended October 31, 1995, 1996 and 1997, respectively. Future minimum lease payments, by the year ended October 31 and in the aggregate, for noncancellable operating leases with initial or remaining terms of one year or more are as follows: 1998............................................................ $ 743,959 1999............................................................ 668,039 2000............................................................ 621,999 2001............................................................ 577,666 2002............................................................ 76,500 Thereafter...................................................... 291,000 ---------- $2,979,163 ==========
Additionally, Center leases certain real property from entities which are partially or wholly-owned by stockholders, members and/or officers of Center. Such noncancellable leases, which have various expiration dates through January 2002, require future minimum lease payments for the years ending October 31 and in the aggregate as follows: 1998............................................................ $ 720,000 1999............................................................ 720,000 2000............................................................ 720,000 2001............................................................ 720,000 2002............................................................ 420,000 ---------- $3,300,000 ==========
F-78 RENT-IT-CENTER, INC. AND AFFILIATES D/B/A CENTER RENTAL AND SALES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Rent expense under the related party real property leases for the years ended October 31, 1995, 1996 and 1997 was approximately $506,000, $436,000 and $688,000, respectively. Additionally, pursuant to the terms and conditions of such leases, Center is responsible for the insurance premiums, real property taxes and certain other costs associated directly or indirectly with the underlying real property. Purchase Obligations At October 31, 1997, Center was obligated under noncancellable purchase commitments to purchase approximately $1.0 million of rental equipment and inventories. Legal Matters Center is party to legal proceedings and potential claims arising in the ordinary course of its business. The ultimate legal and financial liability of Center with respect to such ongoing litigation cannot be estimated with any certainty but, in the opinion of management, Center has adequate legal defenses, reserves or insurance coverage with respect to those matters so that the ultimate resolution will not have a material adverse effect on Center's combined financial position, results of operations or cash flows. Environmental Matters Center and its operations are subject to a variety of environmental federal, state and local laws and regulations governing, among other things, worker safety, air emissions, water discharge and the generation, handling, storage, transportation, treatment and disposal of hazardous substances and wastes. Under such laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as related costs of investigation and property damage. Center believes it is substantially in compliance with the aforementioned environmental laws and regulations. The landlord at certain of the related party lease locations has agreed to assume responsibility for the removal of underground fuel tanks at such locations and related remediation costs, if any. 8. EMPLOYEE BENEFIT PLAN Center has a 401(k) savings and retirement plan covering substantially all employees who have completed one year of service and attained the age of 18. The plan is a defined contribution plan and provides for Center to make contributions of 50% of a participant's elective salary deferral, up to 2% of each participant's total compensation, plus additional amounts at the option of the plan sponsor's Board of Directors. Center's matching contributions are funded on a current basis. Center's matching contributions, including discretionary contributions, for the years ended October 31, 1995, 1996 and 1997 were $161,000, $183,000 and $122,000, respectively. 9. BUSINESS COMBINATION On October 6, 1997, Center reached a definitive agreement to sell, effective November 1, 1997, all of the outstanding capital stock of Rent-It-Center, Inc. and substantially all of the assets of the Affiliates for approximately $100.9 million in cash, 482,315 shares of common stock (of which 64,544 shares will be issued over seven years, subject to earlier issuance over three years if certain performance objectives are achieved) of Rental Service Corporation ("RSC") and the assumption of Center's debt. The transaction is anticipated to close by December 2, 1997. Pursuant to the acquisition agreements, RSC assumed effective control of Center's operations on November 1, 1997. F-79 INDEPENDENT AUDITOR'S REPORT The Shareholders and Board of Directors of JDW Enterprises, Inc. d.b.a. Valley Rentals Gilbert, Arizona We have audited the accompanying balance sheets of JDW Enterprises, Inc. d.b.a. Valley Rentals ("Valley") as of December 31, 1996 and 1997, and the related statements of income, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of Valley'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 our 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 JDW Enterprises, Inc. d.b.a. Valley Rentals as of December 31, 1996 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ WEINTRAUB & MORRISON, P.C. Scottsdale, Arizona March 3, 1998 F-80 JDW ENTERPRISES, INC. D.B.A. VALLEY RENTALS BALANCE SHEETS
DECEMBER 31, ----------------------- 1996 1997 ----------- ----------- ASSETS ------ Cash and cash equivalents............................... $ 31,303 $ 73,784 Accounts receivable net of allowance for doubtful accounts of $67,964 and $664,451 at December 31, 1996 and 1997 respectively (Notes 1 (c) and 3).............. 8,003,236 8,719,938 Other receivables and prepaid expenses (Note 8)......... 605,988 1,556,070 Inventory (Notes 1 (d) and 4)........................... 2,049,601 2,859,017 Rental equipment, principally machinery, at cost net of accumulated depreciation of $12,066,731 and $17,019,555 at December 31, 1996 and 1997, respectively (Notes 1 (e) and 5)............................................. 29,236,418 33,539,944 Operating property and equipment at cost, net (Notes 1 (e), 5 and 7).......................................... 8,571,946 7,855,684 Intangible assets, net of accumulated amortization of $23,333 and $43,333 for December 31, 1996 and 1997 respectively (Note 6).................................. 76,667 56,667 Other assets............................................ -- 178,502 ----------- ----------- $48,575,159 $54,839,606 =========== =========== LIABILITIES ----------- Accounts payable........................................ $ 2,212,778 $ 2,553,213 Payroll and other accrued expenses...................... 960,598 917,539 Bank debt and long-term obligations (Notes 5 and 10).... 32,376,913 37,325,388 Obligations under capital lease (Notes 5 and 10)........ 1,583,097 963,445 Related party obligations (Notes 5, 8 and 10)........... 3,529,778 3,396,027 ----------- ----------- Total liabilities....................................... 40,663,164 45,155,612 Commitments and contingencies (Notes 9 and 10) STOCKHOLDERS' EQUITY -------------------- Capital stock Authorized 1,000,000 shares of common stock with no par value. Issued and outstanding, 600,000 shares.... 600,000 600,000 Retained earnings....................................... 7,311,995 9,083,994 ----------- ----------- Total stockholders' equity.............................. 7,911,995 9,683,994 ----------- ----------- $48,575,159 $54,839,606 =========== ===========
The Notes to the Financial Statements are an integral part of these statements. F-81 JDW ENTERPRISES, INC. D.B.A. VALLEY RENTALS STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, ------------------------ 1996 1997 ----------- ----------- Revenues (Notes 1 (b) and 8): Rental revenues................................... $27,720,279 $30,830,358 Sales of parts, supplies and new equipment........ 3,068,140 2,709,488 Sales of used equipment........................... 1,979,675 3,190,708 ----------- ----------- Total revenues.................................. 32,768,094 36,730,554 Cost of revenues (Note 1 (b)): Cost of equipment rentals, excluding rental equipment depreciation........................... 13,778,296 15,851,843 Depreciation, rental equipment.................... 6,104,424 6,830,630 Cost of parts, supplies and new equipment......... 2,193,619 1,754,926 Cost of used equipment............................ 1,309,521 2,093,056 ----------- ----------- Total cost of revenues.......................... 23,385,860 26,530,455 ----------- ----------- Gross profit........................................ 9,382,234 10,200,099 Selling, general and administrative expenses........ 3,650,849 4,420,942 Depreciation and amortization, excluding rental equipment depreciation............................. 673,127 864,324 ----------- ----------- Income from operations.............................. 5,058,258 4,914,833 Other income (expense): Net interest expense (Note 8)..................... (3,248,766) (3,396,142) Gain on sale of property (Note 8)................. -- 480,308 ----------- ----------- Income before income taxes.......................... 1,809,492 1,998,999 Provision for income taxes (Note 1 (f))............. -- -- ----------- ----------- Net income.......................................... $ 1,809,492 $ 1,998,999 =========== ===========
The Notes to the Financial Statements are an integral part of these statements. F-82 JDW ENTERPRISES, INC. D.B.A. VALLEY RENTALS STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
COMMON STOCK ------------------ NUMBER STATED RETAINED OF SHARES VALUE EARNINGS TOTAL --------- -------- ---------- ---------- Balances at January 1, 1996......... 600,000 $600,000 $5,652,503 $6,252,503 Net income........................ -- -- 1,809,492 1,809,492 Common stock issued............... -- -- -- -- Dividends paid.................... -- -- (150,000) (150,000) ------- -------- ---------- ---------- Balances at January 1, 1997......... 600,000 600,000 7,311,995 7,911,995 Net income........................ -- -- 1,998,999 1,998,999 Common stock issued............... -- -- -- -- Dividends......................... -- -- (227,000) (227,000) ------- -------- ---------- ---------- Balances at December 31, 1997....... 600,000 $600,000 $9,083,994 $9,683,994 ======= ======== ========== ==========
The Notes to the Financial Statements are an integral part of these statements. F-83 JDW ENTERPRISES, INC. D.B.A. VALLEY RENTALS STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, -------------------------- 1996 1997 ------------ ------------ OPERATING ACTIVITIES Cash received from customers...................... $ 30,830,982 $ 36,013,852 Cash paid to suppliers and employees.............. (20,760,732) (23,667,783) Interest paid..................................... (3,347,614) (3,540,209) Interest received................................. 98,848 143,514 ------------ ------------ Net cash provided by operating activities......... 6,821,484 8,949,374 ------------ ------------ INVESTING ACTIVITIES Capital expenditures.............................. (9,799,349) (14,624,965) Proceeds from property sale....................... -- 1,750,000 ------------ ------------ Net cash used by investing activities............. (9,799,349) (12,874,965) ------------ ------------ FINANCING ACTIVITIES Proceeds from bank debt and long-term obligations...................................... 13,247,983 31,816,689 Principal payments on bank debt and long-term obligations...................................... (10,142,559) (27,621,617) Dividends paid.................................... (150,000) (227,000) ------------ ------------ Net cash provided by financing activities......... 2,955,424 3,968,072 ------------ ------------ Net increase (decrease) in cash and cash equivalents...................................... ( 22,441) 42,481 Cash and cash equivalents, beginning of year...... 53,744 31,303 ------------ ------------ Cash and cash equivalents, end of year............ $ 31,303 $ 73,784 ============ ============
The Notes to the Financial Statements are an integral part of these statements. F-84 JDW ENTERPRISES, INC. D.B.A. VALLEY RENTALS STATEMENTS OF CASH FLOWS--(CONTINUED) RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
FOR THE YEARS ENDED DECEMBER 31, ----------------------- 1996 1997 ----------- ---------- Net income........................................... $ 1,809,492 $1,998,999 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization...................... 6,777,558 7,694,954 Gain on sale of property........................... -- (480,308) Cost of equipment sold (net of accumulated depreciation)..................................... 1,309,521 2,093,056 Changes in assets and liabilities: (Increase) in accounts receivable................ (1,937,112) (716,702) (Increase) in inventory.......................... (358,945) (809,416) (Increase) in prepaid expenses and other receivables..................................... (169,343) (950,083) (Increase) in other assets....................... -- (178,502) Increase (decrease) increase in accounts payable......................................... (205,152) 340,435 (Decrease) in payroll and other accrued liabilities..................................... (404,535) (43,059) ----------- ---------- Net cash provided by operating activities............ $ 6,821,484 $8,949,374 =========== ==========
The Notes to the Financial Statements are an integral part of these statements. F-85 JDW ENTERPRISES, INC. D.B.A. VALLEY RENTALS NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 1997 1. SIGNIFICANT ACCOUNTING POLICIES a. Valley's activities and operating cycle. Valley is engaged in the equipment rental and retailing industries in the states of Arizona and New Mexico. In June, 1997, Valley acquired substantially all operations of Lucas Equipment Rental. The nature of Valley'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. Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. b. Revenue and cost recognition. The accompanying financial statements are prepared on the accrual basis of accounting. Revenues are recognized when earned. Costs of good sold and operating costs are charged to expense as incurred. c. Accounts receivable. Valley provides for potentially uncollectible accounts receivable by use of the allowance method. The allowance is provided based upon a review of the individual accounts outstanding, and prior history of uncollectible accounts receivable. As of December 31, 1997 and 1996, an allowance has been provided for potentially uncollectible accounts receivable. d. Inventory. Inventory quantities and valuations are determined by using the first in first out method. Inventory is stated at the lower of cost or market, based on a physical count at December 31, 1997 and 1996 respectively. e. Property and equipment and depreciation. Property and equipment are carried at cost. When retired or otherwise disposed of, the related carrying value and accumulated depreciation are cleared from the respective accounts and the net difference less any amount realized from disposition is reflected in earnings. Maintenance and repairs, including the replacement of minor items, are expensed as incurred, and major additions to property and equipment are capitalized. Depreciation is computed primarily by the straight-line method with estimated salvage values over the following useful lives:
YEARS ------ Rental equipment.................................................... 3-5 Vehicles, machinery and equipment................................... 3-5 Leasehold improvements.............................................. 31.5 Furniture, fixtures and computer equipment.......................... 5-7 Land and building................................................... 0-31.5
f. Income taxes. No provision for income taxes is reflected in the accompanying statements because the corporation, with the consent of its stockholders, filed an election with the Internal Revenue Service to be treated as an S Corporation. Accordingly, all attributes of taxable income, credits and special deductions are passed directly to the stockholders for inclusion on their individual income tax returns. F-86 JDW ENTERPRISES, INC. D.B.A. VALLEY RENTALS NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) g. Pension plan. Valley sponsors an I.R.C. Section 401(k) plan that covers employees that have completed one year of service and have reached twenty- one years of age. Contributions to the plan are made monthly. Valley matches 25% of the employee contribution and the employee vests immediately. For 1997 and 1996, Valley's matching contributions to the plan were $78,415 and $71,431 respectively. h. Cash equivalents. Valley considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. i. Advertising Costs. Advertising costs are charged to expense when incurred. Included in sales expenses for the years ended December 31, 1996 and 1997 were advertising costs of $331,374 and $403,392, respectively. j. Reclassification. Certain items in the financial statements for the year ended December 31, 1996 have been reclassified to be consistent with the classifications adopted for the year ended December 31, 1997 with no effect on net income. 2. CONCENTRATION OF CREDIT RISK Valley, in the ordinary course of business, maintains bank balances in excess of Federal Deposit Insurance Corporation Insurance Limits. 3. ACCOUNTS RECEIVABLE AND UNBILLED RENTALS
DECEMBER 31, --------------------- 1996 1997 ---------- ---------- Accounts receivable.................................. $8,071,200 $9,384,389 Less: Allowance for doubtful accounts................ 67,964 664,451 ---------- ---------- $8,003,236 $8,719,938 ========== ==========
Valley has recorded unbilled rental income for rental contracts which, by their terms, have time remaining under the contract at December 31, 1996 and 1997. Unbilled but earned rental revenues at December 31, 1996 and 1997 amounted to $803,762 and $1,160,929, respectively. 4. INVENTORY At December 31, 1996 and 1997, inventory categories and amounts were as follows:
1996 1997 ---------- ---------- Shop and yard inventory.............................. $1,158,479 $2,043,335 Merchandise for resale............................... 564,897 770,409 Used equipment for sale.............................. 282,218 -- Fuel and oil......................................... 44,007 45,273 ---------- ---------- $2,049,601 $2,859,017 ========== ==========
F-87 JDW ENTERPRISES, INC. D.B.A. VALLEY RENTALS NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) 5. LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASE
DECEMBER 31, ----------------------- 1996 1997 ----------- ----------- NOTES PAYABLE Notes payable to Wells Fargo Bank, collateralized by rental equipment and personal guarantees of the shareholders, principal is due in monthly installments of $43,750 and 2.0% of the outstanding balance (minimum $184,000) through May, 2001. The notes bear interest at prime plus .125% (8.375% at December 31, 1996), interest is payable monthly...... $12,237,645 $ -- Notes payable to Wells Fargo Bank, collateralized by accounts receivable, inventory and personal guarantees of the shareholders, due in monthly installments of interest only. The notes bear interest at 8.25% at December 31, 1996............... 3,348,081 -- Notes payable to Imperial Bank, collateralized by accounts receivable, inventory and personal guarantees of the shareholders, due in monthly installments of interest only at 8.45% and 9.0%. The notes were paid off February 3, 1998................. -- 4,433,235 Notes payable to Imperial Bank, collateralized by land and buildings, interest due in monthly installments at 8.45% and 9.0%. The notes were paid off February 3, 1998..................................... -- 2,768,351 Notes payable to Wells Fargo Bank, collateralized by land and buildings, principal and interest due in monthly installments of $9,755 and $25,146 through July, 2016. The notes bear interest from 8.375% to 9.25%................................................ 3,895,667 -- Notes payable to various equipment companies and individuals, collateralized by the equipment purchased, principal and interest due in monthly installments from $192 to $25,824. The notes bear interest from 4.9% to 11.0%. The notes were paid off February 3, 1998..................................... 12,895,520 30,123,802 ----------- ----------- Subtotal notes payable.............................. 32,376,913 37,325,388 OBLIGATIONS UNDER CAPITAL LEASE Capital leases payable, secured by the equipment leased bear interest from 5.91% to 23.85% and are payable in monthly installments from $454 to $20,790. The capital leases were paid off February 3, 1998.... 1,583,097 963,445 RELATED PARTY LOANS Notes payable to Danny L. and Mary J. Evans are subordinated to bank debt, interest is due quarterly and the principal is due on demand. The notes and interest may not be paid without obtaining approval of the banks. The notes bear interest at 8.75% at December 31, 1996 and 1997. The notes were paid off February 6, 1998..................................... 2,090,000 2,090,000 Notes payable to shareholders are subordinated to bank debt, interest is due quarterly and the principal is due on demand. The notes and interest may not be paid without obtaining approval of the banks. The notes bear interest at 8.75% at December 31, 1997 and 1996. The notes were paid off February 6, 1998............. 850,000 850,000 Notes payable to shareholders, collateralized by rental equipment purchased, principal and interest due in monthly installments of $7,315. The notes bear interest at 7.9%. The notes were paid off February 3, 1998................................................. 589,778 456,027 ----------- ----------- Subtotal, related party loans....................... 3,529,778 3,396,027 ----------- ----------- $37,489,788 $41,684,860 =========== ===========
F-88 JDW ENTERPRISES, INC. D.B.A. VALLEY RENTALS NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) Maturities on long-term debt as of December 31, 1997 are as follows: Year ending December 31, 1998................................. $41,684,806 ===========
Interest expense charged to operations for years ended December 31, 1996 and 1997 was $3,347,614 and $3,539,656, respectively. Minimum future lease payments under capital leases as of December 31, 1997 are as follows: Year ending December 31, 1998................................... $1,148,868 Less: amount representing interest.............................. 174,529 ---------- 974,339 Less: amount representing sales tax............................. 10,894 ---------- Present value of net minimum lease payments................... $ 963,445 ==========
Amortization on the assets collateralizing the capital leases is included in depreciation and amortization expense. 6. INTANGIBLE ASSETS Goodwill represents the aggregate excess of the cost of companies acquired over the fair value of their net assets at dates of acquisition and is being amortized on the straight line method over a five year period. Amortization expense charged to operations for 1996 and 1997 was $20,000 in each year. 7. OPERATING PROPERTY AND EQUIPMENT Operating property and equipment consist of the following:
DECEMBER 31, ---------------------- 1996 1997 ----------- ---------- Vehicles, machinery and equipment.................. $ 3,285,967 $3,407,527 Leasehold improvements............................. 36,321 99,760 Furniture, fixtures and computer equipment......... 1,039,712 1,110,074 Land and building.................................. 6,003,937 5,270,844 ----------- ---------- Total............................................ 10,365,937 9,888,205 Less: accumulated depreciation and amortization.... 1,793,991 2,032,521 ----------- ---------- $ 8,571,946 $7,855,684 =========== ==========
8. RELATED PARTY TRANSACTIONS Accounts receivable Included in accounts receivable is $86,388 and $0 for 1996 and 1997, respectively, that is due from J.H. Kelly, Inc., a corporation controlled by a 50% shareholder of Valley. F-89 JDW ENTERPRISES, INC. D.B.A. VALLEY RENTALS NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) Other receivables In addition, other receivables include $35,874 and $52,533 for 1996 and 1997, respectively, due from a 25% shareholder of Valley. Rental equipment For the year ended December 31, 1997, Valley rented equipment from a related party (Bald Eagle Equipment Co.) totaling $369,753. Operating property and equipment For the year ended December 31, 1997, Valley sold to JDW Real Estate L.L.C., I and II the land and buildings located in Phoenix and Tucson. The properties were sold (based on appraisal) for $1,750,000 and resulted in a gain of $480,308. The properties had a cost basis of $1,499,242 and accumulated depreciation of $229,550 at the time of sale. Notes payable, related party At December 31, 1996 and 1997, Valley has notes payable to Danny L. and Mary J. Evans in the amount of $2,090,000. The notes are subordinated to applicable bank debt and bear interest at 8.75%. During 1996, J.H. Kelly, Inc. distributed its notes receivable from Valley to its shareholders Danny L. and Mary J. Evans. At December 31, 1996 and 1997, Valley has notes payable to its stockholders in the amount of $850,000. The notes are subordinated to applicable bank debt and bear interest at 8.75%. Valley purchased rental equipment in the amount of $600,456 from two Company shareholders during 1996. The shareholder notes resulting from this transaction bear interest at 7.9% and total $589,778 and $456,027 at December 31, 1996 and 1997, respectively. Rental revenue and retail sales Valley rents and sells equipment to J.H. Kelly, Inc. For the years ended December 31, 1996 and 1997, Valley recognized revenues of $48,864 and $147,417, respectively, from J.H. Kelly, Inc. Interest expense Interest expense paid on the shareholder notes amounted to $340,563 and $299,941, respectively, for the years ended December 31, 1996 and 1997. 9. COMMITMENTS AND CONTINGENCIES Valley is currently leasing various facilities and equipment under operating leases expiring through the year 2001. All operating leases were paid off February 3, 1998. Future minimum lease payments as of December 31, 1997 are as follows: Year ended December 31, 1998.................................... $4,779,265 ==========
F-90 JDW ENTERPRISES, INC. D.B.A. VALLEY RENTALS NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) 10. SUBSEQUENT EVENT On February 3, 1998, the shareholders of Valley agreed to sell to Rental Service Corporation substantially all assets of the corporation. The assets sold included accounts receivable, inventory, rental equipment and other operating assets and excluded land and buildings. The agreement also required simultaneous pay-off of all liabilities of Valley including payables, notes, capital leases and operating leases. F-91 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CON- TAINED HEREIN, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANY- ING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRE- SENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE REGISTERED SECURITIES TO WHICH THIS PROSPECTUS RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITA- TION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAW- FUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPEC- TUS NOR ANY EXCHANGE OF EXCHANGE NOTES FOR PRIVATE NOTES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CON- TAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 1 Risk Factors............................................................. 15 The Exchange Offer....................................................... 24 Use of Proceeds.......................................................... 31 Capitalization........................................................... 32 Unaudited Pro Forma Consolidated Financial Data.......................... 33 Selected Consolidated Financial and Operating Data....................... 41 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 44 Business................................................................. 57 Management............................................................... 65 Principal Stockholders................................................... 76 Certain Relationships and Related Transactions........................... 78 Description of the Bank Facility......................................... 81 Description of Exchange Notes............................................ 82 Material Federal Income Tax Considerations............................... 112 Plan of Distribution..................................................... 112 Legal Matters............................................................ 113 Experts.................................................................. 113 Index to Financial Statements............................................ F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ----------------------- PROSPECTUS ----------------------- $200,000,000 [LOGO OF RENTAL SERVICE CORPORATION] 9% SENIOR SUBORDINATED NOTES DUE 2008 , 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the General Corporation Law of the State of Delaware (the "Delaware Corporation Law") gives Delaware corporations broad powers to indemnify their present and former directors and officers against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with threatened, pending or completed actions, suits or proceedings to which they are parties or are threatened to be made parties by reason of being or having been such directors or officers, subject to specified conditions and exclusions; gives a director or officer who successfully defends an action the right to be so indemnified; and permits a corporation to buy directors' and officers' liability insurance. Such indemnification is not exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of stockholders or otherwise. As permitted by Section 145 of the Delaware Corporation Law, Article VI of the Bylaws of the Company provides for the indemnification by the Company of its directors, officers, employees and agents against liabilities and expenses incurred in connection with actions, suits or proceeds brought against them by a third party or in the right of the corporation, by reason of the fact that they were or are such directors, officers, employees or agents. Article Twelfth of the Company's Certificate of Incorporation, which is incorporated by reference in this Registration Statement, provides that to the fullest extent permitted by the Delaware Corporation Law as the same exists or may hereafter be amended, a director of the Company shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. Policies of insurance may be obtained and maintained by the Company under which its directors and officers will be insured, within the limits and subject to the limitations of the policies, against certain expenses in connection with the defense of, and certain liabilities which might be imposed as a result of, actions, suits or proceedings to which they are parties by reason of being or having been such directors or officers. ITEM 21. EXHIBITS (a) Exhibits
EXHIBITS DESCRIPTION -------- ----------- *1.1 Purchase Agreement dated as of May 8, 1998 by and among Rental Service Corporation and the several Initial Purchasers named therein relating to the 9% Senior Subordinated Notes of Rental Service Corporation due 2008. 3.1 Amended and Restated Certificate of Incorporation of the Company.(1) 3.2 Certificate of Amendment of Certificate of Incorporation.(2) 3.3 Form of Amended and Restated Bylaws of the Company.(3) *4.1 Indenture dated as of May 13, 1998 by and between Rental Service Corporation, the Subsidiary Guarantors and Norwest Bank Minnesota, National Association, as trustee for the 9% Senior Subordinated Notes of Rental Service Corporation due 2008. *5.1 Opinion of Latham & Watkins as to the enforceability of the Exchange Notes being registered hereby (including consent). *8.1 Opinion of Latham & Watkins regarding certain federal income tax matters (including consent). 10.1 Credit Agreement among Acme Alabama, Inc., Acme Dixie Inc., Acme Duval Inc., Acme Rents, Inc., The Air & Pump Company and Walker Jones Equipment, Inc., as Borrowers, Acme Acquisition Corp. and Acme Holdings Inc., as Parent Guarantors, each of the financial institutions initially a signatory thereto, together with those assignees pursuant to Section 12.8 thereof, as Lenders, Bankers Trust Company, as Issuing Bank, and BT Commercial Corporation, as Agent, dated as of September 12, 1995.(1)
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EXHIBITS DESCRIPTION -------- ----------- 10.2 First Amendment to Credit Agreement dated as of September 26, 1995.(1) 10.3 Second Amendment and Consent to Credit Agreement dated as of December 21, 1995.(1) 10.4 Amended and Restated Credit Agreement, dated as of September 24, 1996.(4) 10.5 First Amendment to Amended and Restated Credit Agreement, dated as of January 31, 1997.(5) 10.6 Third Agreement, Consent and Limited Waiver to the Amended and Restated Credit Agreement, dated as of May 22, 1997.(6) 10.7 Fourth Amendment to the Amended and Restated Credit Agreement, dated as of August 1, 1997.(7) 10.8 Second Amended and Restated Credit Agreement, dated as of December 2, 1997.(2) *10.9 First Amendment to Second Amended and Restated Credit Agreement, dated as of May 13, 1998. 10.10 Stock Purchase Agreement dated as of July 25, 1995, between Acme Acquisition Holdings Corp. and Martin R. Reid.(1) 10.11 Stock Purchase and Severance Agreement dated as of July 25, 1995, between Acme Acquisition Holdings Corp. and Douglas A. Waugaman.(1) 10.12 Stock Purchase and Severance Agreement dated as of October 4, 1995 between Rental Service Corporation and Douglas A. Waugaman.(1) 10.13 Corporate Development and Administrative Services Agreement dated as of July 17, 1992 between Brentwood Buyout Partners, L.P., a Delaware limited partnership, and Acme Acquisition Corp.(1) 10.14 Amendment to Corporate Development and Administrative Services Agreement effective October 31, 1993.(1) 10.15 Preferred Stock and Common Stock Purchase Agreement dated as of January 4, 1996 by and between Nassau Capital Partners L.P. and NAS Partners I L.L.C., and Rental Service Corporation.(1) 10.16 Letter Agreement dated June 7, 1996 between Nassau Capital Partners L.P. and NAS Partners I L.L.C., and Rental Service Corporation.(1) 10.17 Stockholders' Agreement dated as of January 4, 1996 by and among the parties listed on the signature page thereto and Rental Service Corporation.(1) 10.18 Stock Option Plan for Key Employees.(1) 10.19 Form of Incentive Stock Option Agreement for Directors.(1) 10.20 Form of Incentive Stock Option Agreement for Region Managers.(1) 10.21 Form of Amended Incentive Stock Option Agreement for Region Managers.(1) 10.22 Form of Amended Incentive Stock Option Agreement for Corporate Office Personnel.(1) 10.23 Form of Incentive Stock Option Agreement for Other Corporate and District Personnel.(1) 10.24 Form of Indemnification Agreement.(1) 10.25 Termination Agreement dated July 22, 1996, between Rental Service Corporation and Brentwood Buyout Partners, L.P. providing for termination of the Corporate Development and Administrative Services Agreement.(1) 10.26 Letter Agreement dated June 1, 1996 between Rental Service Corporation and David G. Ledlow.(1) 10.27 Form of Amendment to Amended Incentive Stock Option Agreement for Region Managers.(1) 10.28 Form of Amendment to Amended Incentive Stock Option Agreement for Region Managers.(1) 10.29 Form of Amendment to Amended Incentive Stock Option Agreement for Region Managers.(1) 10.30 Form of Amendment to Amended Incentive Stock Option Agreement for Corporate Office Personnel.(1) 10.31 1996 Equity Participation Plan of Rental Service Corporation.(9)
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EXHIBITS DESCRIPTION -------- ----------- 10.32 Form of Incentive Stock Option Agreement for Employees.(6) 10.33 Form of Non-Qualified Stock Option Agreement for Directors.(6) 10.34 Employee Qualified Stock Purchase Plan of Rental Service Corporation.(10) 10.35 Management Incentive Compensation Plan.(11) 10.36 Stock Purchase Agreement by and among Andy G. Gessner; Larry R. Bush; Stacy K. Bush; Larry R. Bush; Trustee of the Stacy K. Bush Trust and Roy B. Bush as "Sellers," Acme Dixie Inc., as "Buyer," Rental Service Corporation as "Parent" and Comtect, Inc. and Comtect, Inc.'s subsidiaries as the "Company," dated March 14, 1997.(12) 10.37 Asset Purchase Agreement by and among Brute Equipment Co. d/b/a "Foxx Hy-Reach Company" as "Seller," Rental Service Corporation, Walker Jones Equipment Company as "Buyer" and Thomas H. Foster, dated April 25, 1997.(12) 10.38 Asset Purchase Agreement by and among Central States Equipment, Inc. and Equipment Lessors, Inc. as "Sellers," Walker Jones Equipment Company as "Buyer" and the stockholders of Sellers, dated April 26, 1997.(12) 10.39 Stock Purchase Agreement by and among David P. Lanoha and The Lanoha Charitable Remainder Trust and National Christian Charitable Foundation and Richard F. Lanoha Family Trust as "Sellers," RSC Acquisition Corp. as "Buyer," Rental Service Corporation as "Parent" and Rent-It-Center, Inc. d/b/a Center Rental and Sales, Inc. as the "Company," dated October 6, 1997.(8) 10.40 Asset Purchase Agreement by and among David P. Lanoha as "Seller," RSC Acquisition Corp. as "Buyer," Rental Service Corporation as "Parent" and Lanoha Leasing Limited Liability Company as the "Company," dated October 6, 1997.(8) 10.41 Asset Purchase Agreement by and among David P. Lanoha as "Seller," RSC Acquisition Corp. as "Buyer," Rental Service Corporation as "Parent" and Zuni Rental Enterprises L.L.C. as the "Company," dated October 6, 1997.(8) 10.42 Asset Purchase Agreement by and among David P. Lanoha as "Seller," RSC Acquisition Corp. as "Buyer," Rental Service Corporation as "Parent" and Center Rental & Sales/Omaha LLC as the "Company," dated October 6, 1997.(8) 10.43 Stock Purchase Agreement by and among Leonard A. Siems, Marvin W. Abbott and the Trustees (as defined) as "Sellers," RSC Alabama, Inc. as "Buyer," Rental Service Corporation as "Parent" and Siems Rental & Sales Co., Inc. as the "Company," dated October 31, 1997.(8) 10.44 Asset Purchase Agreement by and among JDW Enterprises, Inc. d/b/a "Valley Rentals" as "Seller," Rental Service Corporation, RSC Center, Inc. as "Buyer" and the stockholders of Seller, dated December 30, 1997.(13) 10.45 Employment Agreement dated January 14, 1998 between Rental Service Corporation and Martin R. Reid.(14) *10.46 Restricted Stock Agreement dated January 14, 1998 between Rental Service Corporation and Martin R. Reid. 10.47 Stock Purchase Agreement by and among James S. Peterson as "Seller," Walker Jones Equipment, Inc. as "Buyer," Rental Service Corporation as "Parent" and James S. Peterson Enterprises, Inc. as the "Company," dated April 1, 1998.(14) 10.48 Stock Purchase Agreement by and among Mark S. Mosak and Thomas A. Mosak as "Sellers," Walker Jones Equipment, Inc. as "Buyer," Rental Service Corporation as "Parent" and T&M Rental, Inc. as the "Company," dated April 2, 1998.(14) *10.49 Registration Rights Agreement dated as of May 13, 1998 by and among Rental Service Corporation and the persons named therein relating to the 9% Senior Subordinated Notes due 2008 of Rental Service Corporation. *12.1 Statement re: computation of ratio of earnings to fixed charges.
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EXHIBITS DESCRIPTION -------- ----------- *21.1 Subsidiaries of Rental Service Corporation. *23.1 Consent of Ernst & Young LLP *23.2 Consent of Ernst & Young LLP *23.3 Consent of Ernst & Young LLP *23.4 Consent of McGladrey & Pullen, LLP *23.5 Consent of Ernst & Young LLP *23.6 Consent of Weintraub & Morrison, P.C. 23.7 Consent of Latham & Watkins (included in Exhibit 5.1 and Exhibit 8.1). 24.1 Powers of Attorney (included on pages II-7 and II-8). *25.1 Statement of Eligibility and Qualification on Form T-1 of Norwest Bank Minnesota, National Association, as trustee, re: 9% Senior Subordinated Notes of Rental Service Corporation. *27.1 Financial Data Schedule. *99.1 Letter of Transmittal with respect to the Exchange Offer. *99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer. *99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
- -------- *Filed herewith. (1) Filed as an Exhibit to the Company's Registration Statement on Form S-1 (Registration No. 333-05949, effective September 18, 1996), and incorporated herein by reference. (2) Filed as an Exhibit to the Company's Registration Statement on Form S-1 (Registration No. 333-40707, effective December 16, 1997), and incorporated herein by reference. (3) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference. (4) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 1996, and incorporated herein by reference. (5) Filed as an Exhibit to the Company's Current Report on Form 8-K dated January 31, 1997, and incorporated herein by reference. (6) Filed as an Exhibit to the Company's Registration Statement on Form S-1 (Registration No. 333-26753, effective May 29, 1997), and incorporated herein by reference. (7) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 1997, and incorporated herein by reference. (8) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 1997, and incorporated herein by reference. (9) Filed as an Exhibit to the Company's Registration Statement on Form S-8 (Registration No. 22403) dated February 26, 1997), and incorporated herein by reference. (10) Filed with the Company's Proxy Statement on Schedule 14A filed March 26, 1997, and incorporated herein by reference. (11) Filed with the Company's Proxy Statement on Schedule 14A filed March 30, 1998, and incorporated herein by reference. (12) Filed as an Exhibit to the Company's Current Report on Form 8-K dated April 14, 1997, and incorporated herein by reference. (13) Filed as an Exhibit to the Company's Current Report on Form 8-K dated February 18, 1998, and incorporated herein by reference. (14) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 1998, and incorporated herein by reference. II-4 (b) Financial Statement Schedules Report of Independent Auditors Schedule I--Condensed Financial Information of Registrant Condensed Balance Sheets--December 31, 1996 and 1997 Condensed Statements of Operations--for the years ended December 31, 1995, 1996 and 1997 Condensed Statements of Cash Flows--for the years ended December 31, 1995, 1996 and 1997 Notes to Condensed Financial Statements--December 31, 1997 Schedule II--Valuation and Qualifying Accounts--as of and for the years ended December 31, 1995, 1996 and 1997 Other schedules are not included because the required information is not present or is included in the Consolidated Financial Statements or notes thereto. ITEM 22. UNDERTAKINGS (a) The undersigned registrant hereby undertakes that insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "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 Act and is, therefore, unenforceable. In the event that a claim of indemnification against such liabilities (other than the payment by the registrant of expenses incurred or the registrant in the successful defense of any action, suit 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 Act and will be governed by the final adjudication of such issue. (b) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into this prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (c) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (d) The undersigned registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and 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) of the Securities Act of 1933 if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement; II-5 (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that 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. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale, State of Arizona, on June 11, 1998. RENTAL SERVICE CORPORATION ("RSC") RSC ACQUISITION CORP. RSC ALABAMA, INC. RSC CENTER, INC. RSC DUVAL, INC. RSC HOLDINGS, INC. RSC INDUSTRIAL CORPORATION RSC RENTS, INC. WALKER JONES EQUIPMENT, INC. /s/ Martin R. Reid By: _________________________________ Martin R. Reid Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Martin R. Reid and Robert M. Wilson and each or any of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in their capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Martin R. Reid Chairman of the Board and June 11, 1998 ____________________________________ Chief Executive Officer of Martin R. Reid RSC (Principal Executive Officer); Chief Executive Officer and Director of each of the Subsidiary Guarantors (Principal Executive Officer)
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SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert M. Wilson Chief Financial Officer, June 11, 1998 ____________________________________ Secretary, Treasurer and Robert M. Wilson Director of RSC (Principal Financial and Accounting Officer); Chief Financial Officer and Director of RSC Acquisition Corp., RSC Duval Inc., RSC Industrial Corporation and RSC Rents, Inc. (Principal Accounting and Financial Officer); Treasurer and Director of RSC Alabama, Inc., RSC Center, Inc., RSC Holdings, Inc. and Walker Jones Equipment, Inc. (Principal Accounting and Financial Officer) /s/ William M. Barnum, Jr. Director of RSC June 11, 1998 ____________________________________ William M. Barnum, Jr. Director of RSC ____________________________________ James R. Buch Director of RSC ____________________________________ David P. Lanoha /s/ Christopher A. Laurence Director of RSC June 11, 1998 ____________________________________ Christopher A. Laurence /s/ Eric L. Mattson Director of RSC June 11, 1998 ____________________________________ Eric L. Mattson /s/ Britton H. Murdoch Director of RSC June 11, 1998 ____________________________________ Britton H. Murdoch Director of RSC ____________________________________ John M. Sullivan
II-8 REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES Board of Directors Rental Service Corporation We have audited the consolidated financial statements of Rental Service Corporation (the "Company") as of December 31, 1996 and 1997, and for each of the three years in the period ended December 31, 1997, and have issued our report thereon dated February 12, 1998, included elsewhere in this Registration Statement. Our audits also included the financial statement schedules listed in Item 21(b). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Phoenix, Arizona February 12, 1998 S-1 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT RENTAL SERVICE CORPORATION (PARENT COMPANY) CONDENSED BALANCE SHEETS
DECEMBER 31, ------------------------ 1996 1997 ----------- ------------ ASSETS ------ Cash................................................. $ 5,000 $ 5,000 Other assets......................................... -- 2,000 Investment in and net amounts due from wholly owned subsidiaries........................................ 95,075,000 290,782,000 ----------- ------------ $95,080,000 $290,789,000 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Accounts payable and accrued expenses................ $ 8,000 $ 8,000 Stockholders' equity: Common stock....................................... 114,000 198,000 Additional paid-in capital......................... 93,917,000 270,927,000 Common stock issuable.............................. -- 6,000,000 Retained earnings.................................. 1,041,000 13,656,000 ----------- ------------ Total stockholders' equity........................... 95,072,000 290,781,000 ----------- ------------ $95,080,000 $290,789,000 =========== ============
See accompanying notes. S-2 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT RENTAL SERVICE CORPORATION (PARENT COMPANY) CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ----------------------------------- 1995 1996 1997 ---------- ---------- ----------- Costs and expenses: Interest expense (income)................ $ (7,000) $ 3,000 $ -- ---------- ---------- ----------- Income (loss) before equity in income of subsidiaries and extraordinary item....... 7,000 (3,000) -- Equity in income of subsidiaries........... 3,230,000 2,503,000 12,615,000 ---------- ---------- ----------- Income before extraordinary item........... 3,237,000 2,500,000 12,615,000 Extraordinary item, gain on extinguishment of debt less applicable income taxes of $142,000 in 1996.......................... -- 220,000 -- ---------- ---------- ----------- Net income................................. $3,237,000 $2,720,000 $12,615,000 ========== ========== ===========
See accompanying notes. S-3 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT RENTAL SERVICE CORPORATION (PARENT COMPANY) CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ---------------------------------------- 1995 1996 1997 ----------- ------------ ------------- OPERATING ACTIVITIES: Net income.......................... $ 3,237,000 $ 2,720,000 $ 12,615,000 Equity in income of subsidiaries.... (3,230,000) (2,503,000) (12,615,000) Extraordinary item.................. -- (220,000) -- Change in other assets.............. -- -- (2,000) Change in accounts payable and accrued expenses................... (109,000) 8,000 -- ----------- ------------ ------------- Net cash provided by (used in) operating activities............... (102,000) 5,000 (2,000) FINANCING ACTIVITIES Proceeds from issuance of redeemable preferred stock.................... -- 7,500,000 -- Redemption of redeemable preferred stock.............................. -- (37,874,000) -- Proceeds from notes payable......... 10,000,000 -- -- Payments on notes payable........... -- (12,055,000) -- Proceeds from sale of common stock.. -- 95,223,000 153,974,000 Proceeds from exercise of stock options............................ -- 1,000 85,000 Repurchase of common stock warrants........................... -- (945,000) -- Loans to subsidiaries............... (9,893,000) (51,855,000) (154,057,000) ----------- ------------ ------------- Net cash provided by (used in) financing activities............... 107,000 (5,000) 2,000 ----------- ------------ ------------- Increase in cash.................... $ 5,000 $ -- $ -- =========== ============ =============
See accompanying notes. S-4 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT RENTAL SERVICE CORPORATION (PARENT COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS DECEMBER 31, 1997 1. BASIS OF PRESENTATION Rental Service Corporation's (the "Company") investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. The Company's share of net income of its unconsolidated subsidiaries is included in consolidated income using the equity method. The parent company-only financial statements should be read in conjunction with the Company's consolidated financial statements. 2. LONG-TERM DEBT The Company has guaranteed its subsidiaries' $500.0 million revolving line of credit with banks, of which $67.9 million and $206.5 million is outstanding at December 31, 1996 and 1997, respectively. Additionally, the Company has guaranteed its subsidiaries' $100.0 million term loan with banks. On September 24, 1996, the Company repaid the note payable to Bank and repurchased the related warrants for $13.0 million, utilizing proceeds from its initial public offering. This redemption resulted in a reduction of additional paid-in capital of $945,000 and a gain on extinguishment of debt of $362,000, which has been classified as an extraordinary item, net of income taxes of $142,000, in the accompanying condensed statements of operations. S-5 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS RENTAL SERVICE CORPORATION YEAR ENDED DECEMBER 31, 1995, 1996 AND 1997
ADDITIONS ----------------------- TRANSFERS BALANCE AT CHARGED TO (TO) FROM BEGINNING COSTS AND OTHER BALANCE AT DESCRIPTION OF YEAR EXPENSES ACQUISITIONS ACCOUNTS DEDUCTIONS END OF YEAR ----------- ----------- ---------- ------------ ---------- ---------- ----------- YEAR ENDED DECEMBER 31, 1995 Deducted from assets accounts: Allowance for doubtful accounts............. $ 956,000 $1,040,000 $ 582,000 $ -- $ 787,000(a) $ 1,791,000 Reserve for rental equipment............ 157,000 -- 519,000 -- 165,000(b) 511,000 Reserve for inventory obsolescence......... 280,000 138,000 185,000 -- -- 603,000 Income tax valuation allowance............ 27,000 -- 7,831,000 -- -- 7,858,000 ----------- ---------- ---------- ---------- ---------- ----------- Total................... $ 1,420,000 $1,178,000 $9,117,000 $ -- $ 952,000 $10,763,000 =========== ========== ========== ========== ========== =========== YEAR ENDED DECEMBER 31, 1996 Deducted from assets accounts: Allowance for doubtful accounts............. $ 1,791,000 $1,692,000 $ 276,000 $ -- $1,594,000(a) $ 2,165,000 Reserve for rental equipment............ 511,000 434,000 -- -- 22,000(b) 923,000 Reserve for inventory obsolescence......... 603,000 97,000 224,000 -- 142,000(b) 782,000 Income tax valuation allowance............ 7,858,000 -- -- -- 3,118,000(c) 4,740,000 ----------- ---------- ---------- ---------- ---------- ----------- Total................... $10,763,000 $2,223,000 $ 500,000 $ -- $4,876,000 $ 8,610,000 =========== ========== ========== ========== ========== =========== YEAR ENDED DECEMBER 31, 1997 Deducted from assets accounts: Allowance for doubtful accounts............. $ 2,165,000 $2,596,000 $ 582,000 $ -- $2,418,000(a) $ 2,925,000 Reserve for rental equipment............ 923,000 511,000 218,000 1,416,000 412,000(b) 2,656,000 Reserve for inventory obsolescence......... 782,000 534,000 247,000 787,000 169,000(b) 2,181,000 Income tax valuation allowance............ 4,740,000 -- -- -- 253,000(c) 4,487,000 ----------- ---------- ---------- ---------- ---------- ----------- Total................... $ 8,610,000 $3,641,000 $1,047,000 $1,529,000 $2,578,000 $12,249,000 =========== ========== ========== ========== ========== ===========
- -------- (a) Write-off of uncollectible accounts, net of recoveries. (b) Write-off of physical inventory shortages or obsolescence. (c) Decrease due to changes in the expected future utilization of net operating loss carryforwards. S-6 EX-1.1 2 PURCHASE AGREEMENT DATED AS OF 05-08-98 EXHIBIT 1.1 RENTAL SERVICE CORPORATION $200,000,000 9% SENIOR SUBORDINATED NOTES DUE 2008 PURCHASE AGREEMENT ------------------ May 8, 1998 BT Alex. Brown Incorporated Merrill Lynch, Pierce, Fenner & Smith Incorporated Morgan Stanley & Co. Incorporated William Blair & Company c/o BT Alex. Brown Incorporated One Bankers Trust Plaza 130 Liberty Street New York, New York 10006 Ladies and Gentlemen: Rental Service Corporation (the "Company"), a Delaware corporation, ------- and the Guarantors (as defined) hereby confirm their agreement with you (the "Initial Purchasers"), as set forth below. - ------------------- 1. The Securities. Subject to the terms and conditions herein -------------- contained, the Company proposes to issue and sell to the Initial Purchasers $200,000,000 aggregate principal amount of the Company's 9% Senior Subordinated Notes due 2008 (the "Notes"). The Notes will be guaranteed (collectively, the ----- "Guarantees") on a senior subordinated basis by each of RSC Acquisition Corp., - ----------- RSC Holdings, Inc., RSC Alabama, Inc., RSC Center, Inc., RSC Rents, Inc., RSC Duval, Inc., RSC Industrial Corporation and Walker Jones Equipment, Inc. (each, a "Subsidiary" and collectively, the "Subsidiaries", and together with any ---------- ------------ subsidiary that in the future executes a supplemental indenture pursuant to which such subsidiary agrees to guarantee the Notes, the "Guarantors"). The ---------- Notes and the Guarantees are collectively referred to herein as the "Securities". The Securities are to be issued under an indenture (the ---------- "Indenture") dated as of May 8, 1998 by and among the Company, the Guarantors --------- and Norwest Bank Minnesota, N.A., as trustee (the "Trustee"). ------- The Securities will be offered and sold to you without being registered under the Securities Act of 1933, as amended (the "Act"), in reliance --- on exemptions therefrom. In connection with the issuance and sale of the Securities, the Company has prepared a preliminary offering memorandum dated April 22, 1998 (the "Preliminary Memorandum") and a final offering memorandum dated May 8, 1998 (the ---------------------- "Final ----- 2 Memorandum", and the Preliminary Memorandum and the Final Memorandum each herein - ---------- being referred to as a "Memorandum"), copies of which have been delivered to ---------- you. The Company understands that the Initial Purchasers propose to make an offering of the Notes only on the terms and in the manner set forth in the Final Memorandum and Section 8 hereof as soon as the Initial Purchasers deem advisable after this Agreement has been executed and delivered, to persons in the United States whom the Initial Purchasers reasonably believe to be qualified institutional buyers ("Qualified Institutional Buyers" or "QIBs") as defined in ------------------------------ ---- Rule 144A under the Act, as such rule may be amended from time to time ("Rule ---- 144A") and outside the United States to certain persons in reliance on - ---- Regulation S under the Act. The Initial Purchasers and their direct and indirect transferees of the Securities will be entitled to the benefits of the Registration Rights Agreement, substantially in the form attached hereto as Exhibit A (the --------- "Registration Rights Agreement"), pursuant to which the Company and the - --------------------------------- Guarantors will agree, among other things, to file a registration statement (the "Registration Statement") with the Securities and Exchange Commission (the ---------------------- "Commission") registering the Exchange Notes (as defined in the Registration - ----------- Rights Agreement) under the Act. 2. Representations and Warranties of the Company and the Guarantors. ---------------------------------------------------------------- The Company and each of the Guarantors, subject to the limit on maximum liability contained in the Guarantees, jointly and severally, represents and warrants to the Initial Purchasers that: (a) Neither the Final Memorandum nor any amendment or supplement thereto as of the date thereof and as of the Closing Date (as defined in Section 3 below) contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this Section 2(a) do not apply to statements or omissions made in reliance upon and in conformity with information relating to the Initial Purchasers furnished to the Company in writing by the Initial Purchasers expressly for use in the Preliminary Memorandum, the Final Memorandum or any amendment or supplement thereto. (b) As of May 8, 1998, the Company had the authorized, issued and outstanding consolidated capitalization set forth under the heading "Capitalization" in the Final Memorandum; all of the outstanding shares of capital stock of the Company and each of the Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights; the Company owns, directly or indirectly, all of the outstanding shares of capital stock of each of the Subsidiaries and all such shares are owned free and clear of all liens, encumbrances, equities and claims or restrictions on transferability (other than those imposed by the Act and the securities or "Blue Sky" laws of certain jurisdictions) or voting, except as set forth in the Final Memorandum; the Subsidiaries constitute all of the subsidiaries of the Company as of the date hereof; except as set forth in the Final 3 Memorandum, there are no (i) options, warrants or other rights to purchase from the Company or any Subsidiary, (ii) agreements or other obligations of the Company or any of the Subsidiaries to issue or (iii) other rights obligating the Company or any Subsidiary to convert any obligation into, or exchange any securities for, shares of capital stock of or ownership interests in the Company or any of the Subsidiaries outstanding. Except for the Company's direct and indirect interests in the Subsidiaries and Cash Equivalents (as such term is defined in the Final Memorandum), the Company does not own, directly or indirectly, any shares of capital stock or any other equity or long-term debt securities or have any equity interest in any firm, partnership, joint venture or other entity, other than as described in the Final Memorandum. (c) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Delaware, has the corporate power and authority to own its property and to conduct its business as described in the Final Memorandum and is duly qualified to transact business as a foreign corporation under the laws of, and is in good standing in, each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the management, business, condition (financial or otherwise), prospects or results of operations of the Company and the Subsidiaries, taken as a whole (any such event, a "Material Adverse ---------------- Effect"); and the Company has not received any written notice of any ------ proceeding instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. (d) Each Subsidiary has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Final Memorandum and is duly qualified to transact business as a foreign corporation under the laws of, and is in good standing in, each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not reasonably be expected to have a Material Adverse Effect; and the Company has not received any written notice of any proceeding instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. (e) Each of the Company and the Guarantors has requisite corporate power and authority to execute, deliver and perform each of its obligations under the Notes, the Exchange Notes, any Private Exchange Notes (each as defined in the Registration Rights Agreement and the Indenture) and the Guarantees. The Notes, the Exchange Notes and the Private Exchange Notes, when issued, will be substantially in the form contemplated by the Indenture. The Notes, the Exchange Notes and any Private Exchange Notes have each been duly and validly authorized by the Company 4 and, when executed by the Company and authenticated by the Trustee in accordance with the provisions of the Indenture and, in the case of the Notes, when delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, will have been duly executed, issued and delivered and will constitute valid and legally binding obligations of the Company (assuming the due authorization, execution and delivery of the Indenture by the Trustee and the due authorization and delivery of the Notes by the Trustee in accordance with the Indenture), entitled to the benefits of the Indenture, and enforceable against the Company in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law). (f) The Guarantees have been duly and validly authorized by each Guarantor, and when executed and delivered by such Guarantor, will constitute the valid and legally binding obligations of such Guarantor, entitled to the benefits of the Indenture, enforceable against each of them in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law). (g) Each of the Company and the Guarantors has requisite corporate power and authority to execute, deliver and perform its obligations under the Indenture. The Indenture meets the requirements for qualification under the Trust Indenture Act of 1939, as amended (the "TIA"). The Indenture has --- been duly and validly authorized by each of the Company and the Guarantors and, when executed and delivered in accordance with its terms (assuming the due authorization, execution and delivery by the Trustee), will have been duly executed and delivered and will constitute a valid and legally binding agreement of each of the Company and the Guarantors, enforceable against each of them in accordance with its terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law) and the discretion of the court before which any proceeding therefor may be brought and (B) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. (h) Each of the Company and the Guarantors has all requisite corporate power and authority to execute, deliver and perform its obligations under the Registration Rights Agreement. The Registration Rights Agreement has been duly and 5 validly authorized by each of the Company and the Guarantors and, when executed and delivered by the Company and each of the Guarantors (assuming due authorization, execution and delivery by the other parties thereto), will have been duly executed and delivered and will constitute a valid and legally binding agreement of each of the Company and the Guarantors, enforceable against each of them in accordance with its terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law) and the discretion of the court before which any proceeding therefor may be brought and (B) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. (i) Each of the Company and the Guarantors has requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. This Agreement and the consummation by the Company and the Guarantors of the transactions contemplated hereby have been duly and validly authorized by each of the Company and the Guar antors. This Agreement has been duly executed and delivered by each of the Company and the Guarantors and constitutes a valid and legally binding agreement of each of the Company and the Guarantors, enforceable against each of them in accordance with its terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law) and the discretion of the court before which any proceeding therefor may be brought and (B) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. (j) The execution and delivery by the Company and the Guarantors of, and the performance by the Company and the Guarantors of their obligations under, this Agreement, the Indenture, the Notes, the Guarantees, the Exchange Notes, the Private Exchange Notes and the Registration Rights Agreement, the consummation of the transactions contemplated hereby and thereby, and the fulfillment of the terms hereof and thereof, will not result in the breach or violation of or constitute a default under (i) any statute, rule or regulation applicable to the Company or the Guarantors, (ii) the certificate of incorporation or bylaws of the Company or the Guarantors, (iii) any other agreement or instrument binding upon the Company or any of the Subsidiaries that is material to the Company and the Subsidiaries, taken as a whole, or (iv) any judgment, order or decree binding on the Company or any subsidiary of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, except for any breach, violation or default which, singly or in the aggregate, would not reasonably be expected to have a Material Adverse Effect; and no consent, approval, authorization or order of or qualification with any 6 governmental body or agency is required for the performance by the Company and the Guarantors of their obligations under this Agreement, except (i) have been obtained or made, (ii) such as may be required by the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), securities, (iii) Blue Sky laws in connection with the offer and sale of the Shares and clearance with the National Association of Securities Dealers, Inc. ("NASD") or (iv) such as may be required under the TIA. (k) There are no (i) legal or governmental proceedings pending or to the Company's knowledge threatened to which the Company or any of the Subsidiaries is a party or to which any of the properties of the Company or any of the Subsidiaries is subject which would be required to be described in a prospectus pursuant to the Act that are not described in the Final Memorandum, other than proceedings that, if decided adversely to the Company or such Subsidiaries, would not reasonably be expected to have a Material Adverse Effect, or a material adverse effect on the power or ability of the Company to perform its obligations under this Agreement or (ii) material documents relating to the Company or any of the Subsidiaries which would be required to be described in a prospectus pursuant to the Act that are not described in the Final Memorandum. (l) Each of the Company and the Subsidiaries has all necessary consents, authorizations, approvals, orders, certificates and permits of and from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, to own, lease, license and use its properties and assets and to conduct its business in the manner described in the Final Memorandum, except to the extent that the failure to obtain or file would not reasonably be expected to have a Material Adverse Effect. (m) The Company is not and, after giving effect to the offering of the Notes and the application of the proceeds thereof as described in the Final Memorandum, will not be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (n) The Company and the Subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect. 7 (o) Neither the Company nor any of the Subsidiaries is in violation of its certificate of incorporation or bylaws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties or assets may be bound, except for such defaults as singly or in the aggregate do not and will not reasonably be expected to have a Material Adverse Effect. (p) The Company and the Subsidiaries have good and valid title to all real and personal property owned by them which is material to the business of the Company and the Subsidiaries, in each case free and clear of all liens (except liens for taxes not yet due and payable), encumbrances and defects, except such as are described or reflected in the Final Memorandum (including the financial statements included therein), and such as do not materially interfere with the use made and proposed to be made for such property by the Company and the Subsidiaries, and except to the extent the failure to have such title or the existence of such liens, encumbrances and defects would not reasonably be expected to have a Material Adverse Effect; and any material real property held under lease by the Company and the Subsidiaries are held by them under valid and binding leases. (q) The Company and the Subsidiaries own or possess all right, title and interest in and to, or have duly licensed from third parties, all patents, patent rights, trade secrets, inventions, know-how, trademarks, trade names, copyrights, service marks and other proprietary rights (collectively, "Trade Rights"), if any, that are material to the business of the Company and the Subsidiaries, taken as a whole; neither the Company nor any of the Subsidiaries have received any notice of infringement, misappropriation or conflict from any third party as to such material Trade Rights that has not been resolved or disposed of and, to the knowledge of the Company, neither the Company nor any of the Subsidiaries has infringed, misappropriated or otherwise conflicted with the material Trade Rights of any third parties, except for such infringements, misappropriations or conflicts as, singly or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. (r) The Company and each of the Subsidiaries are insured by insurers against such losses and risks and in such amounts as the Company believes are appropriate for the business in which they are engaged. (s) The Company confirms that as of the date hereof is in compliance with all provisions of Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida). (t) Subsequent to the date as of which information is given in the Final Memorandum, and except as contemplated by the Final Memorandum, the Company and the Subsidiaries, taken as a whole, have not incurred any material liabilities or obligations, direct or contingent, nor entered into any material transactions not in the ordinary course of business and there has not been any material adverse change in 8 their condition (financial or otherwise) or results of operations nor any material adverse change in their capital stock, short-term or long-term debt. (u) No labor dispute with the employees of the Company or any of the Subsidiaries exists or, to the Company's knowledge, is threatened or imminent that could reasonably be expected to result in Material Adverse Effect, except as described in or contemplated by the Final Memorandum. (v) Each of the Indenture, the Notes, the Guarantees and the Registration Rights Agreement conforms in all material respects to the description thereof in the Final Memorandum. (w) The consolidated financial statements of the Company together with the related notes and schedules thereto included in the Final Memorandum present fairly in all material respects the consolidated financial position, results of operations and cash flows of the Company at the dates and for the periods to which they relate and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except as otherwise stated in the Final Memorandum. The summary and selected financial and statistical data included in the Final Memorandum present fairly in all material respects the information shown therein and have been prepared and compiled on a basis consistent with the audited financial statements included therein, except as otherwise stated therein. Ernst & Young LLP is an independent public accounting firm as required by the Act and the rules and regulations thereunder. (x) (i) The pro forma financial statements (including the notes thereto) included in the Final Memorandum (A) have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements (except with respect to the financial information for the twelve months ended March 31, 1998 contained under the heading "Summary Consolidated Financial and Operating Data" in the Offering Memorandum) and (B) have been properly computed on the bases described therein, and (ii) the assumptions used in the preparation of the pro forma financial statements included in the Final Memorandum are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (y) The issuance or sale of the Securities in the manner contemplated by the Final Memorandum will not violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. (z) No holder of securities of the Company (other than the Registrable Notes (as defined in the Registration Rights Agreement)) will be entitled to have such securities registered under the registration statements required to be filed by the Company pursuant to the Registration Rights Agreement other than as expressly permitted thereby. 9 (aa) Neither the Company nor any of the Subsidiaries nor any of their respective Affiliates (as defined in Rule 501(b) of Regulation D under the Act) has directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of any "security" (as defined in the Act) which is or reasonably could be integrated with the sale of the Securities in a manner that would require the registration under the Act of the Securities or (ii) engaged in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Securities or in any manner involving a public offering within the meaning of Section 4(2) of the Act. (ab) Assuming (i) the representations and warranties of the Initial Purchasers in Section 8 hereof are true and correct, (ii) compliance by the Initial Purchasers with the offering and transfer restrictions described in the Final Memorandum and (iii) the accuracy of the representations, warranties and agreements of each of the purchasers to whom the Initial Purchasers initially resells the Notes in compliance with Section 8 hereof, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers in the manner contemplated by this Agreement to register any of the Securities under the Act or to qualify the Indenture under the TIA. (ac) No securities of the Company are of the same class (within the meaning of Rule 144A under the Act) as the Securities and listed on a national securities exchange, registered under Section 12 of the Exchange Act, or quoted in a U.S. automated inter-dealer quotation system. (ad) Neither the Company nor any of the Subsidiaries has taken, nor will take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Securities. (ae) Neither the Company nor any of the Subsidiaries, nor any of their respective Affiliates (as defined in Rule 501(b) of Regulation D under the Act) or any person acting on any of its behalf (other than the Initial Purchasers as to which the Company and the Subsidiaries make no representation) has engaged in any directed selling efforts (as that term is defined in Regulation S under the Act ("Regulation S")) with respect to ------------ the Securities; the Company and its respective Affiliates and any person acting on any of its behalf (other than the Initial Purchasers as to which the Company and the Subsidiaries make no representation) have complied with the offering restrictions requirement of Regulation S. Any certificate signed by any officer of the Company or any of the Subsidiaries and delivered to any Initial Purchaser or to counsel for the Initial Purchasers shall be deemed a joint and several representation and warranty by the Company and each of the Subsidiaries to each Initial Purchaser as to the matters covered thereby. 10 3. Purchase, Sale and Delivery of the Securities. On the basis of --------------------------------------------- the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, Company and the Guarantors agree to issue and sell to the Initial Purchasers, and the Initial Purchasers agree severally, but not jointly, to purchase, the principal amount of Securities set forth opposite such Initial Purchaser's name on Schedule I hereto, at 97.25% of their principal amount. One or more certificates in definitive form for the Securities that the Initial Purchasers have agreed to purchase hereunder, and in such denomination or denominations and registered in such name or names as the Initial Purchasers request upon notice to the Company at least 48 hours prior to the Closing Date, shall be delivered by or on behalf of the Company to the Initial Purchasers, against payment by or on behalf of the Initial Purchasers of the purchase price therefor by wire transfer of immediately available funds payable to such account or account as the Company shall specify prior to the Closing Date, or by such means as the parties hereto shall agree prior to the Closing Date. Such delivery of and payment for the Securities shall be made at the offices of Latham & Watkins, 633 W. 5th Street, Los Angeles, California, at 7:00 A.M., Los Angeles time, on May 13, 1998, or at such other place, time or date as the Initial Purchasers and the Company may agree upon, such time and date of delivery against payment being herein referred to as the "Closing Date." The Company will make such certificate or certificates for the Securities available for checking and packaging by the Initial Purchasers at the offices of BT Alex. Brown Incorporated in New York, New York or such other place as BT Alex. Brown Incorporated may designate, at least 24 hours prior to the Closing Date. 4. Offering by the Initial Purchasers. The Initial Purchasers ---------------------------------- propose to make an offering of the Securities at the price and upon the terms set forth in the Final Memorandum as soon as practicable after this Agreement is entered into and as in the sole judgment of the Initial Purchasers is advisable. 5. Covenants of the Company. The Company and the Guarantors covenant ------------------------ and agree with each of the Initial Purchasers that: (a) The Company will not amend or supplement the Final Memorandum or any amendment or supplement thereto of which the Initial Purchasers and counsel to the Initial Purchasers shall not previously have been advised and furnished a copy for a reasonable period of time prior to the proposed amendment or supplement and as to which the Initial Purchasers shall not have given their consent, which consent shall not be unreasonably withheld. The Company will promptly, upon the reasonable request of the Initial Purchasers or counsel for the Initial Purchasers, make any amendments or supplements to the Preliminary Memorandum or the Final Memorandum that may be necessary or advisable in connection with the resale of the Securities by the Initial Purchasers. (b) The Company and the Guarantors will cooperate with the Initial Purchasers in arranging for the qualification of the Securities for offering and sale under the securities or "Blue Sky" laws of such jurisdictions as the Initial Purchasers 11 may designate and will continue such qualification in effect for as long as may be necessary to complete the resale of the Securities by the Initial Purchasers; provided, however, that in connection therewith the Company -------- ------- shall not be required to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or subject the Company to any tax in any such jurisdiction where it is not then so subject. (c) If, at any time prior to the completion of the distribution by the Initial Purchasers of the Notes, any event occurs or information becomes known as a result of which the Final Memorandum as then amended or supplemented would include an untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if for any other reason it is necessary at any time to amend or supplement the Final Memorandum in order to comply with applicable law, the Company will promptly notify the Initial Purchasers thereof and will prepare, at the Company's expense, an amendment to the Final Memorandum that corrects such statement or omission or effects such compliance. (d) The Company will, without charge, provide to the Initial Purchasers and to counsel for the Initial Purchasers as many copies of the Preliminary Memorandum and the Final Memorandum or any amendment or supplement thereto as the Initial Purchasers may reasonably request. (e) The Company will apply the net proceeds from the sale of the Securities substantially as set forth under "Use of Proceeds" in the Final Memorandum. (f) For so long as any Securities remain outstanding, the Company will furnish to the Initial Purchasers copies of all reports and other communications (financial or otherwise) furnished by the Company to the Trustee or the holders of the Securities and, as soon as available, upon request, copies of any reports or financial statements furnished to or filed by the Company with the Commission or any national securities exchange on which any class of securities of the Company may be listed. (g) None of the Company, the Guarantors nor any of its respective Affiliates will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any "security" (as defined in the Act) that could be integrated with the sale of the Securities in a manner that would require the registration under the Act of the Securities. (h) Neither the Company nor any Guarantor will, nor will the Company permit any of the Subsidiaries to, engage in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Securities or in any manner involving a public offering within the meaning of Section 4(2) of the Act. 12 (i) For so long as any of the Securities remain outstanding, the Company will make available, upon request, to any holder of such Securities and any prospective purchaser thereof the information specified in Rule 144A(d)(4) under the Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act. (j) Each of the Company and the Guarantors will use its best efforts to (i) permit the Securities to be designated PORTAL securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. (the "NASD") relating to trading in the Private Offerings, Resales and Trading through Automated Linkages market (the "PORTAL Market") and (ii) permit the Securities to be eligible ------------- for clearance and settlement through The Depository Trust Company. (k) In connection with any Notes offered and sold in an offshore transaction (as defined in Regulation S), the Company will not register any transfer of such Notes not made in accordance with the provisions of Regulation S and will not, except in accordance with the provisions of Regulation S, if applicable, issue any such Notes in the form of definitive securities. 6. Expenses. The Company agrees to pay all costs and expenses -------- incident to the performance of its obligations under this Agreement, whether or not the transactions contemplated herein are consummated or this Agreement is terminated pursuant to Section 11 hereof, including all costs and expenses incident to: (i) the printing, word processing or other production of documents with respect to such transactions, including any costs of printing the Preliminary Memorandum and the Final Memorandum and any amendments or supplements thereto, and any "Blue Sky" memoranda, (ii) all arrangements relating to the delivery to the Initial Purchasers of copies of the foregoing documents, (iii) the fees and disbursements of the counsel, the accountants and any other experts or advisors retained by the Company (but not of the Initial Purchasers), (iv) the preparation (including printing), issuance and delivery to the Initial Purchasers of any certificates evidencing the Securities, (v) the qualification of the Securities under state securities and "Blue Sky" laws, including filing fees and reasonable fees and disbursements of counsel for the Initial Purchasers relating thereto, (vi) the expenses of the Company in connection with any meetings with prospective investors in the Securities; provided, that 100% of the costs and expenses relating to the use of a corporate jet in connection with travel to any such meetings shall be paid by the Initial Purchasers, (vii) the fees and expenses of the Trustee, including fees and expenses of its counsel, and (viii) all expenses and listing fees incurred in connection with the application for quotation of the Securities on the PORTAL Market and (ix) any fees charged by investment rating agencies for the rating of the Securities. If the issuance and sale of the Securities provided for herein is not consummated because any condition to the obligation of the Initial Purchasers set forth in Section 7 hereof is not satisfied, because this Agreement is terminated pursuant to Section 11(a)(i) or 11(a)(v) hereof or because of any failure, refusal or inability on the part of the Company or any Guarantor to perform all obligations and satisfy all conditions on its part to be performed or satisfied hereunder (other than solely by reason of a default by the Initial Purchasers of their obligations hereunder after all conditions hereunder have been satisfied in accordance herewith), the 13 Company will promptly reimburse the Initial Purchasers upon demand for all reasonable out-of-pocket expenses (including reasonable fees, disbursements and charges of Simpson Thacher & Bartlett, counsel for the Initial Purchasers) that shall have been incurred by the Initial Purchasers in connection with the proposed purchase and sale of the Securities. 7. Conditions of the Initial Purchasers' Obligations. The several ------------------------------------------------- obligations of the Initial Purchasers to purchase and pay for the Securities shall, in their sole discretion, be subject to the satisfaction or waiver of the following conditions on or prior to the Closing Date: (a) On the Closing Date, the Initial Purchasers shall have received the opinion, dated as of the Closing Date and addressed to the Initial Purchasers, of Latham & Watkins, counsel for the Company, in form and substance satisfactory to counsel for the Initial Purchasers, to the effect that: (i) The Company has been duly incorporated and is validly existing and in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and to conduct its business as described in the Final Memorandum. Based solely on certificates from public officials, such counsel confirms that the Company is qualified to do business in the State of Arizona. (ii) RSC Holdings Inc., a Delaware corporation, RSC Acquisition Corp., a Delaware corporation, RSC Industrial Corporation, a Delaware corporation, RSC Duval Inc., a Delaware corporation, and RSC Rents, Inc., a California corporation (collectively, the "Identified Subsidiaries" and each an "Identified Subsidiary"), have each been duly incorporated and are validly existing and in good standing under the laws of the States of Delaware or California, as applicable; and, based solely on certificates from public officials, such counsel confirms that each of the Identified Subsidiaries is qualified to do business in the state or states indicated in Schedule A to such opinion. (iii) The Company has the authorized capitalization as set forth in the Final Memorandum. The issued and outstanding shares of capital stock of each Identified Subsidiary are as set forth in Schedule B to such opinion (the "Identified Subsidiary Shares"). The issued and outstanding shares of capital stock of each of RSC Alabama, Inc., an Alabama corporation, RSC Center, Inc., a Texas corporation, and Walker Jones Equipment, Inc., a Mississippi corporation (the "Foreign Subsidiaries" and collectively with the Identified Subsidiaries, the "Subsidiaries") are as set forth in Schedule C to such opinion (collectively with the Identified Subsidiary Shares, the "Subsidiary Shares"). The Identified Subsidiary Shares have been duly authorized, validly issued and are fully paid and nonassessable. Except as disclosed in the Final Memorandum, the Company or a wholly-owned subsidiary of the Company owns of record all of the Subsidiary Shares, to our knowledge, free and clear of any adverse claim (as defined in Section 8-302 of the New York Uniform Commercial Code (the "UCC")). 14 (iv) The Indenture has been duly authorized, executed and delivered by each of the Company and the Identified Subsidiaries and (assuming due authorization, execution and delivery by the Trustee and each of the Foreign Subsidiaries) is the legally valid and binding agreement of each of the Company and the Subsidiaries, enforceable against the Company and the Subsidiaries in accordance with its terms. (v) The Notes, when executed and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of the Purchase Agreement, will be legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. (vi) The Guarantees of the Identified Subsidiaries have been duly authorized by each of the Identified Subsidiaries, and (a) when executed in accordance with the terms of the Indenture, (b) upon due execution, authentication and delivery of the Notes and upon payment therefor and (c) assuming due authorization, execution and delivery by the Foreign Subsidiaries, will be legally, valid and binding obligations of the Subsidiaries, enforceable against the Subsidiaries in accordance with their terms. (vii) The Exchange Notes and the Private Exchange Notes have been duly authorized by the Company. (viii) The Registration Rights Agreement has been duly authorized, executed and delivered by each of the Company and the Identified Subsidiaries and (assuming due authorization, execution and delivery by the Foreign Subsidiaries) is the legally valid and binding agreement of the each of the Company and the Subsidiaries, enforceable against the Company and the Subsidiaries, in accordance with its terms. (ix) The Purchase Agreement has been duly authorized, executed and delivered by the Company and the Identified Subsidiaries. (x) The statements under the headings "Capitalization", "Description of Notes", and "Exchange Offer; Registration Rights" in the Offering Memorandum, insofar as such statements constitute a summary of the terms of the Company's capital stock, legal matters or documents referred to therein, are accurate in all material respects. (xi) To such counsel's knowledge, no legal or governmental proceedings have been filed in any Delaware, New York or federal court to which the Company or any of the Subsidiaries is a party or to which any of the properties of the Company or any of the Subsidiaries is subject which would be required under the Act to be described in a registration statement or in a prospectus and are not so described. 15 (xii) The execution of the Purchase Agreement, the Indenture, and the Registration Rights Agreement and the issuance of the Notes by the Company pursuant to the Purchase Agreement do not (i) result in a breach of or a default under any agreement, franchise, license, indenture, mortgage, deed of trust, or other instrument of the Company or any of the Subsidiaries or by which the property of any of them is bound, which has been identified to such counsel in writing by an officer of the Company and which would be required to be filed as an exhibit to a registration statement on Form S-1 under the Act; (ii) violate the Company's Amended Certificate of Incorporation or Amended and Restated Bylaws, the Certificate of Incorporation and Bylaws of any Identified Subsidiary or the DGCL or (iii) violate any federal or New York statute, rule or regulation known to such counsel to be applicable to the Company or any Subsidiary (other than federal and state securities laws, as to which such counsel need express no opinion except as set forth in (xv) below). (xiii) To such counsel's knowledge, no consent, approval, authorization or order of, or filing with, any federal or New York or Delaware court or governmental agency or body is required for the consummation of the issuance and sale of the Notes by the Company and the issuance of the Guarantees by the Guarantors pursuant to the Purchase Agreement, except such as have been obtained under the federal securities laws and such as may be required under state securities laws in connection with the purchase and distribution of such Notes by you. (xiv) The Company is not, and after giving effect to the offering of the Notes and the application of the proceeds thereof as described in the Final Memorandum, will not be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (xv) No registration of the Notes or the Guarantees under the Act, and no qualification of the Indenture under the Trust Indenture Act, is required for the purchase of the Notes by you or the initial resale of the Notes by you to eligible purchasers, in each case, in the manner contemplated by the Purchase Agreement. Such counsel need express no opinion, however, as to when or under what circumstances any Notes initially sold by you may be reoffered or resold. With your permission, for purposes of the opinions rendered in this paragraph (xv), such counsel may assume that the representations and agreements of each of the Initial Purchasers and the Company contained in the Purchase Agreement are accurate and have been and will be complied with. (xvi) Neither the sale, issuance, execution or delivery of the Notes will violate Regulation G, T (assuming that you do not sell the Notes to any person or entity subject to Regulation T for such person's or entity's own account), U or X of the Board of Governors of the Federal Reserve System. 16 At the time the foregoing opinion is delivered, such counsel shall additionally state that it has participated in conferences with officers and other representatives of the Company and the Subsidiaries, representatives of the independent public accountants for the Company and the Subsidiaries, and your representatives, at which the contents of the Final Memorandum and related matters were discussed and, although such counsel is not passing upon, and does not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Final Memorandum (except to the extent set forth in paragraph (x) hereof) and have not made any independent check or verification thereof, during the course of such participation, no facts came to such counsel's attention that caused such counsel to believe that the Final Memorandum, as of its date and as of the Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, it being understood that such counsel need express no belief with respect to the financial statements or other financial data included in the Final Memorandum. (b) On the Closing Date, the Initial Purchasers shall have received the opinions, dated as of the Closing Date and addressed to the Initial Purchasers, of Capell, Howard, Knabe & Cobbs, P.A., Watkins Ludlam & Stennis, P.A., and Andrews & Kurth, L.L.P., local counsel to the Company, in form and substance satisfactory to counsel for the Initial Purchasers, to the effect that: (i) The Foreign Subsidiaries have each been duly incorporated and are validly existing and in good standing under the laws of the States of their incorporation and, based solely on certificates from public officials, such counsel confirms that each of the Foreign Subsidiaries is qualified to do business in the state or states indicated in Schedule A to such opinion. (ii) The issued and outstanding shares of capital stock of each of the Foreign Subsidiaries has been duly authorized, validly issued and are fully paid and nonassessable. (iii) The Indenture has been duly authorized, executed and delivered by each of the Foreign Subsidiaries. (iv) The Guarantees of the Foreign Subsidiaries have been duly authorized by each of the Foreign Subsidiaries. (v) The Registration Rights Agreement has been duly authorized, executed and delivered by each of the Foreign Subsidiaries. (vi) The Purchase Agreement has been duly authorized, executed and delivered by each of the Foreign Subsidiaries. 17 (vii) The execution of the Purchase Agreement, the Indenture, and the Registration Rights Agreement and the issuance of the Guarantees by the Foreign Subsidiaries do not (i) violate the Certificate of Incorporation or Bylaws of any Foreign Subsidiary or the laws of its respective jurisdiction of incorporation or (ii) violate any other statute, rule or regulation known to such counsel to be applicable to any Foreign Subsidiary (other than federal and state securities laws, as to which such counsel need express no opinion). (c) The Initial Purchasers shall have received an opinion, dated the Closing Date, of Simpson Thacher & Bartlett, counsel for the Initial Purchasers, with respect to certain legal matters relating to this Agreement, and such other related matters as the Initial Purchasers may reasonably require. In rendering such opinion, Simpson Thacher & Bartlett shall have received and may rely upon such certificates and other documents and information as they may reasonably request to pass upon such matters. (d) The Initial Purchasers shall have received "comfort letters" from Ernst & Young LLP, independent public accountants for the Company, dated the date hereof and the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers and counsel for the Initial Purchasers. (e) The representations and warranties of the Company and the Guarantors contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date; each of the Company and the Guarantors shall have performed in all material respects all covenants and agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; and, except as set forth in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof) subsequent to the date of the most recent financial statements in such Final Memorandum, there shall have been no event or development that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect. (f) The issuance and sale of the Securities pursuant to this Agreement shall not be enjoined (temporarily or permanently) and no restraining order or other injunctive order shall have been issued or any action, suit or proceeding shall have been commenced by any governmental authority with respect to this Agreement before any court or governmental authority. (g) The Initial Purchasers shall have received certificates, dated the Closing Date, signed on behalf of the Company by a Senior Vice President and its Secretary to the effect that: (i) The representations and warranties of the Company and the Guarantors in this Agreement are true and correct in all material respects as if made on and as of the Closing Date, and each of the Company and the 18 Guarantors has performed in all material respects all covenants and agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; (ii) At the Closing Date, since the date hereof or since the date of the most recent financial statements in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof), no event or events have occurred, no information has become known nor does any condition exist that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect; and (iii) The sale of the Securities hereunder has not been enjoined (temporarily or permanently). (h) On the Closing Date, the Initial Purchasers shall have received the Registration Rights Agreement executed by the Company and the Guarantors and such agreement shall be in full force and effect at all times from and after the Closing Date. (i) The Indenture shall have been duly executed and delivered by the Company and the Trustee, and the Notes and the Guarantees shall have been duly executed by the Company and the Guarantors, respectively, and the Notes shall have been duly authenticated by the Trustee. (j) The Company and the Subsidiaries party thereto shall have amended the existing bank credit facility in the manner described in the Final Memorandum. (k) On or before the Closing Date, the Initial Purchasers and counsel for the Initial Purchasers shall have received such further documents, certificates and schedules or instruments relating to the business, corporate, legal and financial affairs of the Company and the Guarantors as they shall have heretofore reasonably requested from the Company and the Guarantors. All such documents, opinions, certificates and schedules or instruments delivered pursuant to this Agreement will comply with the provisions hereof only if they are reasonably satisfactory in all material respects to the Initial Purchasers and counsel for the Initial Purchasers. The Company shall furnish to the Initial Purchasers such conformed copies of such documents, opinions, certificates and schedules or instruments in such quantities as the Initial Purchasers shall reasonably request. 8. Offering of Securities; Restrictions on Transfer. Each of the ------------------------------------------------ Initial Purchasers represents and warrants (as to itself only) that it is a QIB. Each Initial Purchaser agrees with the Company (as to itself only) that (i) it has not and will not solicit offers for, or offer or sell, the Securities by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Act; and (ii) it has and will solicit offers 19 for the Securities only from, and will offer the Securities only to (A) in the case of offers inside the United States, persons whom the Initial Purchasers reasonably believe to be QIBs or, if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to the Initial Purchasers that each such account is a QIB, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A, and, in each case, in transactions under Rule 144A and (B) in the case of offers outside the United States to persons other than U.S. persons ("foreign Purchaser," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust)); provided, -------- however, that in the case of this clause (B), in purchasing such Securities - ------- such persons are deemed to have represented and agreed as provided under the caption "Transfer Restrictions" contained in the Final Memorandum. 9. Indemnification and Contribution. (a) The Company and the -------------------------------- Guarantors agree, jointly and severally, to indemnify and hold harmless each Initial Purchaser and the affiliates, directors, officers, agents, representatives and employees of each Initial Purchaser, and each other person, if any, who controls any Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities, joint or several to which each Initial Purchaser or any such affiliate, director, officer, agent, representative, employee or controlling person may become subject under the Act, the Exchange Act or otherwise insofar as any such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in (A) any Memorandum or any amendment or supplement thereto or (B) any application or other document, or any amendment or supplement thereto, executed by the Company or any Guarantor or based upon written information furnished by or on behalf of the Company or any Guarantor filed in any jurisdiction in order to qualify the Securities under the securities or "Blue Sky" laws thereof or filed with any securities association or securities exchange (each, an "Application"); or ----------- (ii) the omission or alleged omission to state, in any Memorandum or any amendment or supplement thereto, or any Application, a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and will reimburse, as incurred, the Initial Purchasers and each such affiliate, director, officer, agent and employee and each such controlling person for any reasonable legal or other expenses reasonably incurred by the Initial Purchasers, such affiliate, director, officer, agent, representative or employee or such controlling person in connection with investigating, defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action; provided, however, that the Company and the -------- ------- Guarantors will not be liable (i) in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any Memorandum or any amendment or 20 supplement thereto, or any Application, in reliance upon and in conformity with written information furnished to the Company by the Initial Purchasers specifically for use therein or (ii) with respect to the Preliminary Memorandum, to the extent that any such loss, claim, damage or liability arises solely from the fact that the Initial Purchasers sold Securities to a person to whom there was not sent or given a copy of the Final Memorandum (as amended or supplemented) at or prior to the written confirmation of such sale if the Company shall have previously furnished copies thereof to the Initial Purchasers in accordance with Section 5(d) hereof and the Final Memorandum (as amended or supplemented) would have corrected any such untrue statement or omission. This indemnity agreement will be in addition to any liability that the Company and the Guarantors may otherwise have to the indemnified parties. The Company and the Guarantors shall not be liable under this Section 9 for any settlement of any claim or action effected without its prior written consent, which consent shall not be unreasonably withheld or delayed. The Initial Purchasers shall not, without the prior written consent of the Company and the Guarantors, effect any settlement or compromise of any pending or threatened proceeding in respect of which the Company and the Guarantors are or could have been a party, or indemnity could have been sought hereunder by the Company and the Guarantors, unless such settlement (A) includes an unconditional written release of the Company and the Guarantors, in form and substance reasonably satisfactory to the Company and the Guarantors, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of the Company or the Guarantors. (b) The Initial Purchasers, severally and not jointly, agree to indemnify and hold harmless the Company and each of the Guarantors, their respective affiliates, directors, officers, agents, representatives and employees and each other person, if any, who controls the Company and the Guarantors within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any losses, claims, damages or liabilities to which the Company or any Guarantor or any such affiliate, director, officer, agent, representative, employee or controlling person may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Memorandum or any amendments or supplement thereto, or any Application or (ii) the omission or the alleged omission to state therein a material fact required to be stated in any Memorandum or any amendment or supplement thereto or any Application, or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Initial Purchasers furnished to the Company by the Initial Purchasers specifically for use therein; and, subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any reasonable legal or other expenses reasonably incurred by the Company or any Guarantor or any such affiliate, director, officer, agent, representative, employee or controlling person in connection with investigating or defending against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action in respect thereof. This indemnity 21 agreement will be in addition to any liability that the Initial Purchasers may otherwise have to the indemnified parties. No Initial Purchaser shall be liable under this Section 9 for any settlement of any claim or action effected without its consent, which consent shall not be unreasonably withheld or delayed. The Company and the Guarantors shall not, without the prior written consent of the Initial Purchasers, effect any settlement or compromise of any pending or threatened proceeding in respect of which any Initial Purchaser is or could have been a party, or indemnity could have been sought hereunder by any Initial Purchaser, unless such settlement (A) includes an unconditional written release of the Initial Purchasers, in form and substance reasonably satisfactory to the Initial Purchasers, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of any Initial Purchaser. (c) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action for which such indemnified party is entitled to indemnification under this Section 9, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 9, notify the indemnifying party of the commencement thereof in writing; but the omission to so notify the indemnifying party (i) will not relieve it from any liability under subsection (a) or (b) above unless and to the extent such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in subsections (a) and (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, that if (i) the use of counsel chosen by the indemnifying - -------- ------- party to represent the indemnified party would present such counsel with a conflict of interest and such counsel has stated in writing that such conflict exists, (ii) the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, or (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after receipt by the indemnifying party of notice of the institution of such action, then, in each such case, the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 9 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified 22 party shall have employed separate counsel in accordance with the proviso to the immediately preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, designated by the Initial Purchasers in the case subsection (a) of this Section 9 or the Company in the case of subsection (b) of this Section 9, representing the indemnified parties under such subsection (a) or subsection (b), as the case may be, who are parties to such action or actions) or (ii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party. After such notice from the indemnifying party to such indemnified party, the indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the prior written consent of the indemnifying party (which consent shall not be unreasonably withheld), unless such indemnified party waived in writing its rights under this Section 9, in which case the indemnified party may effect such a settlement without such consent. (d) In circumstances in which the indemnity agreement provided for in the preceding subsections of this Section 9 is unavailable to, or insufficient to hold harmless, an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof), each indemnifying party, in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the offering of the Securities or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative benefits received by the Company and the Guarantors on the one hand and any Initial Purchaser on the other shall be deemed to be in the same proportion as the total proceeds from the offering (before deducting expenses) received by the Company bear to the total discounts and commissions received by the Initial Purchasers. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Guarantors on the one hand, or any Initial Purchaser on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or alleged statement or omission, and any other equitable considerations appropriate in the circumstances. The Company, the Guarantors and the Initial Purchasers agree that it would not be just and equitable if the amount of such contribution were determined by pro rata or per capita allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this subsection (d). Notwithstanding any other provision of this subsection (d), no Initial Purchaser shall be obligated to make contributions hereunder that in the aggregate exceed the total discounts, 23 commissions and other compensation received by such Initial Purchaser under this Agreement, less the aggregate amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of the untrue or alleged untrue statements or the omissions or alleged omissions to state a material fact, and no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this subsection (d), each affiliate, director, officer, agent, representative and employee of each Initial Purchaser and each person, if any, who controls each Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Initial Purchaser, and each affiliate, director, officer, agent, representative and employee of the Company and the Guarantors and each person, if any, who controls the Company or an Guarantor within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall have the same rights to contribution as the Company and the Guarantors. 10. Survival Clause. The respective representations, warranties, --------------- agreements, covenants, indemnities and other statements of the Company, the Guarantors, its officers and the Initial Purchasers set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of the Company, the Guarantors, any of its officers or directors, any Initial Purchaser or any controlling person referred to in Section 9 hereof and (ii) delivery of and payment for the Securities. The respective agreements, covenants, indemnities and other statements set forth in Sections 6, 9 and 15 hereof shall remain in full force and effect, regardless of any termination or cancellation of this Agreement. 11. Termination. a. This Agreement may be terminated in the sole ----------- discretion of the Initial Purchasers by notice to the Company given prior to the Closing Date in the event that the Company or any of the Guarantors shall have failed, refused or been unable to perform, in all material respects, all obligations and satisfy all conditions on its part to be performed or satisfied hereunder at or prior thereto or, if at or prior to the Closing Date: (i) either (x) the Company or any Guarantor shall have sustained any loss or interference with respect to its businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any strike, labor dispute, slow down or work stoppage or any legal or governmental proceeding, which loss or interference, in the sole judgment of the Initial Purchasers, has had or has a Material Adverse Effect or (y) there shall have been, in the sole judgment of the Initial Purchasers, any event or development that, individually or in the aggregate, has or would reasonably be expected to have a Material Adverse Effect (including without limitation a change in control of the Company that has or would reasonably be expected to have a Material Adverse Effect), except in each case as described in the Final Memorandum (exclusive of any amendment or supplement thereto); 24 (ii) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market shall have been suspended or maximum or minimum prices shall have been established on any such exchange or market; (iii) a banking moratorium shall have been declared by New York or United States authorities; (iv) there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign power, or (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or any other national or international calamity or emergency or (C) any material change in the financial markets of the United States that, in the case of (A), (B) or (C) above and in the sole judgment of the Initial Purchasers, makes it impracticable or inadvisable to proceed with the offering or the delivery of the Securities as contemplated by the Final Memorandum; or (v) any securities of the Company shall have been downgraded or placed on any "watch list" for possible downgrading by any nationally recognized statistical rating organization. (b) Termination of this Agreement pursuant to this Section 11 shall be without liability of any party to any other party except as provided in Section 10 hereof. 12. Information Supplied by the Initial Purchasers. The statements ---------------------------------------------- set forth in the last paragraph of the cover page, the stabilization legend on page (i), the first, third and fourth paragraph, the third, fourth and fifth sentences of the sixth paragraph and the seventh paragraph of the section entitled "Private Placement" constitute the only information furnished by the Initial Purchasers to the Company for the purposes of Sections 2(a) and 9 hereof. 13. Notices. All communications hereunder shall be in writing and, ------- if sent to the Initial Purchasers, shall be mailed or delivered or telecopied and confirmed in writing to BT Alex. Brown Incorporated, One Bankers Trust Plaza, 130 Liberty Street, New York, New York 10006, Attention: Corporate Finance Department, and if sent to the Company or the Guarantors, shall be mailed, delivered or telecopied and confirmed in writing to the Company at: 6929 E. Greenway Park, Suite 200, Scottsdale, Arizona 85254, Attention: President. 14. Successors. This Agreement shall inure to the benefit of and be ---------- binding upon the Initial Purchasers, the Company, the Guarantors and its respective successors, assigns and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the Initial Purchasers, the Company, the Guarantors and its 25 respective successors, assigns and legal representatives and for the benefit of no other person except that (i) the indemnities of the Company and the Guarantors contained in Section 9 of this Agreement shall also be for the benefit of the affiliates, directors, officers, agents, representatives and employees of the Initial Purchasers and any person or persons who control the Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the indemnities of the Initial Purchasers contained in Section 9 of this Agreement shall also be for the benefit of the affiliates, directors, officers, agents, representatives and employees of the Company and the Guarantors and any person or persons who control the Company or any Guarantor within the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of any of the Securities from the Initial Purchasers will be deemed a successor or assigns because of such purchase. 15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS -------------- AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW. 16. Entire Agreement; Amendments And Waivers. This Agreement ---------------------------------------- constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. This Agreement may be amended or modified, and the observance of any term of this Agreement may be waived, only by a writing signed by the Company and the Initial Purchasers. 17. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among the Company, the Guarantors and the Initial Purchasers. Very truly yours, RENTAL SERVICE CORPORATION By: /s/ Robert M. Wilson ----------------------------------- Name: Robert M. Wilson Title: Senior Vice President THE GUARANTORS: RSC ACQUISITION CORP., RSC ALABAMA, INC., RSC CENTER, INC., RSC DUVAL, INC., RSC HOLDINGS, INC., RSC INDUSTRIAL CORPORATION, RSC RENTS, INC. and WALKER JONES EQUIPMENT, INC. By: /s/ Robert M. Wilson --------------------------------- Name: Robert M. Wilson Title: Senior Vice President The foregoing Agreement is hereby confirmed and accepted as of the date first above written. BT ALEX. BROWN INCORPORATED By: /s/ Michael R. Duckworth ----------------------------- Name: Michael R. Duckworth Title: Managing Director MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: /s/ Christopher G. Turner ----------------------------- Name: Christopher G. Turner Title: Director MORGAN STANLEY & CO. INCORPORATED By: /s/ Glenn R. Robson ----------------------------- Name: Glenn R. Robson Title: Principal WILLIAM BLAIR & COMPANY, L.L.C. By: /s/ David W. Morrison ----------------------------- Name: David W. Morrison Title: Principal EXHIBIT A Form of Registration Rights Agreement ------------------------------------- SCHEDULE I INITIAL PURCHASER..........................PRINCIPAL AMOUNT OF NOTES
BT Alex. Brown Incorporated.......................... $120,000,000 Morgan Stanley & Co. Incorporated.................... $ 40,000,000 Merrill Lynch, Pierce, Fenner & Smith Incorporated... $ 30,000,000 William Blair & Company, LLC......................... $ 10,000,000
EX-4.1 3 INDENTURE DATED AS OF 05-13-98 EXHIBIT 4.1 EXECUTION COPY ================================================================================ INDENTURE Dated as of May 13, 1998 ________________________ By and Among RENTAL SERVICE CORPORATION AND THE SUBSIDIARY GUARANTORS, NAMED HEREIN, AND NORWEST BANK MINNESOTA, N.A., as Trustee _______________________ Up to $300,000,000 9% Senior Subordinated Notes due 2008 ================================================================================ CROSS REFERENCE TABLE
TIA Indenture Section - ------- Section - ------- 310(a)(1)..................................................... 8.10 310(a)(5)..................................................... 8.10 310(b)........................................................ 8.10 310(b)(1)..................................................... 8.10 311(a)........................................................ 8.11 311(b)........................................................ 8.11 312(b)........................................................ 13.3 312(c)........................................................ 13.3 313(a)........................................................ 8.6 313(b)........................................................ 8.6 313(c)........................................................ 8.6 314(a)........................................................ 5.9
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. i TABLE OF CONTENTS
Page ---- ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE..................... 1 Section 1.1. Definitions.............................................. 1 Section 1.2. Incorporation by Reference of TIA........................ 22 Section 1.3. Rules of Construction.................................... 22 ARTICLE II. THE SECURITIES................................... 23 Section 2.1. Form and Dating.......................................... 23 Section 2.2. Execution and Authentication............................. 23 Section 2.3. Registrar and Paying Agent............................... 25 Section 2.4. Paying Agent To Hold Assets in Trust..................... 26 Section 2.5. Holder Lists............................................. 26 Section 2.6. Transfer and Exchange.................................... 26 Section 2.7. Replacement Securities................................... 27 Section 2.8. Outstanding Securities................................... 28 Section 2.9. Treasury Securities...................................... 28 Section 2.10. Temporary Securities..................................... 28 Section 2.11. Cancellation............................................. 29 Section 2.12. Defaulted Interest....................................... 29 Section 2.13. CUSIP Number............................................. 29 Section 2.14. Deposit of Monies........................................ 29 Section 2.15. Restrictive Legends...................................... 30 Section 2.16. Book-Entry Provisions for Global Securities.............. 30 Section 2.17. Special Transfer Provisions.............................. 31 Section 2.18. Additional Interest Under Registration Rights Agreement.. 34 ARTICLE III. REDEMPTION..................................... 34 Section 3.1. Notices to Trustee....................................... 34 Section 3.2. Selection of Securities To Be Redeemed................... 34 Section 3.3. Optional Redemption...................................... 34 Section 3.4. Notice of Redemption..................................... 35 Section 3.5. Effect of Notice of Redemption........................... 36 Section 3.6. Deposit of Redemption Price.............................. 36 Section 3.7. Securities Redeemed in Part.............................. 36 ARTICLE IV. SUBORDINATION................................... 37 Section 4.1. Securities Subordinated to Senior Indebtedness........... 37
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Page ---- Section 4.2. Suspension of Payment When Senior Indebtedness in Default.................................................. 37 Section 4.3. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of Company............................. 38 Section 4.4. Holders To Be Subrogated to Rights of Holders of Senior Indebtedness................................... 39 Section 4.5. Obligations of the Company Unconditional................. 40 Section 4.6. Trustee Entitled To Assume Payments Not Prohibited in Absence of Notice..................................... 41 Section 4.7. Application by Trustee of Assets Deposited with It....... 41 Section 4.8. No Waiver of Subordination Provisions.................... 42 Section 4.9. Holders Authorize Trustee To Effectuate Subordination of Securities.............................. 42 Section 4.10. Right of Trustee To Hold Senior Indebtedness............. 43 Section 4.11. No Suspension of Remedies................................ 43 Section 4.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness............................................. 43 ARTICLE V. COVENANTS..................................... 44 Section 5.1. Payment of Securities.................................... 44 Section 5.2. Maintenance of Office or Agency.......................... 44 Section 5.3. Limitation on Restricted Payments........................ 44 Section 5.4. Corporate Existence...................................... 46 Section 5.5. Payment of Taxes and Other Claims........................ 46 Section 5.6. Maintenance of Properties and Insurance.................. 46 Section 5.7. Compliance Certificate; Notice of Default................ 47 Section 5.8. Compliance with Laws..................................... 48 Section 5.9. SEC Reports.............................................. 48 Section 5.10. Waiver of Stay, Extension or Usury Laws.................. 48 Section 5.11. Limitation on Transactions with Affiliates............... 48 Section 5.12. Limitation on Incurrence of Additional Indebtedness...... 49 Section 5.13. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries........................ 50 Section 5.14. Limitation on Liens...................................... 51 Section 5.15. Limitation on Change of Control.......................... 51 Section 5.16. Limitation on Asset Sales................................ 53 Section 5.18. Limitation on Designations of Unrestricted Subsidiaries.. 56 Section 5.19. Conduct of Business...................................... 57 Section 5.20. Additional Subsidiary Guarantees......................... 57 ARTICLE VI.
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Page ---- SUCCESSOR CORPORATION......................... 58 Section 6.1. Limitations on Mergers and Certain Other Transactions.... 58 Section 6.2. Successor Corporation Substituted........................ 59 ARTICLE VII DEFAULT AND REMEDIES.......................... 60 Section 7.1. Events of Default........................................ 60 Section 7.2. Acceleration............................................. 61 Section 7.3. Other Remedies........................................... 62 Section 7.4. Waiver of Past Defaults.................................. 62 Section 7.5. Control by Majority...................................... 62 Section 7.6. Limitation on Suits...................................... 63 Section 7.7. Rights of Holders To Receive Payment..................... 63 Section 7.8. Collection Suit by Trustee............................... 63 Section 7.9. Trustee May File Proofs of Claim......................... 64 Section 7.10. Priorities............................................... 64 Section 7.11. Rights and Remedies Cumulative........................... 64 Section 7.12. Delay or Omission Not Waiver............................. 65 Section 7.13. Undertaking for Costs.................................... 65 ARTICLE VIII TRUSTEE....................................... 65 Section 8.1. Duties of Trustee........................................ 65 Section 8.2. Rights of Trustee........................................ 66 Section 8.3. Individual Rights of Trustee............................. 67 Section 8.4. Trustee's Disclaimer..................................... 67 Section 8.5. Notice of Default........................................ 68 Section 8.6. Reports by Trustee to Holders............................ 68 Section 8.7. Compensation and Indemnity............................... 68 Section 8.8. Replacement of Trustee................................... 69 Section 8.9. Successor Trustee by Merger, Etc......................... 70 Section 8.10. Eligibility; Disqualification............................ 70 Section 8.11. Preferential Collection of Claims Against Company........ 70 ARTICLE IX SATISFACTION AND DISCHARGE OF INDENTURE........................ 70 Section 9.1. Termination of the Company's Obligations................. 70 Section 9.2. Legal Defeasance and Covenant Defeasance................. 71 Section 9.3. Application of Trust Money............................... 74 Section 9.4. Repayment to the Company or Subsidiary Guarantors........ 74 Section 9.5. Reinstatement............................................ 75 ARTICLE X.
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Page ---- AMENDMENTS, SUPPLEMENTS AND WAIVERS............................. 75 Section 10.1. Without Consent of Holders............................... 75 Section 10.2. With Consent of Holders.................................. 75 Section 10.3. Compliance with TIA...................................... 76 Section 10.4. Revocation and Effect of Consents........................ 77 Section 10.5. Notation on or Exchange of Securities.................... 77 Section 10.6. Trustee To Sign Amendments, Etc.......................... 77 ARTICLE XI GUARANTEE..................................... 78 Section 11.1. Unconditional Guarantee................................. 78 Section 11.2. Subordination of Guarantee.............................. 79 Section 11.3. Severability............................................ 79 Section 11.4. Release of a Subsidiary Guarantor....................... 79 Section 11.5. Limitation of Subsidiary Guarantor's Liability.......... 79 Section 11.6. Subsidiary Guarantors May Consolidate, etc., on Certain Terms........................................... 80 Section 11.7. Contribution............................................ 80 Section 11.8. Waiver of Subrogation................................... 81 Section 11.9. Waiver of Stay, Extension or Usury Laws................. 81 ARTICLE XII SUBORDINATION OF GUARANTEE OBLIGATIONS....................... 82 Section 12.1. Guarantee Obligations Subordinated to Guarantor Senior Indebtedness................................................ 82 Section 12.2. Suspension of Guarantee Obligations When Guarantor Senior Indebtedness in Default..................................... 82 Section 12.3. Guarantee Obligations Subordinated to Prior Payment of All Guarantor Senior Indebtedness on Dissolution, Liquidation or Reorganization of Such Subsidiary Guarantor.............. 83 Section 12.4. Holders of Guarantee Obligations To Be Subrogated to Rights of Holders of Guarantor Senior Indebtedness.......... 85 Section 12.5. Obligations of the Subsidiary Guarantors Unconditional...... 86 Section 12.6. Trustee Entitled To Assume Payments Not Prohibited in Absence of Notice........................................... 86 Section 12.7. Application by Trustee of Assets Deposited with It.......... 87 Section 12.8. No Waiver of Subordination Provisions....................... 87 Section 12.9. Holders Authorize Trustee To Effectuate Subordination of Guarantee Obligations.................................... 88 Section 12.10. Right of Trustee To Hold Guarantor Senior Indebtedness...... 88
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Page ---- Section 12.11. No Suspension of Remedies................................... 88 Section 12.12. No Fiduciary Duty of Trustee to Holders of Guarantor Senior Indebtedness................................................ 89 ARTICLE XIII MISCELLANEOUS................................... 89 Section 13.1. TIA Controls................................................ 89 Section 13.2. Notices..................................................... 89 Section 13.3. Communications by Holders with Other Holders................ 90 Section 13.4. Certificate and Opinion as to Conditions Precedent.......... 90 Section 13.5. Statements Required in Certificate or Opinion............... 91 Section 13.6. Rules by Trustee, Paying Agent, Registrar................... 91 Section 13.7. Legal Holidays.............................................. 91 Section 13.8. Governing Law............................................... 91 Section 13.9. No Adverse Interpretation of Other Agreements............... 92 Section 13.10. No Recourse Against Others.................................. 92 Section 13.11. Successors.................................................. 92 Section 13.12. Duplicate Originals......................................... 92 Section 13.13. Headings and Table of Contents.............................. 92 Section 13.14. Severability................................................ 92 EXHIBIT A FORM OF SECURITY.................................. A-1 EXHIBIT B FORM OF LEGEND FOR GLOBAL SECURITIES.............. B-1 EXHIBIT C FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS TO NON-QIB ACCREDITED INVESTORS.... C-1 EXHIBIT D FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S........... D-1
vi 1 EXHIBIT 4.1 INDENTURE, dated as of May 13, 1998, among RENTAL SERVICE CORPORATION , a Delaware corporation (the "Company"), the SUBSIDIARY GUARANTORS (as defined ------- herein), and NORWEST BANK MINNESOTA, N.A., as Trustee. Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the Company's 9% Senior Subordinated Notes due 2008 (the "Securities"): ---------- ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. "Acquired Indebtedness" means Indebtedness of a Person or any of --------------------- its Subsidiaries 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 Restricted Subsidiaries or 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. "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. "Affiliate Transaction" shall have the meaning provided in Section --------------------- 5.11(a). "Agent" means any Registrar, Paying Agent or co-Registrar. ----- "Agent Members" has the meaning provided in Section 2.16. ------------- "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 of 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 2 or other transfer for value by the Company or any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) 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) any transaction or series of related transactions for which the Company or its Restricted Subsidiaries receive aggregate consideration of less than $500,000 and (ii) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company as permitted under Section 6.1. "Bank Facility" means the Second Amended and Restated Credit Agreement, ------------- dated as of December 2, 1997, among the Company, the Subsidiaries of the Company, the lenders party thereto in their capacities as lenders thereunder, Bankers Trust Company, as issuing bank, and BT Commercial Corporation, as agent, as amended, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be further amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement or agreements extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder (provided that such increase in borrowings is permitted by Section -------- 5.12) 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. "Bank Facility Agent" means the then acting Agent under (and as defined in) ------------------- the Bank Facility or any successor thereto exercising substantially the same rights and powers; provided, that if, and for so long as, there is no acting -------- Agent or such successor, then the Bank Facility Agent shall at all times constitute the holders of a majority in outstanding principal amount of Indebtedness under or in respect of the Bank Facility. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or -------------- foreign law for the relief of debtors. "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. "Borrowing Base" means, with respect to any Foreign Subsidiary as of any -------------- date, an amount equal to the sum of (a) 85% of the net book value of accounts receivable (other than intercompany receivables) owned by such Foreign Subsidiary as of such date that are not more than 90 days past due and (b) 85% of the value (the lower of net book value or orderly liquidation value) of all rental equipment owned by such Foreign Subsidiary as of such date, 3 all calculated on a consolidated basis for such Foreign Subsidiary and its Restricted Subsidiaries in accordance with the method of accounting used for financial calculations under the applicable credit facility for such Foreign Subsidiary. To the extent that information is not available as to the amount of accounts receivable or rental equipment as of a specific date, a Foreign Subsidiary may utilize the most recent available information provided to the lenders under the applicable credit facility for the purpose of calculating the Borrowing Base. "Business Day" means a day that is not a Legal Holiday. ------------ "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 one year 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 this 4 Indenture) other than to the Principals and their Related Parties; (ii) any Person or Group (other than the Principals and their Related Parties) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 35% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company and the Principals and their Related Parties beneficially own, directly or indirectly, shares representing a lesser percentage of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors; or (iii) 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. "Change of Control Offer" shall have the meaning provided in Section ----------------------- 5.15(a). "Change of Control Payment Date" shall have the meaning provided in Section ------------------------------ 5.15(b). "Commission" means the Securities and Exchange Commission. ---------- "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. "Company" means Rental Service Corporation, a Delaware corporation, until a ------- successor replaces it pursuant to this Indenture and thereafter means such successor. "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 non-cash 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 for which internal financials are available (the "Four Quarter ------------ Period") ending on or 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 5 definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma 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, 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 (including any pro forma expense and cost reductions as determined in accordance with Regulation S-X under the Exchange Act) 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 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 (but not the numerator) 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 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 tax rate of such Person, expressed as a decimal. 6 "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 (but excluding any write-offs of deferred financing fees in connection with any refinancing or retirement of the Bank Facility undertaken in conjunction with the offering of the Securities on the Issue Date), (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) after-tax gains -------- from Asset Sales or abandonments or reserves relating thereto, (b) after-tax items classified as extraordinary or nonrecurring gains, (c) the net income 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 Wholly Owned Restricted Subsidiary of the referent Person by such Person, (f) 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. "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). 7 "Currency Swap Obligations" means any foreign exchange contract, currency ------------------------- swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Restricted Subsidiaries against fluctuations in currency values. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator --------- or similar official under any Bankruptcy Law. "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. "Depository" shall mean The Depository Trust Company, New York, New York, ---------- or a successor thereto registered under the Exchange Act or other applicable statute or regulation. "Designated Senior Indebtedness" means (i) Indebtedness under or in respect ------------------------------ of the Bank Facility and (ii) any other Indebtedness constituting Senior Indebtedness or Guarantor Senior Indebtedness 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 Indebtedness as "Designated Senior Indebtedness" by the Company. "Designation" has the meaning set forth under Section 5.18. ----------- "Designation Amount" has the meaning set forth under Section 5.18. ------------------ "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 Securities. "Equity Offering" means a public or private issuance of Qualified Capital --------------- Stock of the Company for cash. "Event of Default" shall have the meaning provided in Section 7.1. ---------------- "Exchange Act" means the Securities Exchange Act of 1934, as amended, or ------------ any successor statute or statutes thereto. "Exchange Notes" means the 9% Senior Subordinated Notes due 2008, Series B, -------------- to be issued in exchange for the Initial Securities pursuant to the Registration Rights Agreement or, with respect to the Initial Securities issued under this Indenture subsequent to the Issue Date pursuant to Section 2.2, a registration rights agreement substantially identical to the Registration Rights Agreement. "Exchange Offer" has the meaning provided in the Registration Rights -------------- Agreement. 8 "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 in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Company delivered to the Trustee. "Foreign Subsidiary" means any Restricted Subsidiary that is not organized ------------------ under the laws of the United States of America or any state thereof or the District of Columbia. "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. "Global Security" shall mean a Security which is executed by the Company --------------- and authenticated and delivered by the Trustee to the Depository or pursuant to the Depository's instruction, all in accordance with this Indenture and pursuant to a written order, which shall be registered in the name of the Depository or its nominee and which, together with any other Global Security representing Securities hereunder, shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, all of the outstanding Securities. "Guarantee" means the guarantee of each Subsidiary Guarantor set forth in --------- Article Eleven and any additional guarantee of the Securities executed by any Restricted Subsidiary of the Company. "Guarantee Obligations" shall have the meaning provided in Section 12.1. --------------------- "Guarantor Payment Blockage Period" shall have the meaning provided in --------------------------------- Section 12.2(b). "Guarantor Senior Indebtedness" means with respect to any Subsidiary ----------------------------- Guarantor, (i) 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 Subsidiary 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 Subsidiary Guarantor. Without limiting the generality of the foregoing, "Guarantor Senior Indebtedness" 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) 9 all monetary obligations of every nature of the Company under the Bank Facility, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities, (y) all Interest Swap Obligations and (z) all Currency Swap Obligations, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall not include (i) any Indebtedness of such Subsidiary Guarantor to a Restricted Subsidiary of such Subsidiary Guarantor, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of such Subsidiary Guarantor or any Restricted Subsidiary of such Subsidiary 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, (iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by such Subsidiary Guarantor, (vi) Indebtedness incurred in violation of Section 5.12, (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 Subsidiary Guarantor. Notwithstanding anything to the contrary contained herein, no Indebtedness incurred at any time under the Bank Facility (as such facility is in existence on the Issue Date) shall be considered subordinate in right of payment to any other Indebtedness incurred under the Bank Facility (as such facility is in existence on the Issue Date). "Holder" means the Person in whose name a Security is registered on the ------ Registrar's books. "IAI Global Security" means, a permanent global security in registered form ------------------- representing the aggregate principal amount of the Securities sold to Institutional Accredited Investors. "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 and other accrued liabilities arising in the ordinary course of business and payable in accordance with customary terms or that are not overdue by 90 days or more or are being contested in good faith), (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 interest swap agreements 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 10 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 this 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. "Indenture" means this Indenture, as amended or supplemented from time to --------- time in accordance with the terms hereof. "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 (other than an interest in less than 1% of the Company's Common Stock or any other publicly traded securities of 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. "Initial Purchasers" means, collectively, BT Alex. Brown Incorporated, ------------------ Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and William Blair & Company. "Initial Securities" means, collectively, (i) the % Senior Subordinated ------------------ Notes due 2008 of the Company issued on the Issue Date and (ii) one or more series of additional % Senior Subordinated Notes due 2008 that are issued under this Indenture subsequent to the Issue Date pursuant to Section 2.2, in each case for so long as such securities constitute Restricted Securities. "Institutional Accredited Investor" means an institution that is an --------------------------------- "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Interest Payment Date" means the stated maturity of an installment of --------------------- interest on the Securities. "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 11 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 Section 5.3, (i) "Investment" shall include a portion (proportionate to the Company's equity interest in such Subsidiary) of 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 a portion (proportionate to the Company's equity interest in such Subsidiary) of 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 Investment by the Company or any of its Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs, 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 such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, at least 51% of the outstanding Common Stock of such 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 Restricted Subsidiary not sold or disposed of. "Investment Grade Rating" means a rating of BBB- or higher by S&P and Baa3 ----------------------- or higher by Moody's or the equivalent of such rating by such rating agencies. "Issue Date" means May 13, 1998, the date of original issuance of the ---------- Securities under this Indenture. "Legal Holiday" shall have the meaning provided in Section 13.7. ------------- "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). "Maturity Date" means May 15, 2008. ------------- "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 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 12 reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements, (c) repayment of Indebtedness that is required to be repaid in connection with such Asset Sale and (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. "Net Proceeds Offer" shall have the meaning provided in Section 5.16(a). ------------------ "Net Proceeds Offer Amount" shall have the meaning provided in Section ------------------------- 5.16(a). "Net Proceeds Offer Payment Date" shall have the meaning provided in ------------------------------- Section 5.16(a). "Net Proceeds Trigger Date" shall have the meaning provided in Section ------------------------- 5.16(a). "Non-U.S. Person" means a person who is not a U.S. person, as defined in --------------- Regulation S. "Obligations" means all obligations for principal, premium, interest, ----------- penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering Memorandum" means the offering memorandum of the Company dated ------------------- May 8, 1998 relating to the Securities. "Officer" means, with respect to any Person, the Chief Executive Officer, ------- the Chief Financial Officer, Treasurer or the Chief Accounting Officer of such Person. "Officers' Certificate" means a certificate signed in the name of and on --------------------- behalf of the Company by the Chairman, a Vice Chairman, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Controller or an Assistant Controller, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee and otherwise complying with the requirements of Section 13.5. "operating lease" means any lease the obligations under which do not --------------- constitute Capitalized Lease Obligations. "Opinion of Counsel" means a written opinion from legal counsel who is ------------------ reasonably acceptable to the Trustee complying with the requirements of Section 13.5. Unless otherwise required by the Trustee, the legal counsel may be an employee of or counsel to the Company or the Trustee. 13 "Paying Agent" shall have the meaning provided in Section 2.3, except that ------------ for the purposes of Articles Three and Nine and Sections 5.15 and 5.16, the Paying Agent shall not be the Company or an Affiliate of the Company. "Permitted Indebtedness" means, without duplication, each of the following: ---------------------- (i) Indebtedness represented by the Securities in an aggregate principal amount not to exceed $200.0 million, and the Guarantees thereof, issued on the date hereof; (ii) Indebtedness of the Company and the Subsidiary Guarantors (A) incurred pursuant to the revolving credit provisions of the Bank Facility or one or more other credit facilities in an aggregate principal amount at any time outstanding not to exceed $500.0 million; provided that -------- such amount shall be reduced by any amounts applied to the permanent reduction of such Indebtedness pursuant to Section 5.16 and (B) incurred pursuant to the term loan provisions of the Bank Facility or one or more other credit facilities in an aggregate principal amount at any time outstanding not to exceed $100.0 million, less any amounts applied to the permanent reduction of such Indebtedness pursuant to Section 5.16 and less the amount of any scheduled amortization payments or mandatory prepayments when actually paid or permanent reductions thereof (excluding any such payments to the extent refinanced at the time of payment under any Refinancing of the Bank Facility); (iii) other Indebtedness of the Company and its Restricted Subsidiaries outstanding on the Issue Date; (iv) Interest Swap Obligations or Currency Swap Obligations of the Company covering Indebtedness of the Company or any of the Subsidiary Guarantors and Interest Swap Obligations or Currency Swap Obligations of any Subsidiary Guarantor covering Indebtedness of such Subsidiary Guarantor; provided, however, that (a) such Interest Swap Obligations are -------- ------- entered into to protect the Company and the Subsidiary Guarantors from fluctuations in interest rates on Indebtedness incurred in accordance with this Indenture and (b) such Currency Swap Obligations are entered into to protect the Company and the Subsidiary Guarantors from fluctuations in currency values; (v) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company to the Company or to a Wholly Owned 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 or a Wholly Owned Restricted Subsidiary of the Company, or other than a Lien on the related intercompany note securing Indebtedness under the Bank Facility; provided that if as of any date any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness, other than a lien on the related intercompany note securing Indebtedness under the Bank Facility, such date shall be deemed the 14 incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (vi) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by a Wholly Owned Restricted Subsidiary of the Company, in each case subject to no Lien, other than a Lien on the related intercompany note securing Indebtedness under the Bank Facility; provided that (a) any Indebtedness of -------- the Company to any Wholly Owned Restricted Subsidiary of the Company is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under this Indenture and the Securities and (b) if as of the date any Person other than a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, other than a lien on the related intercompany note securing Indebtedness under the Bank Facility, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Company; (vii) Indebtedness of the Company and the Subsidiary Guarantors 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; (viii) Indebtedness of the Company and the Subsidiary Guarantors represented by letters of credit for the account of the Company or such Subsidiary Guarantors, 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; (ix) Indebtedness of the Company or a Subsidiary Guarantor in connection with one or more standby letters of credit, guarantees, performance bonds or other reimbursement obligations, in each case, issued in the ordinary course of business and not in connection with the borrowing of money; (x) Indebtedness of the Company or a Subsidiary Guarantor arising from agreements of the Company or a Subsidiary Guarantor providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the acquisition or disposition of any business, assets or a Subsidiary; (xi) Indebtedness of the Company and the Subsidiary Guarantors represented by Capitalized Lease Obligations and Purchase Money Indebtedness incurred in the ordinary course of business in an amount not to exceed $20.0 million at any one time outstanding; (xii) Refinancing Indebtedness; 15 (xiii) guarantees by the Company of Indebtedness of a Restricted Subsidiary permitted to be incurred under this Indenture and guarantees by a Subsidiary Guarantor of Indebtedness of the Company or any Restricted Subsidiary permitted to be incurred under this Indenture; (xiv) additional Indebtedness of the Company and any Subsidiary Guarantor in an aggregate principal amount not to exceed $15.0 million at any one time outstanding; and (xv) Indebtedness of a Foreign Subsidiary other than a Foreign Subsidiary which is a Subsidiary Guarantor which, when aggregated with the principal amount of all other Indebtedness of such Foreign Subsidiary then outstanding and incurred pursuant to this clause (xv), does not exceed the amount of the Borrowing Base of such Foreign Subsidiary. For purposes of determining whether any Indebtedness is Permitted Indebtedness, (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described above. "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 subordinated, pursuant to a written agreement, to the Company's obligations under the Securities and this 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 $1,000,000 at any one time outstanding; (v) Interest Swap Obligations or Currency Swap Obligations entered into in the ordinary course of the Company's or its Restricted Subsidiaries' businesses and otherwise in compliance with this 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; (vii) promissory notes or other securities accepted from trade creditors or customers in the ordinary course of business; (viii) guarantees by the Company or any Subsidiary Guarantor of Indebtedness otherwise permitted to be incurred under this Indenture; (ix) Investments made by the Company or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with Section 5.16; and (x) Investments in joint ventures and Unrestricted Subsidiaries in an aggregate amount at any one time not to exceed $15.0 million. "Permitted Liens" means the following types of Liens: --------------- 16 (i) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) 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 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 provisions, 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, including any Lien securing letters of credit issued in the ordinary course of business in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (v) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (vi) 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; (vii) 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 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 and proceeds thereof and (B) the Lien securing such Indebtedness shall be created within 90 days of such acquisition; (viii) 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; 17 (ix) 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; (x) 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; (xi) Liens securing Interest Swap Obligations or Currency Swap Obligations which Interest Swap Obligations or Currency Swap Obligations, as the case may be, relate to Indebtedness that is otherwise permitted under this Indenture; (xii) Liens securing Acquired Indebtedness incurred in accordance with Section 5.12; 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 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 of the Company or a Restricted Subsidiary of the Company; and (xiii) Liens not permitted by clauses (i) through (xii) that are incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $5,000,000 at any one time outstanding. "Person" means an individual, partnership, corporation, unincorporated ------ organization, trust or joint venture or a governmental agency or political subdivision thereof. "Physical Securities" has the meaning provided in Section 2.1. ------------------- "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. "Principals" means each officer or employee of the Company and any ---------- spouse, sibling, child or grandchild of the foregoing (in each case, whether such relationship arises from birth, adoption or through marriage). "Private Exchange Notes" shall have the meaning provided in the ---------------------- Registration Rights Agreement. 18 "Private Placement Legend" means the legend initially set forth on the ------------------------ Securities in the form set forth in Exhibit A. --------- "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. "Qualified Equity Interest" means any Qualified Capital Stock and all ------------------------- warrants, options or other rights to acquire Qualified Capital Stock (but excluding any debt security or Disqualified Capital Stock that is convertible into or exchangeable for Qualified Capital Stock). "Qualified Institutional Buyer" or "QIB" shall have the meaning ----------------------------- --- specified in Rule 144A. "Record Date" means the record dates specified in the Securities; ----------- provided, however, that if any such date is a Legal Holiday, the Record Date - -------- ------- shall be the first day immediately preceding such specified day that is not a Legal Holiday. "Redemption Date," when used with respect to any Security to be --------------- redeemed, means the date fixed for such redemption pursuant to this Indenture and Paragraph 5 of the Securities. "Redemption Price," when used with respect to any Security to be ---------------- redeemed, means the price fixed for such redemption pursuant to this Indenture and Paragraph 5 of the Securities. "Refinance" means, in respect of any security or Indebtedness, to --------- refinance, extend, renew, refund, repay, pre-pay, 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 ------------------------ Subsidiary Guarantor of Indebtedness incurred in accordance with Section 5.12 (other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), or (ix) of the definition of Permitted Indebtedness), in each case 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 premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable 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 of 19 the Company or a Subsidiary Guarantor, then such Refinancing Indebtedness shall be Indebtedness solely of the Company or a Subsidiary Guarantor and (y) if such Indebtedness being Refinanced is subordinate or junior to the Securities, then such Refinancing Indebtedness shall be subordinate to the Securities at least to the same extent and in the same manner as the Indebtedness being Refinanced. "Registrar" shall have the meaning provided in Section 2.3. --------- "Registration Rights Agreement" means the Registration Rights ----------------------------- Agreement dated as of the Issue Date among the Company, the Subsidiary Guarantors and the Initial Purchasers. "Regulation S" means Regulation S under the Securities Act. ------------ "Regulation S Global Security" means a permanent global security in ---------------------------- registered form representing the aggregate principal amount of Securities sold in reliance on Regulation S under the Securities Act. "Related Party" with respect to any Principal means (A) any ------------- controlling stockholder or 80% (or more) owned Subsidiary of such Principal or (B) trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (A). "Replacement Assets" shall have the meaning provided in Section ------------------ 5.16(a). "Representative" means the indenture trustee or other trustee, agent -------------- or representative in respect of any Designated Senior Indebtedness; provided, -------- that if, and for so long as, any Designated Senior Indebtedness lacks such a representative, then the Representative for such Designated Senior Indebtedness shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Indebtedness in respect of any Designated Senior Indebtedness. "Restricted Security" has the meaning assigned to such term in Rule ------------------- 144(a)(3) under the Securities Act; provided, however, that the Trustee shall be -------- ------- entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Security constitutes a Restricted Security. "Restricted Subsidiary" means any Subsidiary of the Company that has --------------------- not been designated by the Board of Directors of the Company, by a Board Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with Section 5.18. Any such Designation may be revoked by a Board Resolution of the Company delivered to the Trustee subject to the provisions of such Section 5.18. "Revocation" has the meaning set forth under Section 5.18. ---------- "Rule 144A" means Rule 144A under the Securities Act. --------- 20 "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. "Securities" means, collectively, (i) the Initial Securities, (ii) the ---------- Private Exchange Notes, if any, and (iii) the Unrestricted Securities, treated as a single class of securities, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Securities Act" means the Securities Act of 1933, as amended, and the -------------- rules and regulations of the Commission promulgated thereunder. "Senior Indebtedness" 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 Securities. Without limiting the generality of the foregoing, "Senior Indebtedness" 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 of every nature of the Company under the Bank Facility, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities, (y) all Interest Swap Obligations and (z) all Currency Swap Obligations, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i) any Indebtedness of the Company to a Restricted Subsidiary of the Company, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of the Company or any Restricted 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, (iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by the Company, (vi) Indebtedness incurred in violation of Section 5.12, (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. Notwithstanding anything to the contrary contained herein, no Indebtedness incurred at any time under the Bank Facility (as such facility is in existence on the Issue Date) shall be considered subordinate in right of payment to any other Indebtedness incurred under the Bank Facility (as such facility is in existence on the Issue Date). 21 "Significant Subsidiary," with respect to any Person, means any ----------------------- Restricted Subsidiary of such Person that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Exchange 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. "Subsidiary Guarantor" means (i) each of the Company's Restricted -------------------- Subsidiaries existing on the Issue Date and (ii) each of the Company's Restricted Subsidiaries (other than any Foreign Subsidiary, unless the Company elects to have a Foreign Subsidiary execute a Guarantee) that executes a supplemental indenture pursuant to Section 5.20. "Surviving Entity" shall have the meaning provided in Section ---------------- 6.1(a)(i). "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections --- 77aaa-77bbbb), as amended, as in effect on the date this Indenture is qualified under the TIA, except as otherwise provided in Section 10.3. "Trust Officer" means any officer of the Trustee assigned by the ------------- Trustee to administer its corporate trust matters. "Trustee" means the party named as such in this Indenture until a ------- successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Unrestricted Security(ies)" means one or more Securities that do not -------------------------- and are not required to bear the Private Placement Legend in the form set forth in Exhibit A, including, without limitation, the Exchange Notes (as defined in --------- the Registration Rights Agreement). "Unrestricted Subsidiary" means any Subsidiary of the Company ----------------------- designated as such pursuant to and in compliance with Section 5.18 Any such designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of such Section 5.18. "U.S. Government Obligations" means direct non-callable obligations --------------------------- of, or non-callable obligations guaranteed by, the United States of America for the payment of which guarantee or obligation the full faith and credit of the United States is pledged. "U.S. Legal Tender" means such coin or currency of the United States ----------------- of America as at the time of payment shall be legal tender for the payment of public and private debts. 22 "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 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. Section 1.2. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Securities. -------------------- "indenture security holder" means a Holder. ------------------------- "indenture to be qualified" means this Indenture. ------------------------- "indenture trustee" or "institutional trustee" means the Trustee. ----------------- --------------------- "obligor" on the indenture securities means the Company, any ------- Subsidiary Guarantor or any other obligor on the Securities or the Guarantees. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule and not otherwise defined herein have the meanings assigned to them therein. Section 1.3. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; 23 (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE II. THE SECURITIES Section 2.1. Form and Dating. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A. The Securities may have --------- notations, legends or endorsements required by law, stock exchange rule or usage. The Company and the Trustee shall approve the form of the Securities and any notation, legend or endorsement on them. Each Security shall be dated the date of its authentication. The terms and provisions contained in the Securities shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Securities offered and sold in reliance on Rule 144A, Securities transferred after the initial resale thereof to institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and Securities offered and sold in reliance on Regulation S shall be issued initially in the form of one or more permanent Global Securities in registered form, substantially in the form set forth in Exhibit A, deposited with the --------- Trustee, as custodian for the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legend set forth in Exhibit B. The aggregate principal amount of the Global Securities --------- may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided. Securities issued in exchange for interests in a Global Security pursuant to Section 2.16 may be issued and Securities offered and sold in reliance on any other exemption from registration under the Securities Act other than as described in the preceding paragraph shall be issued in the form of permanent certificated Securities in registered form in substantially the form set forth in Exhibit A (the "Physical Securities"). --------- ------------------- All Securities offered and sold in reliance on Regulation S shall remain in the form of a Global Security until the consummation of the Exchange Offer pursuant to the Registration Rights Agreement; provided, however, that all -------- ------- of the time periods specified in the 24 Registration Rights Agreement to be complied with by the Company and the Subsidiary Guarantors have been so complied with. Section 2.2. Execution and Authentication. One Officer of the Company, whom shall have been duly authorized by all requisite corporate actions, shall sign the Securities for the Company by manual or facsimile signature. If an Officer whose signature is on a Security was an Officer at the time of such execution but no longer holds that office or position at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate (i) the Initial Securities for original issue in the aggregate principal amount not to exceed $300.0 million, including $200.0 million in aggregate principal amount of Securities being issued on the Issue Date, (ii) the Private Exchange Notes from time to time for issue only in exchange for a like principal amount of the Initial Securities and (iii) Unrestricted Securities from time to time only (A) in exchange for a like principal amount of the Initial Securities or (B) in an aggregate principal amount of not more than the excess of $300.0 million over the sum of the aggregate principal amount of (x) the Initial Securities than outstanding, (y) the Private Exchange Notes then outstanding and (z) the Unrestricted Securities issued in accordance with (iii)(A) above, in each case upon a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of Securities to be authenticated and the date on which the Securities are to be authenticated, whether the Securities are to be the Initial Securities, Private Exchange Notes or Unrestricted Securities and whether the Securities are to be issued as Physical Securities or Global Securities or such other information as the Trustee may reasonably request. The aggregate principal amount of Securities outstanding at any time may not exceed $300.0 million (or such lesser amount as is requested authenticated by the Trustee and issued by the Company on the Issue Date), except as provided in Section 2.7. Such Securities shall be in the form of one or more Global Securities, which (i) shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, the outstanding Securities, (ii) shall be registered in the name of the Depository for such Global Security or Securities or its nominee, (iii) shall be delivered by the Trustee to the Depository or pursuant to the Depository's instruction and (iv) shall bear a legend substantially to the following effect: "Unless and until this Global Security is exchanged in whole or in part for the individual Securities represented hereby, this Global Security may not be transferred except as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or by a Depository or any such nominee to a successor Depository or a nominee of a successor Depository." 25 In the event that the Company shall issue and the Trustee shall authenticate any Securities issued under this Indenture subsequent to the Issue Date pursuant to clauses (i) and (iii) of the first sentence of the immediately preceding paragraph, the Company shall use its reasonable efforts to obtain the same "CUSIP" number for such Securities as is printed on the Securities outstanding at such time; provided, however, that if any series of Securities -------- ------- issued under this Indenture subsequent to the Issue Date is determined, pursuant to an Opinion of Counsel of the Company in a form reasonably satisfactory to the Trustee to be a different class of security than the Securities outstanding at such time for federal income tax purposes, the Company may obtain a "CUSIP" number for such Securities that is different than the "CUSIP" number printed on the Securities then outstanding. Notwithstanding the foregoing, all Securities issued under this Indenture shall vote and consent together on all matters as one class and no series of Securities will have the right to vote or consent as a separate class on any matter. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate Securities. Unless otherwise provided in the appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company and Affiliates of the Company. The Securities shall be issuable only in registered form without coupons in denominations of $1,000 and integral multiples thereof. Section 2.3. Registrar and Paying Agent. The Company shall maintain an office or agency in the Borough of Manhattan, The City of New York, where (a) Securities may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) --------- Securities may be presented or surrendered for payment ("Paying Agent") and (c) ------------ notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The office or agency in respect of clauses (a) and (b) shall be the Trustee, c/o The Depository Trust Company, 55 Water Street, New York, New York 10041, Attn: Corporate Trust Services), and the office or agency in respect of clause (c) shall be the Trustee, c/o The Depository Trust Company, 55 Water Street, New York, New York 10041, Attn: Corporate Trust Administration), unless in either case the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such -------- ------- designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company may act as its own Registrar or Paying Agent except that for the purposes of Articles Three and Nine and Sections 5.15 and 5.16, neither the Company nor any Affiliate of the Company shall act as Paying Agent. The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company, upon notice to the Trustee, may have one or more co-Registrars and one or more additional paying agents reasonably acceptable to the 26 Trustee. The term "Paying Agent" includes any additional paying agent. The Company initially appoints the Trustee as Registrar and Paying Agent until such time as the Trustee has resigned or a successor has been appointed. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee, in advance, of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. Section 2.4. Paying Agent To Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that, subject to Article Four and Article Twelve, each Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Securities (whether such assets have been distributed to it by the Company or any other obligor on the Securities), and shall notify the Trustee of any Default by the Company (or any other obligor on the Securities) in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate such assets and hold them as a separate trust fund, subject to Article Four and Article Twelve. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent shall have no further liability for such assets. Section 2.5. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or before each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, which list may be conclusively relied upon by the Trustee. Section 2.6. Transfer and Exchange. (a) Subject to Sections 2.16 and 2.17, when Securities are presented to the Registrar or a co-Registrar with a request to register the transfer of such Securities or to exchange such Securities for an equal principal amount of Securities of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the -------- ------- Securities surrendered for transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar or co-Registrar, duly executed by the Holder thereof or his or her attorney duly authorized in writing. 27 To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's or co- Registrar's request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchanges or transfers pursuant to Sections 2.2, 2.7, 2.10, 3.7, 5.15, 5.16 or 10.5). The Registrar or co-Registrar shall not be required to register the transfer of or exchange of any Security (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Securities and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article Three, except the unredeemed portion of any Security being redeemed in part. A Global Security may be transferred, in whole but not in part, in the manner provided in this Section 2.6(a), only to a nominee of the Depository for such Global Security, or to the Depository, or a successor Depository for such Global Security selected or approved by the Company, or to a nominee of such successor Depository. (b) If at any time the Depository for the Global Security or Securities notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or Securities or the Company becomes aware that the Depository has ceased to be a clearing agency registered under the Exchange Act, the Company shall appoint a successor Depository with respect to such Global Security or Securities. If a successor Depository for such Global Security or Securities has not been appointed within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company shall execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of Securities, shall authenticate and deliver, Securities in definitive form, in an aggregate principal amount at maturity equal to the principal amount at maturity of the Global Security representing such Securities, in exchange for such Global Security. The Company shall reimburse the Registrar, the Depository and the Trustee for expenses they incur in documenting such exchanges and issuances of Securities in definitive form. The Company may at any time and in its sole discretion determine that the Securities shall no longer be represented by such Global Security or Securities. In such event the Company will execute, and the Trustee, upon receipt of a written order for the authentication and delivery of individual Securities in exchange in whole or in part for such Global Security or Securities, will authenticate and deliver individual Securities in definitive form in an aggregate principal amount equal to the principal amount of such Global Security or Securities in exchange for such Global Security or Securities. In any exchange provided for in any of the preceding two paragraphs, the Company will execute and the Trustee will authenticate and deliver individual Securities in definitive registered form in authorized denominations. Upon the exchange of a Global Security for individual Securities, such Global Security shall be canceled by the Trustee. Securities issued in exchange for a Global Security pursuant to this Section 2.6(b) shall be registered in such names and in such authorized denominations as the Depository for such Global Security, pursuant to instructions from its direct or indirect participants or otherwise, 28 shall instruct the Trustee. The Trustee shall deliver such Securities to the persons in whose names such Securities are so registered. None of the Company, the Trustee, any Paying Agent or the Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Section 2.7. Replacement Securities. If a mutilated Security is surrendered to the Trustee or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements are met. If required by the Trustee or the Company, such Holder must provide an indemnity bond or other indemnity, sufficient in the judgment of both the Company and the Trustee, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Security is replaced. The Company may charge such Holder for its reasonable out-of-pocket expenses in replacing a Security pursuant to this Section 2.7, including reasonable fees and expenses of counsel. Every replacement Security is an additional obligation of the Company. Section 2.8. Outstanding Securities. Securities outstanding at any time are all the Securities that have been authenticated by the Trustee except those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Company or any of its Affiliates holds the Security. If a Security is replaced pursuant to Section 2.7 (other than a mutilated Security surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. A mutilated Security ceases to be outstanding upon surrender of such Security and replacement thereof pursuant to Section 2.7. If on a Redemption Date or the Maturity Date the Paying Agent (other than the Company or a Subsidiary) holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal and interest due on the Securities payable on that date, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue unless, pursuant to the provisions of Article Four and Article Twelve, the Paying Agent is unable to make payments on the Securities to the Holders thereof. Section 2.9. Treasury Securities. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the 29 Company or any of its Affiliates shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that the Trustee knows or has reason to know are so owned shall be disregarded. Section 2.10. Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. Until such exchange, temporary Securities shall be entitled to the same rights, benefits and privileges as definitive Securities. Notwithstanding the foregoing, so long as the Securities are represented by a Global Security, such Global Security may be in typewritten form. Section 2.11. Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent (other than the Company or a Subsidiary), and no one else, shall cancel and, at the written direction of the Company, shall dispose of all Securities surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.7, the Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation. If the Company shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. Section 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Securities, it shall, unless the Trustee fixes another record date pursuant to Section 7.10, pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the persons who are Holders on a subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by the Company for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. Section 2.13. CUSIP Number. The Company in issuing the Securities may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience 30 to Holders; provided, however, that any such notice may state that no -------- ------- representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. Section 2.14. Deposit of Monies. Prior to 11:00 a.m. New York City time on each Interest Payment Date, Maturity Date, Redemption Date, Change of Control Payment Date and Net Proceeds Offer Payment Date, the Company shall have deposited with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date, Maturity Date, Redemption Date, Change of Control Payment Date and Net Proceeds Offer Payment Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such Interest Payment Date, Maturity Date, Redemption Date, Change of Control Payment Date and Net Proceeds Offer Payment Date, as the case may be. Section 2.15. Restrictive Legends. Each Global Security and Physical Security that constitutes a Restricted Security shall bear the legend (the "Private Placement Legend") as ------------------------ set forth in Exhibit A until after the second anniversary of the later of the --------- Issue Date and the last date on which the Company or any Affiliate of the Company was the owner of such Security (or any predecessor security) (or such shorter period of time as permitted by Rule 144(k) under the Securities Act or any successor provision thereunder) (or such longer period of time as may be required under the Securities Act or applicable state securities laws in the opinion of counsel for the Company, unless otherwise agreed by the Company and the Holder thereof). Each Global Security shall also bear the legend as set forth in Exhibit B. - --------- Section 2.16. Book-Entry Provisions for Global Securities. (a) The Global Securities initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear the legend as set forth in Exhibit B. --------- Members of, or participants in, the Depository ("Agent Members") ------------- shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Securities, and the Depository may be treated by the Company, the Trustee and any Agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any Agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Security. (b) Transfers of a Global Security shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of 31 beneficial owners in a Global Security may be transferred or exchanged for Physical Securities in accordance with the rules and procedures of the Depository and the provisions of Section 2.17. In addition, Physical Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in a Global Security if (i) the Depository notifies the Company that it is unwilling or unable to continue as the Depository for the Global Securities and a successor depository is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depository to issue Physical Securities. (c) In connection with any transfer or exchange of a portion of the beneficial interest in a Global Security to beneficial owners pursuant to paragraph (b), the Registrar shall (if one or more Physical Securities are to be issued) reflect on its books and records the date and a decrease in the principal amount of such Global Security in an amount equal to the principal amount of the beneficial interest in the Global Security to be transferred, and the Company shall execute and the Trustee shall authenticate and deliver, one or more Physical Securities of like tenor and amount. (d) In connection with the transfer of an entire Global Security to beneficial owners pursuant to paragraph (b) of this Section 2.16, such Global Security shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Security, an equal aggregate principal amount of Physical Securities of authorized denominations. (e) Any Physical Security constituting a Restricted Security delivered in exchange for an interest in a Global Security pursuant to paragraph (b) or (c) of this Section 2.16 shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section 2.17, bear the Private Placement Legend. (f) The Holder of a Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. Section 2.17. Special Transfer Provisions. (a) Transfers to Non-QIB Institutional Accredited Investors and ----------------------------------------------------------- Non-U.S. Persons. The following provisions shall apply with respect to the - ---------------- registration of any proposed transfer of a Security constituting a Restricted Security to any Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person: (i) the Registrar shall register the transfer of any Security constituting a Restricted Security, whether or not such Security bears the Private Placement Legend, if (x) the requested transfer is after the second anniversary of the Issue Date (provided, however, that neither the Company -------- ------- nor any Affiliate of the Company has held any beneficial interest in such Security, or portion thereof, at any time on or prior to the second anniversary of the Issue Date) or (y) (1) in the case of a transfer to an 32 Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons), the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit C hereto or (2) in the --------- case of a transfer to a Non-U.S. Person, the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit D hereto; --------- (ii) if the proposed transferee is an Agent Member and the Securities to be transferred consist of Physical Securities which after transfer are to be evidenced by an interest in the IAI Global Security or Regulation S Global Security, as the case may be, upon receipt by the Registrar of (x) written instructions given in accordance with the Depository's and the Registrar's procedures and (y) the appropriate certificate, if any, required by clause (y) of paragraph (i) above, the Registrar shall register the transfer and reflect on its books and records the date and an increase in the principal amount of the IAI Global Security or Regulation S Global Security, as the case may be, in an amount equal to the principal amount of Physical Securities to be transferred, and the Trustee shall cancel the Physical Securities so transferred; and (iii) if the proposed transferor is an Agent Member seeking to transfer an interest in a Global Security, upon receipt by the Registrar of (x) written instructions given in accordance with the Depository's and the Registrar's procedures and (y) the appropriate certificate, if any, required by clause (y) of paragraph (i) above, the Registrar shall register the transfer and reflect on its books and records the date and (A) a decrease in the principal amount of the Global Security from which such interests are to be transferred in an amount equal to the principal amount of the Securities to be transferred and (B) an increase in the principal amount of the IAI Global Security or the Regulation S Global Security, as the case may be, in an amount equal to the principal amount of the Securities to be transferred. (b) Transfers to QIBs. The following provisions shall apply with ----------------- respect to the registration of any proposed transfer of a Security constituting a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons): (i) the Registrar shall register the transfer of any Restricted Security if such transfer is being made by a proposed transferor who has checked the box provided for on the form of the Security stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of the Security stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; 33 (ii) if the proposed transferee is an Agent Member, and the Securities to be transferred consist of Physical Securities which after transfer are to be evidenced by an interest in a Global Security, upon receipt by the Registrar of written instructions given in accordance with the Depository's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of such Global Security in an amount equal to the principal amount of the Physical Securities to be transferred, and the Trustee shall cancel the Physical Securities so transferred; and (iii) if the proposed transferor is an Agent Member seeking to transfer an interest in the IAI Global Security or the Regulation S Global Security, upon receipt by the Registrar of written instructions given in accordance with the Depository's and the Registrar's procedures, the Registrar shall register the transfer and reflect on its books and records the date and (A) a decrease in the principal amount of the IAI Global Security or the Regulation S Global Security, as the case may be, in an amount equal to the principal amount of the Securities to be transferred and (B) an increase in the principal amount of the Global Security in an amount equal to the principal amount of the Securities to be transferred. (c) Restrictions on Transfer and Exchange of Global Securities. ---------------------------------------------------------- Notwithstanding any other provisions of this Indenture, a Global Security may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. (d) Private Placement Legend. Upon the transfer, exchange or ------------------------ replacement of the Securities not bearing the Private Placement Legend, the Registrar shall deliver the Securities that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of the Securities bearing the Private Placement Legend, the Registrar shall deliver only the Securities that bear the Private Placement Legend unless (i) the requested transfer is after the second anniversary of the Issue Date (provided, however, that neither -------- ------- the Company nor any Affiliate of the Company has held any beneficial interest in such Security, or portion thereof, at any time prior to or on the second anniversary of the Issue Date), or (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (e) General. By its acceptance of any Security bearing the Private ------- Placement Legend, each Holder of such Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Security only as provided in this Indenture. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.16 or this Section 2.17. The Company shall have the right to inspect and make copies of all such letters, notices or other written 34 communications at any reasonable time during the Registrar's normal business hours upon the giving of reasonable written notice to the Registrar. (f) Transfers of Securities Held by Affiliates. Any certificate (i) ------------------------------------------ evidencing a Security that has been transferred to an Affiliate of the Company within two years after the Issue Date, as evidenced by a notation on the Assignment Form for such transfer or in the representation letter delivered in respect thereof or (ii) evidencing a Security that has been acquired from an Affiliate of the Company (other than by an Affiliate of the Company) in a transaction or a chain of transactions not involving any public offering, shall, until two years after the last date on which the Company or any Affiliate of the Company was an owner of such Security, in each case, bear the Private Placement Legend, unless otherwise agreed by the Company (with written notice thereof to the Trustee). Section 2.18. Additional Interest Under Registration Rights Agreement. Under certain circumstances, the Company shall be obligated to pay, as liquidated damages, additional interest to the Holders, all as set forth in Section 4 of the Registration Rights Agreement. The terms thereof are hereby incorporated herein by reference. ARTICLE III. REDEMPTION Section 3.1. Notices to Trustee. If the Company elects to redeem Securities pursuant to Paragraph 5 of the Securities, it shall notify the Trustee, with a copy to the Bank Facility Agent, of the Redemption Date and the principal amount of Securities to be redeemed and whether it wants the Trustee to give notice of redemption to the Holders at least 45 days (unless a shorter notice shall be satisfactory to the Trustee) but not more than 60 days before the Redemption Date. Any such notice may be canceled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. Section 3.2. Selection of Securities To Be Redeemed. If fewer than all of the Securities are to be redeemed at any time, the Trustee shall select the Securities to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which such Securities are listed or, if such Securities are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as --- ---- the Trustee shall deem fair and appropriate; provided, however, that no -------- ------- Securities of a principal amount of $1,000 or less shall be redeemed in part; provided, further; that any partial redemption pursuant to Paragraph 5 of the - -------- ------- Securities with the proceeds of a Public Equity Offering shall be made on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to the Depository's procedures), unless such method is otherwise prohibited. 35 The Trustee shall make the selection from the Securities outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed. Securities in denominations of $1,000 may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or integral multiples thereof) of the principal amount of Securities that have denominations larger than $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. Section 3.3. Optional Redemption. (a) On or after May 15, 2003, the Securities may be redeemed in whole at any time or in part from time to time, at the option of the Company, upon not less than 30 nor more than 60 days notice, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, together with accrued and unpaid interest (if any) to the Redemption Date, if redeemed during the twelve-month period commencing on May 15 of the year set forth below:
Redemption Year Price 2003.................. 104.500% 2004.................. 103.000% 2005.................. 101.500% 2006 and thereafter... 100.000%
(b) Optional Redemption upon Equity Offerings. At any time, or from time to time, on or prior to May 15, 2001, the Company may, at its option, use the net cash proceeds of one or more Equity Offerings (as defined below) to redeem the Securities at a Redemption Price equal to 109% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the Redemption Date; provided, that at least 65% of the principal amount of the -------- Securities originally issued remains outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Equity Offering. Section 3.4. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first class mail to each Holder whose Securities are to be redeemed at such Holder's registered address, with a copy to the Trustee and the Bank Facility Agent. In order to effect a redemption pursuant to Paragraph 5 of the Securities with the proceeds of an Equity Offering, the Company shall send the redemption notice not later than 120 days after the consummation of such Equity Offering. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. Each notice for redemption shall identify the Securities to be redeemed and shall state: 36 (1) the Redemption Date; (2) the Redemption Price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (5) that, unless (a) the Company defaults in making the redemption payment on the Redemption Date or (b) such redemption payment is prohibited pursuant to Article Four or Article Twelve hereof or otherwise, interest on Securities called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Securities is to receive payment of the Redemption Price upon surrender to the Paying Agent of the Securities redeemed; (6) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the Redemption Date, and upon surrender of such Security, a new Security or Securities in aggregate principal amount equal to the unredeemed portion thereof will be issued; and (7) if fewer than all the Securities are to be redeemed, the identification of the particular Securities (or portion thereof) to be redeemed, as well as the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to be outstanding after such partial redemption. Section 3.5. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.4, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon surrender to the Trustee or Paying Agent, such Securities called for redemption shall be paid at the Redemption Price unless prohibited pursuant to Article Four or Article Twelve or otherwise pursuant to this Indenture. Securities that are redeemed by the Company or that are purchased by the Company pursuant to a Net Proceeds Offer as described in Section 5.16 or pursuant to a Change of Control Offer as described in Section 5.15 or that are otherwise acquired by the Company will be surrendered to the Trustee for cancellation. Section 3.6. Deposit of Redemption Price. On or before 11:00 a.m. New York City time on the Redemption Date, the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price of all Securities to be redeemed on that date (other than Securities or portions thereof called for redemption on that date which have been delivered by the Company to the Trustee for cancellation). The Paying Agent shall promptly return to the Company any U.S. Legal Tender so deposited which is not required for that purpose upon the written request 37 of the Company, except with respect to monies owed as obligations to the Trustee pursuant to Article Eight and Article Twelve hereof. If the Company complies with the preceding paragraph and payment of the Securities called for redemption is not prohibited under Article Four or Article Twelve or otherwise, then, unless the Company defaults in the payment of such Redemption Price, interest on the Securities or portions thereof to be redeemed will cease to accrue on and after the applicable Redemption Date, whether or not such Securities are presented for payment. Section 3.7. Securities Redeemed in Part. Upon surrender and cancellation of a Security that is to be redeemed in part, the Trustee shall authenticate for the Holder a new Security or Securities equal in principal amount to the unredeemed portion of the Security surrendered and canceled. ARTICLE IV. SUBORDINATION Section 4.1. Securities Subordinated to Senior Indebtedness. The Company covenants and agrees, and each Holder of the Securities, by its acceptance thereof, likewise covenants and agrees, that all Securities shall be issued subject to the provisions of this Article Four; and each Person holding any Security, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that the payment of all Obligations on the Securities by the Company shall, to the extent and in the manner herein set forth, be subordinated and junior in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on Senior Indebtedness, including, without limitation, the Company's obligations under the Bank Facility; that the subordination is for the benefit of, and shall be enforceable directly by, the holders of Senior Indebtedness, and that each holder of Senior Indebtedness whether now outstanding or hereafter created, incurred, assumed or guaranteed shall be deemed to have acquired Senior Indebtedness in reliance upon the covenants and provisions contained in this Indenture and the Securities. Section 4.2. Suspension of Payment When Senior Indebtedness in Default. (a) If any default occurs and is continuing in the payment when due, whether at maturity, upon any redemption, by declaration or otherwise, of any principal or, interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees with respect to, any Senior Indebtedness, no payment of any kind or character shall be made by or on behalf of the Company or any other Person on its or their behalf with respect to any Obligations on the Securities or to acquire any of the Securities for cash or property or otherwise. In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Indebtedness, as such event of default is defined in the instrument creating or evidencing such Designated Senior Indebtedness, permitting the holders of such Designated Senior Indebtedness then outstanding to accelerate the maturity thereof and if the 38 Representative for the respective issue of Designated Senior Indebtedness gives notice of the event of default to the Trustee (a "Default Notice") then, unless -------------- and until all events of default with respect to such Designated Senior Indebtedness have been cured (if capable of being cured) or waived in writing or have ceased to exist or the Trustee receives notice thereof from the Representative for the respective issue of Designated Senior Indebtedness terminating the Blockage Period (as defined below), during the 179 days after the delivery of such Default Notice (the "Blockage Period"), 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 Securities or (y) acquire any of the Securities for cash or property or otherwise. Notwithstanding anything herein to the contrary, in no event will a Blockage Period extend beyond 179 days from the date the payment on the Securities was due and only one such Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Blockage Period with respect to the Designated Senior Indebtedness shall be, or be made, the basis for commencement of a second Blockage Period by the Representative of such Designated Senior Indebtedness 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 (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). (b) In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any Holder when such payment is prohibited by this Section 4.2, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amount of Senior Indebtedness held by such holders) or their respective Representatives, as their respective interests may appear. The Trustee shall be entitled to rely on information regarding amounts then due and owing on the Senior Indebtedness, if any, received from the holders of Senior Indebtedness (or their Representatives) or, if such information is not received from such holders or their Representatives, from the Company and only amounts included in the information provided to the Trustee shall be paid to the holders of Senior Indebtedness. Nothing contained in this Article Four shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to Section 7.2 or to pursue any rights or remedies hereunder; provided , however, that so long as any Indebtedness -------- ------- permitted to be incurred under this Indenture pursuant to the Bank Facility shall be outstanding, no such acceleration shall be effective until the earlier of (i) acceleration of any such Indebtedness under the Bank Facility or (ii) five business days after giving notice to the Representative under the Bank Facility of such acceleration, and all Senior Indebtedness thereafter due or declared to be due shall first be paid in full in cash or Cash Equivalents before the Holders are entitled to receive any payment of any kind or character with respect to Obligations on the Securities. 39 Section 4.3. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of Company. (a) Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Company or its property, whether voluntary or involuntary, all Obligations due or to become due upon all Senior Indebtedness shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Indebtedness, before any payment or distribution of any kind or character is made on account of any Obligations on the Securities, or for the acquisition of any of the Securities for cash or property or otherwise. Upon any such dissolution, winding-up, liquidation, reorganization, receivership or similar proceeding, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Securities or the Trustee under this Indenture would be entitled, except for the provisions hereof, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them, directly to the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their respective Representatives, or to the trustee or trustee under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of Senior Indebtedness remaining unpaid until all such Senior Indebtedness has been paid in full in cash or Cash Equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of Senior Indebtedness. (b) To the extent any payment of Senior Indebtedness (whether by or on behalf of the Company, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then, if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Indebtedness or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. (c) In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by any Holder when such payment or distribution is prohibited by this Section 4.3, such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amount of Senior Indebtedness held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of Senior Indebtedness remaining unpaid until all such 40 Senior Indebtedness has been paid in full in cash or Cash Equivalents, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Indebtedness. (d) The consolidation of the Company with, or the merger of the Company with or into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of all or substantially all of its assets, to another corporation upon the terms and conditions provided in Article Six hereof and as long as permitted under the terms of the Senior Indebtedness shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 4.3 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, assume the Company's obligations hereunder in accordance with Article Six hereof. Section 4.4. Holders To Be Subrogated to Rights of Holders of Senior Indebtedness. (a) Subject to the payment in full in cash or Cash Equivalents of all Senior Indebtedness, the Holders of the Securities shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until the Securities shall be paid in full; and, for the purposes of such subrogation, no such payments or distributions to the holders of the Senior Indebtedness by or on behalf of the Company or by or on behalf of the Holders by virtue of this Article Four which otherwise would have been made to the Holders shall, as between the Company and the Holders of the Securities, be deemed to be a payment by the Company to or on account of the Senior Indebtedness, it being understood that the provisions of this Article Four are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities, on the one hand, and the holders of the Senior Indebtedness, on the other hand. (b) Each Holder by purchasing or accepting a Security waives any and all notice of the creation, modification, renewal, extension or accrual of any Senior Indebtedness and notice of or proof of reliance by any holder or owner of Senior Indebtedness upon this Article Four and Senior Indebtedness shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Article Four, and all dealings between the Company and the holders and owners of Senior Indebtedness shall be deemed to have been consummated in reliance upon this Article Four. Section 4.5. Obligations of the Company Unconditional. (a) Nothing contained in this Article Four or elsewhere in this Indenture or in the Securities is intended to or shall impair, as between the Company and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of and interest on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, 41 if any, under this Article Four of the holders of Senior Indebtedness in respect of cash, property or Securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets or securities of the Company referred to in this Article Four, the Trustee, subject to the provisions of Sections 8.1 and 8.2, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any liquidation, dissolution, winding-up or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee or agent or other Person making any payment or distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Four. Nothing in this Article Four shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 8.7. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of any Senior Indebtedness (or a trustee on behalf of, or other representative of, such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee or Representative on behalf of any such holder. (b) In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article Four, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Four, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 4.6. Trustee Entitled To Assume Payments Not Prohibited in Absence of Notice. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities pursuant to the provisions of this Article Four, but failure to give such notice shall not affect the subordination of the Securities to all Senior Indebtedness provided in this Article Four and shall not result in any Default or Event of Default under this Indenture or the Securities. Regardless of anything to the contrary contained in this Article Four or elsewhere in this Indenture, the Trustee shall not be charged with knowledge of the existence of any default or event of default with respect to any Senior Indebtedness or of any other facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice in writing from the Company, or from a holder of Senior Indebtedness or a Representative therefor, together, in the case of any holder of Senior Indebtedness or any Representative therefor other than the Bank Facility Agent, with proof satisfactory to the Trustee of such holding of Senior Indebtedness or of the authority of such Representative, and, prior to the receipt of any such written notice, the Trustee shall be entitled to assume (in the absence of actual knowledge to the contrary) that no, such fact exist. Section 4.7. Application by Trustee of Assets Deposited with It. 42 U.S. Legal Tender or U.S. Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Sections 9.1 and 9.2 shall be for the sole benefit of the Holders of the Securities and, to the extent allocated for the payment of Securities, shall not be subject to the subordination provisions of this Article Four or Article Twelve. Otherwise, any deposit of assets or securities by or on behalf of the Company with the Trustee or any Paying Agent (whether or not in trust) for the payment of principal of or interest on any Securities shall be subject to the provision of this Article Four; provided, however, that if prior to the second Business Day preceding the -------- ------- date on which by the terms of this Indenture any such assets may become distributable for any purpose (including, without limitation, the payment of either principal of or interest on any Security) the Trustee or such Paying Agent shall not have received with respect to such asset the notice provided for in Section 4.6, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary received by it on or after such date. The foregoing shall not apply to the Paying Agent if the Company or any Subsidiary or Affiliate of the Company is acting as Paying Agent. Nothing contained in this Section 4.7 shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by this Article Four. Section 4.8. No Waiver of Subordination Provisions. (a) No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act by any such holder, or by any non- compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) Without limiting the generality of subsection (a) of this Section 4.8, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article Four or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (1) change the manner, place, terms or time of payment of, or renew or alter, Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding or otherwise amend, renew, exchange, restate, modify or supplement in any manner Senior Indebtedness or any instrument evidencing or guaranteeing Senior Indebtedness or securing the same or any agreement under which Senior Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (3) settle or compromise any Senior Indebtedness or release any Person liable in any manner for the collection or payment of Senior Indebtedness; and (4) exercise or delay or refrain from exercising any rights against the Company and any other Person, fail to take or to record or otherwise perfect, for any reason or for no reason, any lien or security interest securing Senior Indebtedness, elect any remedy or otherwise deal freely with the Company. Section 4.9. Holders Authorize Trustee To Effectuate Subordination of Securities. 43 Each Holder of the Securities by such Holder's acceptance thereof authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effect the subordination provisions contained in this Article Four, and appoints the Trustee such Holder's attorney- in-fact for such purpose, including, in the event of any liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company tending towards liquidation or reorganization of the business and assets of the Company, the immediate filing of a claim for the unpaid balance of such Holder's Securities in the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then any of the holders of the Senior Indebtedness or their Representative is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Securities. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Indebtedness or their Representative to vote in respect of the claim of any Holder in any such proceeding. Section 4.10. Right of Trustee To Hold Senior Indebtedness. (a) The Trustee and any agent of the Company or the Trustee shall be entitled to all the rights set forth in this Article Four with respect to any Senior Indebtedness which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Senior Indebtedness and nothing in this Indenture shall deprive the Trustee or any such agent of any of its rights as such holder. (b) With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Four, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness. (c) Whenever a distribution is to be made or a notice given to holders or owners of Senior Indebtedness, the distribution may be made and the notice may be given to their Representative, if any. Section 4.11. No Suspension of Remedies. The failure to make a payment on account of principal of or interest on the Securities by reason of any provision of this Article Four will not be construed as preventing the occurrence of an Event of Default. Except as the effectiveness of acceleration is limited by Section 4.2(b), nothing contained in this Article Four shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to Article Seven or to 44 pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article Four of the holders, from time to time, of Senior Indebtedness. Section 4.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness, and it undertakes to perform or observe such of its covenants and obligations as are specifically set forth in this Article Four, and no implied covenants or obligations with respect to the Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be liable to any such holders (other than or its willful misconduct or gross negligence) if it shall pay over or deliver to the Holders of Securities or the Company or any other Person money or assets in compliance with the terms of this Indenture. Nothing in this Section 4.12 shall affect the obligation of any Person other than the Trustee to hold such payment for the benefit of, and to pay such payment over to, the holders of Senior Indebtedness or their Representative. ARTICLE V. COVENANTS Section 5.1. Payment of Securities. The Company shall pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and this Indenture. An installment of principal of or interest on the Securities shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or a Subsidiary) holds on that date U.S. Legal Tender designated for and sufficient to pay the installment; provided, however, that U.S. Legal Tender -------- ------- held by the Trustee for the benefit of holders of Senior Indebtedness or the payment of which to the Holders is prohibited pursuant to the provisions of Article Four or Article Twelve or otherwise shall not be considered to be designated for the payment of any installment of principal or interest on the Securities within the meaning of this Section 5.1. The Company shall pay interest on overdue principal at the rate borne by the Securities and it shall pay interest on overdue installments of interest at the same rate, to the extent lawful. Section 5.2. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, The City of New York, the office or agency required under Section 2.3. The Company shall give prior notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 13.2. Section 5.3. Limitation on Restricted Payments. 45 (a) The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, (i) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Equity Interests of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock, (ii) 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, (iii) 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 of the Securities or (iv) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (i), (ii), (iii) and (iv) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (A) a Default or an Event of Default shall have occurred and be continuing or (B) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 5.12 or (C) 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 in cash, being the fair market value of such property as determined in good faith by the Board of Directors of the Company) shall exceed the sum of: (w) 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 earned during the period beginning on the first day of the fiscal quarter including the Issue Date (the "Reference Date") (treating such period as a single accounting period), provided, however, that if the Securities achieve an -------- ------- Investment Grade Rating as of the end of any fiscal quarter, the percentage for the fiscal quarter after such fiscal quarter (and for any other fiscal quarter where, on the first day of such fiscal quarter, the Securities shall have an Investment Grade Rating) will be 100% of Consolidated Net Income during each fiscal quarter after such fiscal quarter; provided further, however, that if -------- ------- ------- such Restricted Payment is to be made in reliance upon an additional amount permitted pursuant to the immediately preceding proviso, the Securities must have an Investment Grade Rating at the time such Restricted Payment is declared or, if not declared, made, plus (x) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from (i) the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Equity Interests of the Company (other than Qualified Equity Interests applied pursuant to clauses (ii)(B) and (iii)(B) of the next succeeding paragraph) and (ii) Indebtedness or Disqualified Capital Stock that has been converted into or exchanged for Qualified Equity Interests together with the aggregate net cash proceeds received by the Company at the time of such conversion or exchange, plus (y) without duplication of any amounts included in clause (iii)(x) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock and plus (z) an amount equal to the sum of (1) any net reduction in Investments made pursuant to this paragraph (a) 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) and (2) the consolidated net Investments, as of the date of Revocation, made by the Company or any of its Restricted Subsidiaries in any 46 Subsidiary of the Company that had been designated as an Unrestricted Subsidiary after the Issue Date, upon its redesignation as a Restricted Subsidiary in accordance with Section 5.18. (b) Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (i) the payment of any dividend within 60 days after the date of declaration of such dividend if the dividend would have been permitted on the date of declaration; (ii) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any shares of Capital Stock of the Company, either (A) solely in exchange for Qualified Equity Interests of the Company or (B) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of Qualified Equity Interests of the Company; (iii) if no Default or Event of Default shall have occurred and be continuing, the purchase, redemption, defeasance or other acquisition or retirement for value of any Indebtedness of the Company that is subordinate or junior in right of payment to the Securities either (A) solely in exchange for Qualified Equity Interests of the Company or (B) through the application of net proceeds of (x) a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of Qualified Equity Interests of the Company or (y) Refinancing Indebtedness; (iv) so long as 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 $2.0 million in any calendar year; and (v) 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 (C) of the first sentence of the immediately preceding paragraph, amounts expended pursuant to clauses (i), (iv) and (v) shall be included in such calculation. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an officers' certificate stating that such Restricted Payment complies with this Indenture and setting forth in reasonable detail the basis upon which the required calculations were computed, which calculations may be based upon the Company's latest available internal quarterly financial statements. Section 5.4. Corporate Existence. Except as otherwise permitted by Article Six, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the rights (charter and statutory) and franchises of the Company; provided, however, that the Company shall not be -------- ------- required to preserve, with respect to itself, any right or franchise, if the Board of Directors of the Company, as the case may be, shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company. Section 5.5. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or 47 imposed upon it or any of the Restricted Subsidiaries or properties of it or any of the Restricted Subsidiaries and (ii) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien (other than a Permitted Lien) upon the property of it or any of the Restricted Subsidiaries; provided, -------- however, that the Company shall not be required to pay or discharge or cause to - ------- be paid or discharged any such tax, assessment, charge or claim if either (a) the amount, applicability or validity thereof is being contested in good faith by appropriate proceedings and an adequate reserve has been established therefor to the extent required by GAAP or (b) the failure to make such payment or effect such discharge (together with all other such failures) would not have a material adverse effect on the financial condition or results or operations of the Company and the Restricted Subsidiaries taken as a whole. Section 5.6. Maintenance of Properties and Insurance. (a) The Company shall cause all properties used or useful to the conduct of its business or the business of any of the Restricted Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in its judgment may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times unless the failure to so maintain such properties (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of the Company and the Restricted Subsidiaries taken as a whole; provided, however, that nothing in this Section 5.6 shall prevent the Company or - -------- ------- any Restricted Subsidiary from discontinuing the operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is either (i) in the ordinary course of business, (ii) in the good faith judgment of the Board of Directors of the Company or the Restricted Subsidiary concerned, or of the senior officers of the Company or such Restricted Subsidiary, as the case may be, desirable in the conduct of the business of the Company or such Restricted Subsidiary, as the case may be, or (iii) is otherwise permitted by this Indenture. (b) The Company shall provide or cause to be provided, for itself and each of the Restricted Subsidiaries, insurance (including appropriate self- insurance) against loss or damage of the kinds that, in the reasonable, good faith opinion of the Company are adequate and appropriate for the conduct of the business of the Company and the Restricted Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be either (i) consistent with past practices of the Company or the applicable Restricted Subsidiary or (ii) customary, in the reasonable, good faith opinion of the Company, for corporations similarly situated in the industry, unless the failure to provide such insurance (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of the Company and the Restricted Subsidiaries, taken as a whole. Section 5.7. Compliance Certificate; Notice of Default. 48 (a) The Company shall deliver to the Trustee within 120 days after the end of the Company's fiscal year an Officers' Certificate stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether it has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each such Officer signing such certificate, to the best of his or her knowledge the Company's compliance with all conditions and covenants under this Indenture without regard to any period of grace or requirement of notice provided under this Indenture and, if such signers do know of any such non-compliance with any conditions or covenants, the certificate shall describe such non-compliance and its status with particularity. The Officers' Certificate shall also notify the Trustee should the Company elect to change the manner in which it fixes its fiscal year end. (b) The Company shall deliver to the Trustee, forthwith upon becoming aware, and in any event within 5 Business Days after the occurrence, of (i) any Default or Event of Default or (ii) any event of default in respect of any Designated Senior Indebtedness, an Officers' Certificate specifying with particularity such event. Section 5.8. Compliance with Laws. The Company shall comply, and shall cause each of the Restricted Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except such as are being contested in good faith and by appropriate proceedings and except for such noncompliances as would not in the aggregate have a material adverse effect on the financial condition or results of operations of the Company and the Restricted Subsidiaries taken as a whole. Section 5.9. SEC Reports. The Company will deliver to the Trustee within 15 days after the filing of the same 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. 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. The Company will also comply with the other provisions of TIA (S) 314(a). Section 5.10. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or 49 forgive the Company from paying all or any portion of the principal of or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 5.11. Limitation 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 are 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) shall not apply to (i) fees and compensation and benefits paid 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 (including, without limitation, any issuance of securities, grants of cash, securities, stock options or otherwise, pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors of the Company or the Board of Directors of the relevant Restricted Subsidiary); (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 this Indenture; (iii) - -------- any agreement as 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 such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in 50 effect on the Issue Date; (iv) loans and advances to officers and employees or consultants of the Company or any of its Restricted Subsidiaries in the ordinary course of business not to exceed $1,000,000 at any time outstanding; and (v) Restricted Payments permitted by this Indenture. Section 5.12. 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 Subsidiary Guarantor 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 (i) 2.25 to 1.0 if the date of such incurrence is on or prior to May 15, 2001 or (ii) 2.50 to 1.0 if the date of such incurrence is after May 15, 2001. Section 5.13. Limitation on Dividend and Other Payment Restrictions Affecting Restricted 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) this Indenture; (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 properties or assets of the Person so acquired; (5) agreements (other than the Bank Facility) existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date or as amended in a manner that is not more disadvantageous to the Holders in any material respect than the agreement existing on the Issue Date; (6) the Bank Facility; provided, however, that, -------- ------- except during a period when an event of default under the Bank Facility shall have occurred and be continuing, no such encumbrances or restrictions shall limit the ability of such Subsidiary to dividend, loan, advance or otherwise transfer funds to the Company in an amount required to pay when due the scheduled interest (including Additional Interest) and principal at maturity of the Securities; (7) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (c) above; (8) contracts for the sale of assets, including, without limitation, customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of 51 all or substantially all of the Capital Stock or assets of such Subsidiary; (9) secured Indebtedness otherwise permitted to be incurred pursuant to Section 5.12 and Section 5.14 that limit the right of the debtor to dispose of the assets securing such Indebtedness; (10) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; (11) any credit facility or similar agreement entered into in accordance with clause (xv) of the definition of "Permitted Indebtedness"; provided, however, that, except during a period when an event of default under - -------- ------- such credit facility shall have occurred and be continuing, no such encumbrances or restrictions shall limit the ability of any Foreign Subsidiary to dividend, loan, advance or otherwise transfer funds to the Company in an amount required to pay when due the scheduled interest (including Additional Interest) and principal at maturity of the Securities; (12) customary provisions in joint venture agreements; or (13) an agreement governing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (2), (4), (5), (6), (7), (8), (9), (10), (11) or (12) above; provided, however, that the provisions relating to such encumbrance or -------- ------- restriction contained in any such Refinancing 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), (6), (7), (8), (9), (10), (11) or (12). Section 5.14. 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 unless (i) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the Securities or any Guarantee, the Securities and the Guarantees are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens and (ii) in all other cases, the Securities and the Guarantees are equally and ratably secured, except for (A) Liens existing as of the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date; (B) Liens securing Senior Indebtedness and Liens securing Guarantor Senior Indebtedness; (C) Liens of the Company or a Wholly Owned Restricted Subsidiary of the Company on assets of any Restricted Subsidiary of the Company; (D) Liens securing Refinancing Indebtedness incurred in accordance with the provisions of this Indenture which is incurred to Refinance any Indebtedness which has been secured by a Lien permitted under this Indenture; provided, however, that such Liens (i) are no less favorable to the -------- ------- Holders and are no more favorable to the lienholders with respect to such Liens than the Liens in respect of the Indebtedness being Refinanced and (ii) 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; (E) Liens securing Indebtedness incurred in accordance with clause (xv) of the definition of "Permitted Indebtedness" and (F) Permitted Liens. Section 5.15. Limitation on Change of Control. 52 (a) Upon the occurrence of a Change of Control, each Holder will have the right to require that the Company purchase all or a portion of such Holder's Securities 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 interest to the date of purchase (the "Change of Control Offer Price"). (b) No later than 30 days following the date upon which the Change of Control occurred, the Company must send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Notice of an event giving rise to a Change of Control shall be given on the same date and in the same manner to all Holders. Such notice shall state: (1) that the Change of Control Offer is being made pursuant to this Section 5.15 and that all Securities tendered will be accepted for payment; (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); ------------------------------ (3) that any Security not tendered will continue to accrue interest if interest is then accruing; (4) that, unless (i) the Company defaults in making payment therefor or (ii) such payment is prohibited pursuant to Article Four, any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Security purchased pursuant to a Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security 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; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his or her election to have such Security purchased; (7) that Holders whose Securities are purchased only in part will be issued new Securities equal in principal amount to the unpurchased portions of the Securities surrendered; provided, that each Security purchased and each -------- Security issued shall be in an original principal amount of $1,000 or integral multiples thereof; 53 (8) that each Change of Control Offer is required to remain open for at least 20 Business Days or such longer period as may be required by law and until 5:00 p.m. New York City time on the applicable Change of Control Payment Date; and (9) the circumstances and relevant facts regarding such Change of Control. (c) On or before the Change of Control Payment Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price of all Securities so tendered and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price (and the Trustee shall promptly authenticate and mail to such Holders new Securities equal in principal amount to any unpurchased portion of the Securities surrendered; provided, that -------- each such new Security shall be in the principal amount of $1,000 or integral multiples thereof) unless such payment is prohibited pursuant to Article Four or otherwise. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 5.15, the Trustee shall act as the Paying Agent. (d) Notwithstanding the foregoing, the Company shall not be required to make a Change of Control Offer, as provided above, if, in connection with any Change of Control, it had made an offer to purchase (an "Alternate Offer") any and all Securities validly tendered at a cash price equal to or higher than the Change of Control Offer Price and has purchased all Securities properly tendered in accordance with the terms of such Alternate Offer. (e) The Company must comply with Rule 14e-1 under the Exchange Act and other provisions of state and federal securities laws or regulations thereunder to the extent applicable in connection with the repurchase of Securities pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 5.15, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the provisions of this Section 5.15 by virtue thereof. Section 5.16. Limitation on Asset Sales. (a) 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), (ii) at least 75% of the consideration received by the Company or the Restricted Subsidiary (excluding liabilities that are not subordinated to the Securities that have been assumed by a transferee of such assets to the extent that the applicable agreement releases or indemnifies the Company or such Restricted 54 Subsidiary from such liabilities), 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 or securities which are converted into cash or Cash Equivalents within 60 days; and (iii) upon 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 within 365 days of receipt thereof either (A) to prepay any Senior Indebtedness and, in the case of any Senior Indebtedness under any revolving credit facility, including the Bank Facility, effect a permanent reduction in the availability under such revolving credit facility, (B) to make an investment in or acquire properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used (including acquisitions of other businesses) 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 (iii)(A) and (iii)(B). 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, as the case may be, determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (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 (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount"), shall be applied by the Company or such Restricted Subsidiary, as the case may be, 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 Securities issued under this --- ---- Indenture equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Securities to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase; provided, however, that 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 this Section 5.16. 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 paragraph); provided, that in no event will the net -------- cash proceeds from an Asset Sale be subject to more than one Net Proceeds Offer. (b) 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 Section 6.1, 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 Section 5.16, and shall comply with the provisions of this Section 5.16 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 Section 5.16. 55 (c) Notwithstanding Sections 5.16(a) and (b), the Company and its Restricted Subsidiaries will be permitted to consummate an Asset Sale without complying with such paragraphs to the extent (i) at least 75% of the consideration for such Asset Sale constitutes Replacement Assets and (ii) such Asset Sale is for fair market value; provided, that any consideration not -------- constituting Replacement Assets received by the Company or any of its Restricted Subsidiaries in connection with any Asset Sale permitted to be consummated under this paragraph shall constitute Net Cash Proceeds subject to the provisions of Sections 5.16(a) and (b). (d) Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders of such Securities within 25 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Net Proceeds Offer and shall state the following terms: (1) that the Net Proceeds Offer is being made pursuant to Section 5.16 of this Indenture and that all Securities tendered will be accepted for payment; provided, however, that if the aggregate principal amount of Securities -------- ------- tendered in a Net Proceeds Offer plus accrued interest at the expiration of such offer exceeds the aggregate amount of the Net Proceeds Offer, the Company shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000 or multiples thereof shall be purchased); (2) the purchase price (including the amount of accrued interest) and the Net Proceeds Offer Payment Date; (3) that any Security not tendered will continue to accrue interest if interest is then accruing; (4) that, unless (i) the Company defaults in making payment therefor or (ii) such payment is prohibited pursuant to Article Four or otherwise, any Security accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Net Proceeds Offer Payment Date; (5) that Holders electing to have a Security purchased pursuant to a Net Proceeds Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Net Proceeds Offer Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than two Business Days prior to the Net Proceeds Offer Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his or her election to have such Security purchased; 56 (7) that Holders whose Securities were purchased only in part will be issued new securities equal in principal amount to the unpurchased portion of the Securities surrendered; provided, however, that each Security -------- ------- purchased and each new Security issued shall be in an original principal amount of $1,000 or integral multiples thereof; and (8) that the Net Proceeds Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law. (e) On or before the Net Proceeds Offer Payment Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Net Proceeds Offer which are to be purchased in accordance with item (d)(1) above, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price of all Securities to be purchased and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price (and the Trustee shall promptly authenticate and mail or deliver to such Holders a new Security equal in principal amount to any unpurchased portion of the Security surrendered; provided, that each such -------- new Security shall be in the principal amount of $1,000 or integral multiples thereof) unless such payment is prohibited pursuant to Article Four or otherwise. The Company will publicly announce the results of the Net Proceeds Offer on or as soon as practicable after the Net Proceeds Offer Payment Date. For purposes of this Section 5.16, the Trustee shall act as the Paying Agent. (f) Any amounts remaining after the purchase of Securities pursuant to a Net Proceeds Offer shall be returned by the Trustee to the Company. (g) The Company must comply with Rule 14e-1 under the Exchange Act and other provisions of state and federal securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Securities pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 5.16, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the provisions of this Section 5.16 by virtue thereof. Section 5.17. Prohibition on Incurrence of Senior Subordinated Debt. The Company will not incur or suffer to exist Indebtedness that is senior in right of payment to the Securities and subordinate in right of payment to any other Indebtedness of the Company. No Subsidiary Guarantor will incur or suffer to exist Indebtedness that is senior in right of payment to such Subsidiary Guarantor's Guarantee and subordinate in right of payment to any other Indebtedness of such Subsidiary Guarantor. Notwithstanding anything to the contrary contained herein, no Indebtedness incurred at any time under the Bank Facility (as such facility is in existence on the Issue Date) shall be considered subordinate in right of payment to any other Indebtedness incurred under the Bank Facility (as such facility is in existence on the Issue Date). 57 Section 5.18. Limitation on Designations of Unrestricted Subsidiaries. (a) The Company may designate any Subsidiary of the Company (other than a Subsidiary of the Company which owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary) as an "Unrestricted Subsidiary" under this Indenture (a "Designation") only if: (i) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such Designation; (ii) the Company would be permitted under this Indenture to make an Investment at the time of Designation (assuming the effectiveness of such Designation) in an amount (the "Designation Amount") equal to the sum of (i) fair market value of the Capital Stock of such Subsidiary owned by the Company and the Restricted Subsidiaries on such date and (ii) the aggregate amount of other Investments of the Company and the Restricted Subsidiaries in such Subsidiary on such date; and (iii) the Company would be permitted to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 5.12 at the time of Designation (assuming the effectiveness of such Designation). In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment pursuant to Section 5.3 for all purposes of this Indenture in the Designation Amount. The Company shall not, and shall not permit any Restricted Subsidiary to, at any time (x) provide direct or indirect credit support for or a guarantee of any Indebtedness of any Unrestricted Subsidiary (including a guarantee of any undertaking, agreement or instrument evidencing such Indebtedness), (y) be directly or indirectly liable with respect to any Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly liable with respect to any Indebtedness which provides that the holder thereof may (upon notice, lapse of time or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity upon the occurrence of a default with respect to any Indebtedness of any Unrestricted Subsidiary (including any right to take enforcement action against such Unrestricted Subsidiary), except, in the case of clause (x) or (y), to the extent permitted under Section 5.3. (b) The Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"), whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if: (i) no Default or Event of Default shall have occurred and be continuing at the time of and after giving effect to such Revocation; and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred for all purposes of this Indenture. 58 All Designations and Revocations must be evidenced by Board Resolution of the Company certifying compliance with the foregoing provisions which shall be filed with the Trustee. Section 5.19. Conduct of Business. The Company and its Restricted Subsidiaries will not engage in any businesses which are not the same, similar or related or incidental to the businesses in which the Company and its Restricted Subsidiaries are engaged on the Issue Date. Section 5.20. Additional Subsidiary Guarantees. If the Company or any of its Restricted Subsidiaries transfers or causes to be transferred, in one transaction or a series of related transactions, any property to any Restricted Subsidiary (other than a Foreign Subsidiary, unless the Company elects to have a Foreign Subsidiary issue a Guarantee) that is not a Subsidiary Guarantor, or if the Company or any of its Restricted Subsidiaries shall organize, acquire or otherwise invest in a Restricted Subsidiary (other than a Foreign Subsidiary, unless the Company elects to have a Foreign Subsidiary issue a Guarantee) having total assets with a book value in excess of $500,000, then such transferee or acquired or other Restricted Subsidiary shall (i) promptly execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall unconditionally guarantee all of the Company's obligations under the Securities and this Indenture on the terms set forth in this Indenture and (ii) deliver to the Trustee an Opinion of Counsel that such supplemental indenture has been duly authorized, executed and delivered by such Restricted Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a Subsidiary Guarantor for all purposes of this Indenture. ARTICLE VI. SUCCESSOR CORPORATION Section 6.1. Limitations on Mergers and Certain Other Transactions. (a) 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 59 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 on all of the Securities and the performance of every covenant of the Securities, this 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, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 5.12; (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 or 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 this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied. (b) 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 (other than to the Company or another Restricted Subsidiary) 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. (c) Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and this Indenture in connection with any transaction complying with the provisions of Section 5.16) will not, and the Company will not cause or permit any Subsidiary Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Subsidiary Guarantor unless the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that: (i) the entity formed by or surviving any such consolidation or merger (if other than the Subsidiary Guarantor) or to which such sale, lease, conveyance or 60 other disposition shall have been made is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (ii) such entity, if not already a Subsidiary Guarantor, assumes by supplemental indenture all of the obligations of the Subsidiary Guarantor under this Indenture; (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 (a)(ii) of this Section 6.1. Any merger or consolidation of a Subsidiary Guarantor with and into the Company (with the Company being the Surviving Entity) or another Subsidiary Guarantor that is a Wholly Owned Restricted Subsidiary of the Company need only comply with clause (a)(iv). Section 6.2. Successor Corporation Substituted. Upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with Section 6.1, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Securities with the same effect as if such surviving entity had been named as such. ARTICLE VII. DEFAULT AND REMEDIES Section 7.1. Events of Default. Each of the following events constitutes an "Event of Default": (i) the failure to pay interest on any Securities when the same becomes due and payable and the default continues for a period of 30 days (whether or not such payment shall be prohibited by Article Four or Article Twelve); (ii) the failure to pay the principal on any Securities, when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Securities tendered pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or not such payment shall be prohibited by Article Four or Article Twelve); (iii) a default in the observance or performance of any other covenant or agreement contained in this 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 Securities (except in the case of a failure to comply with Section 6.1, which will constitute an Event of Default with such notice requirement but without such passage of time requirement); 61 (iv) the failure to pay at final maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness of the Company or any Restricted Subsidiary of the Company, or the acceleration of the final stated maturity of any such Indebtedness 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, aggregates $10.0 million or more at any time; (v) one or more judgments in an aggregate amount in excess of $10.0 million shall have been rendered against the Company or any of its Restricted Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable; (vi) the Company or any of its Significant Subsidiaries pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or proceeding; (b) consents to the entry of an order for relief against it in an involuntary case or proceeding; (c) consents to the appointment of a Custodian of it or for all or substantially all of its property; (d) makes a general assignment for the benefit of its creditors; or (e) generally is not paying its debts as they become due; (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any of its Significant Subsidiaries in an involuntary case or proceeding; (b) appoints a Custodian of the Company or any of its Significant Subsidiaries, or for all or any substantial part of their respective properties; or (c) orders the liquidation of the Company or any of its Significant Subsidiaries, and in each case the order or decree remains unstayed and in effect for 60 days; (viii) any of the Guarantees ceases to be in full force and effect or any of the Guarantees is declared to be null and void and unenforceable or any of the Guarantees is found to be invalid or any of the Subsidiary Guarantors denies in writing its liability under its Guarantee (other than by reason of release of a Subsidiary Guarantor in accordance with the terms of this Indenture). Section 7.2. Acceleration. (a) Subject to Sections 4.2(b) and 12.2(c), if an Event of Default (other than an Event of Default specified in clauses (vi) or (vii) of Section 7.1 with respect to the Company) shall occur and be continuing, the Trustee or the Holders of at least 25% in principal amount of outstanding Securities may declare the principal of and accrued interest on all the Securities 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 shall become immediately due and payable. - -------------------- If an Event of Default specified in clauses (vi) or (vii) of Section 7.1 with respect to the Company occurs and is continuing, then all unpaid principal of, and premium, if any, and accrued and unpaid 62 interest on all of the outstanding Securities shall ipso facto become and be ---- ----- immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. (b) At any time after a declaration of acceleration with respect to the Securities as described in Section 7.2(a), the Holders of a majority in principal amount of the Securities 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 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 clauses (vi) or (vii) of Section 7.1, 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. (c) The Holders of a majority in principal amount of the Securities may waive any existing Default or Event of Default under this Indenture, and its consequences, except a default in the payment of the principal of or interest on any Securities. (d) Holders of the Securities may not enforce this Indenture or the Securities except as provided in this Indenture and under the TIA. Subject to the provisions of Article Eight, the Trustee is under no obligation to exercise any of its rights or powers under this 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 Section 7.5 and applicable law, the Holders of a majority in aggregate principal amount of the then outstanding Securities 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. (e) 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. Section 7.3. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default 63 shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. Section 7.4. Waiver of Past Defaults. Subject to Sections 7.7 and 10.2, the Holders of a majority in principal amount of the outstanding Securities by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of or interest on any Security as specified in clauses (i) and (ii) of Section 7.1 (other than any such Default arising solely by reason of acceleration of the Securities). When a Default or Event of Default is waived, it is cured and ceases. Section 7.5. Control by Majority. Subject to Section 2.9, the Holders of a majority in principal amount of the outstanding Securities may 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 it, including, without limitation, any remedies provided for in Section 7.3. Subject to Section 8.1, however, the Trustee may refuse to follow any direction that conflicts with any law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Holder, or that may involve the Trustee in personal liability; provided, -------- however, that the Trustee may take any other action deemed proper by the Trustee - ------- which is not inconsistent with such direction. Section 7.6. Limitation on Suits. A Holder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holder or Holders of at least 25% in principal amount of the outstanding Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense to be incurred in compliance with such request; (4) the Trustee does not comply with the request within 25 days after receipt of the request and the offer of indemnity; and (5) during such 25-day period the Holder or Holders of a majority in principal amount of the outstanding Securities do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with the request. 64 A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. Section 7.7. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. Section 7.8. Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (i) or (ii) of Section 7.1 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate per annum borne by the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 7.9. Trustee May File Proofs of Claim. Subject to Sections 4.9 and 12.9, the Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relating to the Company or any other obligor upon the Securities, any of their respective creditors or any of their respective property and shall be entitled and empowered to participate as a member, voting or otherwise, of any official committee of creditors appointed in such matter and to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 8.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. The Trustee may enforce claims on behalf of Holders without possession of such Holders' Securities. Section 7.10. Priorities. 65 If the Trustee collects any money pursuant to this Article Seven, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 8.7; Second: subject to Article Four and Article Twelve, to Holders for interest accrued on the Securities, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for interest; Third: subject to Article Four and Article Twelve, to Holders for principal amounts due and unpaid on the Securities, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal; and Fourth: subject to Article Four and Article Twelve, to the Company or the Subsidiary Guarantors, as their respective interests may appear. The Trustee, upon prior notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section 7.10. Section 7.11. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 7.12. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Seven or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. Section 7.13. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 7.13 does not 66 apply to a suit by the Trustee, a suit by a Holder pursuant to Section 7.7, or a suit by a Holder or Holders of more than 10% in principal amount of the outstanding Securities. ARTICLE VIII. TRUSTEE The Company hereby appoints and employs the Trustee and the Trustee hereby accepts the express trust imposed upon it by this Indenture and covenants and agrees to perform the same, subject to the conditions and terms hereof. Section 8.1. Duties of Trustee. (a) If an Event of Default of which a Trust Officer of the Trustee is actually aware has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) Except during the continuance of an Event of Default of which the Trust Officer of the Trustee is actually aware: (1) The Trustee need undertake to perform only those duties as are expressly and specifically set forth in this Indenture and no covenants or obligations whatsoever shall be implied in this Indenture against the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture, but shall not be obligated to verify the contents thereof. (c) The Trustee shall have no liability except for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 8.1. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 7.5. 67 (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 8.1. (f) The Trustee shall not be liable for interest on any assets received by it. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. Section 8.2. Rights of Trustee. Subject to Section 8.1: (a) The Trustee may rely on and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person, including, without limitation, any Person purporting to be a holder of Senior Indebtedness or a Representative. The Trustee need not investigate any fact or matter stated in the document or the status of any such Person delivering such document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require in addition to the receipt of written direction(s) from the Company accompanied by an Officers' Certificate or an Opinion of Counsel, which opinion or certificate shall conform to Sections 13.4 and 13.5 of this Indenture. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care. (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; provided, however, that in so doing the Trustee shall not be deemed to -------- ------- undertake any liability or additional duty hereunder. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the 68 Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. Section 8.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 8.10 and 8.11. Section 8.4. Trustee's Disclaimer. The Trustee makes no representation or warranty and shall have no liability whatsoever as to and for the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities or in any other document used in connection with the sale of the Securities other than the Trustee's certificate of authentication. Section 8.5. Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is actually known to a Trust Officer of the Trustee, the Trustee shall mail to each Holder notice of the Default or Event of Default within 90 days after such Default or Event of Default occurs; provided, however, that, except -------- ------- in the case of a Default or Event of Default in the payment of the principal of or interest on any Security, including the failure to make payment on a Change of Control Payment Date pursuant to a Change of Control Offer or payment when due pursuant to a Net Proceeds Offer, the Trustee may withhold such notice if it in good faith determines that withholding such notice is in the interest of the Holders. Section 8.6. Reports by Trustee to Holders. Within 60 days after each April 30 beginning with the first April 30 following the date of this Indenture, the Trustee shall, to the extent that any of the events described in TIA (S) 313(a) occurred within the previous twelve months, but not otherwise, mail to each Holder a brief report dated as of such April 30 that complies with TIA (S) 313(a). The Trustee also shall comply with TIA Sections 313(b) and 313(c). A copy of each report at the time of its mailing to Holders shall be mailed to the Company and filed with the Commission and each stock exchange, if any, on which the Securities are listed. The Company shall notify the Trustee in writing if the Securities become listed on any stock exchange. Section 8.7. Compensation and Indemnity. 69 The Company shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee for, and hold it harmless against, any loss or liability incurred by it except for such actions to the extent caused by any negligence or willful misconduct on its part, arising out of or in connection with the administration of this trust, including the costs and expenses of enforcing this Indenture against the Company (including Section 8.7) and its rights or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel; provided, however, that the -------- ------- Company will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest between the Company and the Trustee in connection with such defense as reasonably determined by the Trustee. The Company need not pay for any settlement made without its written consent, which consent shall not be unreasonably withheld or delayed. The Company need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure the Company's payment obligations in this Section 8.7, the Trustee shall have a lien prior to the Securities on all assets held or collected by the Trustee, in its capacity as Trustee, except assets held in trust to pay principal of or interest on particular Securities. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 7.1(vi) or (vii) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. Section 8.8. Replacement of Trustee. The Trustee may resign by so notifying the Company. The Holders of a majority in principal amount of the outstanding Securities may remove the Trustee and appoint a successor trustee with the Company's consent, by so notifying the Company and the Trustee. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 8.10; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or 70 (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 8.7, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 8.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 8.8, the Company's obligations under Section 8.7 shall continue for the benefit of the retiring Trustee. Section 8.9. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee. Section 8.10. Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirement of TIA (S)(S) 310(a)(1) and 310(a)(5). The Trustee shall have (or in the case of a corporation trust company included in a bank holding company system, the related bank holding company shall have) a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA (S) 310(b); provided, however, that there shall be excluded from the operation of TIA (S) - -------- ------- 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. 71 Section 8.11. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated. ARTICLE IX. SATISFACTION AND DISCHARGE OF INDENTURE Section 9.1. Termination of the Company's Obligations. The Company may terminate its obligations under the Securities and this Indenture, and the obligations of any Subsidiary Guarantor shall terminate, except those obligations referred to in the penultimate paragraph of this Section 9.1, if (1) either (a) all Securities theretofore authenticated and delivered (except lost, stolen or destroyed Securities which have been replaced or paid or Securities 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, as provided in Section 9.4) have been delivered to the Trustee for cancellation, or (b) all Securities not theretofore 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 entire Indebtedness on the Securities not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Securities to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (2) the Company has paid all other sums payable by it hereunder; and (3) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent providing for the termination of the Company's and any Subsidiary Guarantor's obligations under the Securities and this Indenture have been complied with. Notwithstanding the foregoing paragraph, the Company's obligations in Sections 2.5, 2.6, 2.7, 2.8, 5.1, 5.2 and 8.7 and any Subsidiary Guarantor's obligations in respect thereof shall survive until the Securities are no longer outstanding pursuant to the last paragraph of Section 2.8. After the Securities are no longer outstanding, the Company's obligations in Sections 8.7, 9.4 and 9.5 any Subsidiary Guarantor's obligations in respect thereof shall survive. After such delivery or irrevocable deposit the Trustee upon request shall acknowledge in writing the discharge of the Company's and any Subsidiary Guarantor's obligations under the Securities and this Indenture except for those surviving obligations specified above. 72 Section 9.2. Legal Defeasance and Covenant Defeasance. (a) The Company may, at its option, and at any time, with respect to the Securities, elect to have either paragraph (b) or paragraph (c) below be applied to the outstanding Securities upon compliance with the conditions set forth in paragraph (d). (b) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (b), the Company and any Subsidiary Guarantor shall be deemed to have been released and discharged from its obligations with respect to the outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "legal defeasance"). For this purpose, legal defeasance ---------------- means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of paragraph (e) below and the other Sections of and matters under this Indenture referred to in (i) and (ii) below, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), and Holders of the Securities and the Guarantees and any amounts deposited under paragraph (d) below shall cease to be subject to any obligations to, or the rights of, any holder of Senior Indebtedness under Article Four or Article Twelve or otherwise, except for the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Securities when such payments are due, (ii) the Company's obligations with respect to such Securities under Sections 2.6, 2.7, 2.10 and 5.2, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (iv) this Section 9.2 and Section 9.5. Subject to compliance with this Section 9.2, the Company may exercise its option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) below with respect to the Securities. (c) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (c), the Company shall be released and discharged from its obligations under any covenant contained in Article Four and Article Six and in Sections 5.3, 5.5 through 5.9 and 5.11 through 5.20 with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Securities shall ------------------- thereafter be deemed to be not "outstanding" for the purpose of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder and Holders of the Securities and the Guarantees and any amounts deposited under paragraph (d) below shall cease to be subject to any obligations to, or the rights of, any holder of Senior Indebtedness under Article Four or Article Twelve or otherwise. For this purpose, covenant defeasance means that, with respect to the outstanding Securities, the Company and any Subsidiary Guarantor may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant listed above, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under 73 Section 7.1(iii), but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. (d) The following shall be the conditions to application of either paragraph (b) or paragraph (c) above to the outstanding Securities: (i) the Company must have irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 8.10 who shall agree to comply with the provisions of this Section 9.2 applicable to it) in trust, for the benefit of the Holders, cash in U.S. dollars, 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 on the Securities on the Maturity Date or Redemption Date, as the case may be; (ii) in the case of legal defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such legal defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred; (iii) in the case of covenant defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as clauses (vi) or (vii) of Section 7.1 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 shall not result in a breach or violation of, or constitute a default under this Indenture 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 shall 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 74 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 provided for or relating to the legal defeasance or the covenant defeasance have been complied with; and (viii) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. Notwithstanding the foregoing, the Opinion of Counsel required by clause (ii) above with respect to a legal defeasance need not be delivered if all Securities 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 a notice of redemption by the Trustee in the name, and at the expense, of the Company. (e) All money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this paragraph (e), the "Trustee") pursuant to paragraph (d) ------- above in respect of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (other than the Company or any Affiliate of the Company), to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to paragraph (d) above or the principal, premium, if any, and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. The Company's obligations to pay and indemnify the Trustee as set forth in this paragraph shall survive the termination of this Indenture and the Securities. Anything in this Section 9.2 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request, in writing, by the Company any money or U.S. Government Obligations held by it as provided in paragraph (d) above which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent legal defeasance or covenant defeasance. 75 Section 9.3. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Sections 9.1 and 9.2, and shall apply the deposited money and the money from U.S. Government Obligations in accordance with this Indenture to the payment of principal of, premium, if any, and interest on the Securities. Section 9.4. Repayment to the Company or Subsidiary Guarantors. Subject to Sections 8.7, 9.1 and 9.2, the Trustee shall promptly pay to the Company, or if deposited with the Trustee by any Subsidiary Guarantor, to such Subsidiary Guarantor, upon receipt by the Trustee of an Officers' Certificate, any excess money, determined in accordance with Section 9.2, held by it at any time. The Trustee and the Paying Agent shall pay to the Company or any Subsidiary Guarantor, as the case may be, upon receipt by the Trustee or the Paying Agent, as the case may be, of an Officers' Certificate, any money held by it for the payment of principal, premium, if any, or interest that remains unclaimed for two years after payment to the Holders is required; provided, however, that the Trustee and the Paying Agent before being required - -------- ------- to make any payment may, but need not, at the expense of the Company cause to be published once in a newspaper of general circulation in The City of New York or mail to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein, which shall be at least 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company or any Subsidiary Guarantor, as the case may be, Holders entitled to money must look solely to the Company for payment as general creditors unless an applicable abandoned property law designates another person, and all liability of the Trustee or Paying Agent with respect to such money shall thereupon cease. Section 9.5. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Indenture by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then and only then the Company's and each Subsidiary Guarantor's, if any, obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had been made pursuant to this Indenture until such time as the Trustee is permitted to apply all such money or U.S. Government Obligations in accordance with this Indenture; provided, however, that if the -------- ------- Company or the Subsidiary Guarantors, as the case may be, has made any payment of principal of, premium, if any, or interest on any Securities because of the reinstatement of its obligations, the Company or the Subsidiary Guarantors, as the case may be, shall be subrogated to the rights of the holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE X. AMENDMENTS, SUPPLEMENTS AND WAIVERS 76 Section 10.1. Without Consent of Holders. The Company and the Subsidiary Guarantors, when authorized by a Board Resolution, and the Trustee, together, may amend or supplement this Indenture or the Securities without notice to or consent of any Holder: (1) to cure any ambiguity, defect or inconsistency, so long as such change does not adversely affect the rights of any of the Holders in any material respect; and (2) to comply with Article Six. Section 10.2. With Consent of Holders. Subject to Section 7.7, the Company and each Subsidiary Guarantor, when authorized by a Board Resolution, the Trustee and the Holders of not less than a majority in aggregate principal amount of the Securities then outstanding, may amend or supplement (or waive compliance with any provision of) this Indenture, the Securities or any Guarantee without any notice to any other Holder, except that without the consent of each Holder of the Securities affected, no such amendment, supplement or waiver may: (1) reduce the amount of the Securities whose Holders must consent to an amendment, supplement or waiver of any provision of this Indenture, the Securities or the Guarantees; (2) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Securities; (3) reduce the principal of or change or have the effect of changing the fixed maturity of any Securities, or change the date on which any Securities may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (4) make any Securities payable in money other than that stated in the Securities; (5) make any changes in the provisions of this Indenture protecting the right of each Holder to receive payment of principal of and interest on such Securities on or after the due date thereof or to bring suit to enforce such payment, or permitting the Holders of a majority in principal amount of the Securities to waive Defaults or Events of Default; (6) 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; (7) modify or change any of the subordination provision of this Indenture or the related definitions in a manner that would adversely affect the Holders; or 77 (8) release all of the Subsidiary Guarantors at any one time from all of their obligations under the Guarantees otherwise than in accordance with the terms of this Indenture. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. In connection with any amendment, supplement or waiver under this Article Ten, the Company may, but shall not be obligated to, offer to any Holder who consents to such amendment, supplement or waiver, or to all Holders, consideration for such Holder's consent to such amendment, supplement or waiver. Section 10.3. Compliance with TIA. From the date on which this Indenture is qualified under the TIA, every amendment, waiver or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. Section 10.4. Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his or her Security or portion of his or her Security by notice to the Trustee or the Company received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Securities have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those persons who were Holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. 78 After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in Section 10.2, in which case, the amendment, supplement or waiver shall bind only each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security; provided, however, that any such waiver shall not impair or affect the -------- ------- right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. Section 10.5. Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Section 10.6. Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Ten; provided, however, that the Trustee -------- ------- may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Ten is authorized or permitted by this Indenture. ARTICLE XI. GUARANTEE Section 11.1. Unconditional Guarantee. Each Subsidiary Guarantor hereby unconditionally guarantees (such guarantee to be referred to herein as the "Guarantee"), on a senior subordinated --------- basis, jointly and severally, subject to Article Twelve, to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, the Securities or the obligations of the Company hereunder or thereunder, that: (i) the principal of and interest on the Securities will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal, if any, and interest on any interest, to the extent lawful, of the Securities and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Securities or of any such other obligations, the 79 same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 11.5. Each Subsidiary Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Securities with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Subsidiary Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in the Securities, this Indenture and in this Guarantee. If any Holder or the Trustee is required by any court or otherwise to return to the Company, any Subsidiary Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Subsidiary Guarantor, any amount paid by the Company or any Subsidiary Guarantor to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Subsidiary Guarantor further agrees that, as between each Subsidiary Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article Seven for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article Seven, such obligations (whether or not due and payable) shall forthwith become due and payable by each Subsidiary Guarantor for the purpose of this Guarantee. Section 11.2. Subordination of Guarantee. The obligations of each Subsidiary Guarantor to the Holders of Securities pursuant to the Guarantee and this Indenture are expressly subordinate and subject in right of payment to the prior payment in full of all Guarantor Senior Indebtedness of such Subsidiary Guarantor, to the extent and in the manner provided in Article Twelve. Section 11.3. Severability. In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 11.4. Release of a Subsidiary Guarantor. Upon the sale or disposition (whether by merger, stock purchase, asset sale or otherwise) of a Subsidiary Guarantor (or all or substantially all its assets) to an entity which is not a Subsidiary of the Company and which sale or disposition is otherwise in compliance 80 with the terms of this Indenture (including, without limitation, Sections 5.16 and 6.1), such Subsidiary Guarantor shall be deemed released from all obligations under this Article Eleven without any further action required on the part of the Trustee or any Holder; provided, however, that any such termination -------- ------- shall occur only to the extent that all obligations of such Subsidiary Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure, such Indebtedness of the Company shall also terminate upon such release, sale or transfer. The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate certifying as to the compliance with this Section 11.4. Any Subsidiary Guarantor not so released remains liable for the full amount of principal of and interest on, and all other obligations under, the Securities as provided in this Article Eleven. Section 11.5. Limitation of Subsidiary Guarantor's Liability. Each Subsidiary Guarantor and by its acceptance hereof each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Subsidiary Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law. To effectuate the foregoing intention, the Holders and such Subsidiary Guarantor hereby irrevocably agree that the obligations of such Subsidiary Guarantor under the Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor (including, but not limited to, the Guarantor Senior Indebtedness of such Subsidiary Guarantor) and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Guarantee or pursuant to Section 11.7, result in the obligations of such Subsidiary Guarantor under the Guarantee not constituting such fraudulent transfer or conveyance under federal or state law. Section 11.6. Subsidiary Guarantors May Consolidate, etc., on Certain Terms. (a) Nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor or shall prevent any sale or conveyance of the property of a Subsidiary Guarantor as an entirety or substantially as an entirety, to the Company or another Subsidiary Guarantor. Upon any such consolidation, merger, sale or conveyance, the Guarantee given by such Subsidiary Guarantor shall no longer have any force or effect. (b) Except as set forth in Article Five and Article Six hereof, nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Subsidiary Guarantor with or into a corporation or corporations other than the Company or another Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor); provided, however, that, -------- ------- subject to Sections 11.4 and 11.6(a), (i) immediately after such transaction, and giving effect thereto, no Default or Event of Default shall have occurred as 81 a result of such transaction and be continuing, and (ii) upon any such consolidation, merger, sale or conveyance, the Guarantee set forth in this Article Eleven, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by such Subsidiary Guarantor, shall be expressly assumed (in the event that the Subsidiary Guarantor is not the surviving corporation in the merger), by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee, by the corporation formed by such consolidation, or into which the Subsidiary Guarantor shall have merged, or by the corporation that shall have acquired such property. In the case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture executed and delivered to the Trustee and satisfactory in form to the Trustee of the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Subsidiary Guarantor, such successor corporation shall succeed to and be substituted for the Subsidiary Guarantor with the same effect as if it had been named herein as a Subsidiary Guarantor; provided, however, that solely for purposes of computing -------- ------- amounts described in subclause (c) of Section 5.3(a), any such successor corporation shall only be deemed to have succeeded to and be substituted for any Subsidiary Guarantor with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. Section 11.7. Contribution. In order to provide for just and equitable contribution among the Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the event any payment or distribution is made by any Subsidiary Guarantor (a "Funding Guarantor") under the Guarantee, such Funding Guarantor shall be ----------------- entitled to a contribution from all other Subsidiary Guarantors in a pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company's obligations with respect to the Securities or any other Subsidiary Guarantor's obligations with respect to the Guarantee. "Adjusted Net Assets" with respect to the Guarantee of such ------------------- Subsidiary Guarantor at any date shall mean the lesser of the amount by which (x) the fair value of the property of such Subsidiary Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date (other than liabilities of such Subsidiary Guarantor under Indebtedness which is subordinated to such Guarantee)), but excluding liabilities under the Guarantee, of such Subsidiary Guarantor at such date and (y) the present fair salable value of the assets of such Subsidiary Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Subsidiary Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date (other than liabilities of such Subsidiary Guarantor under Indebtedness which is subordinated to such Guarantee) and after giving effect to any collection from any Subsidiary of such Subsidiary Guarantor in respect of the obligations of such Subsidiary under the Guarantee), excluding debt in respect of the Guarantee of such Subsidiary Guarantor, as they become absolute and matured. Section 11.8. Waiver of Subrogation. 82 Each Subsidiary Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Subsidiary Guarantor's obligations under the Guarantee and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Securities against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Subsidiary Guarantor in violation of the preceding sentence and the Securities shall not have been paid in full, such amount shall have been deemed to have been paid to such Subsidiary Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Securities, and shall, subject to the provisions of Section 11.2, Article Four and Article Twelve, forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Securities, whether matured or unmatured, in accordance with the terms of this Indenture. Each Subsidiary Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 11.8 is knowingly made in contemplation of such benefits. Section 11.9. Waiver of Stay, Extension or Usury Laws. Each Subsidiary Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive each such Subsidiary Guarantor from performing its Guarantee as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) each such Subsidiary Guarantor hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE XII. SUBORDINATION OF GUARANTEE OBLIGATIONS Section 12.1. Guarantee Obligations Subordinated to Guarantor Senior Indebtedness. Anything herein to the contrary notwithstanding, each of the Subsidiary Guarantors, for itself and its successors, and each Holder, by his or her acceptance of Guarantees, agrees that the payment of all Obligations owing to the Holders in respect of its Guarantee (collectively, as to any Subsidiary Guarantor, its "Guarantee Obligations") is subordinated, to the extent and in --------------------- the manner provided in this Article Twelve, to the prior payment in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Guarantor Senior Indebtedness, of all Obligations on Guarantor 83 Senior Indebtedness of such Subsidiary Guarantor, including without limitation, the Subsidiary Guarantors' obligations under the Bank Facility. This Article Twelve shall constitute a continuing offer to all Persons who become holders of, or continue to hold, Guarantor Senior Indebtedness, and such provisions are made for the benefit of the holders of Guarantor Senior Indebtedness and such holders are made obligees hereunder and any one or more of them may enforce such provisions. Section 12.2. Suspension of Guarantee Obligations When Guarantor Senior Indebtedness in Default. (a) If any default occurs and is continuing in the payment when due, whether at maturity, upon any redemption, by declaration or otherwise, of any principal or interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees with respect to, any Designated Senior Indebtedness of a Subsidiary Guarantor or guaranteed by a Subsidiary Guarantor (which Designated Senior Indebtedness or guarantee, as the case may be, constitutes Guarantor Senior Indebtedness of such Subsidiary Guarantor), no payment of any kind or character shall be made by or on behalf of the Company or any other Person on its or their behalf with respect to any Obligations on the Securities or to acquire any of the Securities for cash or property or otherwise. In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Indebtedness of a Subsidiary Guarantor, as such event of default is defined in the instrument creating or evidencing such Designated Senior Indebtedness, permitting the holders of such Designated Senior Indebtedness then outstanding to accelerate the maturity thereof and if the Representative for the respective issue of Designated Senior Indebtedness gives a Default Notice, then, unless and until all events of default with respect to such Designated Senior Indebtedness have been cured (if capable of being cured) or waived in writing or have ceased to exist or the Trustee receives notice from the Representative for the respective issue of Designated Senior Indebtedness terminating the Blockage Period, during the Blockage Period, neither the Company nor any other Person on its behalf shall (x) make any payment of any kind or character with respects to any Obligations on the Securities or (y) acquire any of the Securities for cash or property or otherwise. Notwithstanding anything herein to the contrary, in no event will a Blockage Period extend beyond 179 days from the date the payment on the Securities was due and only one such Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Blockage Period with respect to the Designated Senior Indebtedness shall be, or be made, the basis for commencement of a second Blockage Period by the Representative of such Designated Senior Indebtedness 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 (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period, that in either case, would give rise to an event of default pursuant to any provisions under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). 84 (b) In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any Holder when such payment is prohibited by Section 12.2(a), such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Guarantor Senior Indebtedness (pro rata to such holders on the basis of the respective amount of Guarantor Senior Indebtedness held by such holders) or their respective Representatives, as their respective interests may appear. The Trustee shall be entitled to rely on information regarding amounts then due and owing on the Guarantor Senior Indebtedness, if any, received from the holders of Guarantor Senior Indebtedness (or their Representatives) or, if such information is not received from such holders or their Representatives, from the Company and only amounts included in the information provided to the Trustee shall be paid to the holders of Guarantor Senior Indebtedness. (c) Nothing contained in this Article Twelve shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to Section 7.2 or to pursue any rights or remedies hereunder; provided, however, that so long as any Indebtedness -------- ------- permitted to be incurred under this Indenture pursuant to the Bank Facility shall be outstanding, no such acceleration shall be effective until the earlier of (i) acceleration of any such Indebtedness under the Bank Facility or (ii) five business days after giving notice to the Representative under the Bank Facility of such acceleration, and all Guarantor Senior Indebtedness thereafter due or declared to be due shall first be paid in full in cash or Cash Equivalents before the Holders are entitled to receive any payment of any kind or character with respect to Obligations on the Securities. Section 12.3. Guarantee Obligations Subordinated to Prior Payment of All Guarantor Senior Indebtedness on Dissolution, Liquidation or Reorganization of Such Subsidiary Guarantor. (a) Upon any payment or distribution of assets of any Subsidiary Guarantor of any kind or character, whether in cash, property or securities to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors or marshaling of assets of such Subsidiary Guarantor, whether voluntary or involuntary, or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to any Subsidiary Guarantor or its property, whether voluntary or involuntary, but excluding any liquidation or dissolution of a Subsidiary Guarantor into the Company or into another Subsidiary Guarantor: (i) the holders of all Guarantor Senior Indebtedness of such Subsidiary Guarantor shall first be entitled to receive payments in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Guarantor Senior Indebtedness, of all amounts payable under Guarantor Senior Indebtedness before the Holders will be entitled to receive any payment or distribution of any kind or character on account of the Guarantee of such Subsidiary Guarantor, and until all Obligations with respect to the Guarantor Senior Indebtedness are paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Guarantor Senior Indebtedness, any distribution to which the Holders would be entitled 85 shall be made to the holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor; (ii) any payment or distribution of assets of such Subsidiary Guarantor of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee on behalf of the Holders would be entitled except for the provisions of this Article Twelve shall be paid by the liquidating trustee or agent or other Person making such a payment or distribution, directly to the holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor or their Representatives, ratably according to the respective amounts of such Guarantor Senior Indebtedness remaining unpaid held or represented by each, until all such Guarantor Senior Indebtedness remaining unpaid shall have been paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Guarantor Senior Indebtedness, after giving effect to any concurrent payment or distribution to the holders of such Guarantor Senior Indebtedness; and (iii) in the event that, notwithstanding the foregoing, any payment or distribution of assets of such Subsidiary Guarantor of any kind or character, whether such payment shall be in cash, property or securities, and such Subsidiary Guarantor shall have made payment to the Trustee or directly to the Holders or any Paying Agent in respect of payment of the Guarantees before all Guarantor Senior Indebtedness of such Subsidiary Guarantor is paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Guarantor Senior Indebtedness, such payment or distribution (subject to the provisions of Sections 12.6 and 12.7) shall be received, segregated from other funds, and held in trust by the Trustee or such Holder or Paying Agent for the benefit of, and shall immediately be paid over by the Trustee (if the notice required by Section 12.6 has been received by the Trustee) or by the Holder to, the holders of such Guarantor Senior Indebtedness or their Representatives, ratably according to the respective amounts of such Guarantor Senior Indebtedness held or represented by each, until all such Guarantor Senior Indebtedness remaining unpaid shall have been paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Guarantor Senior Indebtedness, after giving effect to any concurrent payment or distribution to the holders of Guarantor Senior Indebtedness. (b) Each Subsidiary Guarantor shall give prompt notice to the Trustee prior to any dissolution, winding-up, total or partial liquidation or total or reorganization (including, without limitation, in bankruptcy, insolvency, or receivership proceedings or upon any assignment for the benefit of creditors or any other marshaling of such Subsidiary Guarantor's assets and liabilities). (c) To the extent any payment of Guarantor Senior Indebtedness (whether by or on behalf of a Subsidiary Guarantor, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, than, if 86 such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Guarantor Senior Indebtedness or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment has not occurred. Section 12.4. Holders of Guarantee Obligations To Be Subrogated to Rights of Holders of Guarantor Senior Indebtedness. (a) Subject to the payment in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Guarantor Senior Indebtedness, of all Guarantor Senior Indebtedness, the Holders of Guarantee Obligations of a Subsidiary Guarantor shall be subrogated to the rights of the holders of Guarantor Senior Indebtedness of such Subsidiary Guarantor to receive payments or distributions of assets of such Subsidiary Guarantor applicable to such Guarantor Senior Indebtedness until all amounts owing on or in respect of the Guarantee Obligations shall be paid in full in cash or Cash Equivalents, and for the purpose of such subrogation no payments or distributions to the holders of such Guarantor Senior Indebtedness by or on behalf of such Subsidiary Guarantor, or by or on behalf of the Holders by virtue of this Article Twelve, which otherwise would have been made to the Holders shall, as between such Subsidiary Guarantor and the Holders, be deemed to be payment by such Subsidiary Guarantor to or on account of such Guarantor Senior Indebtedness, it being understood that the provisions of this Article Twelve are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of such Guarantor Senior Indebtedness, on the other hand. (b) If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article Twelve shall have been applied, pursuant to the provisions of this Article Twelve, to the payment of all amounts payable under such Guarantor Senior Indebtedness, then the Holders shall be entitled to receive from the holders of such Guarantor Senior Indebtedness any such payments or distributions received by such holders of such Guarantor Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of such Guarantor Senior Indebtedness in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Guarantor Senior Indebtedness. (c) Each Holder by purchasing or accepting a Security waives any and all notice of the creation, modification, renewal, extension or accrual of any Guarantor Senior Indebtedness of the Subsidiary Guarantors and notice of or proof of reliance by any holder or owner of Guarantor Senior Indebtedness of the Subsidiary Guarantors upon this Article Twelve and the Guarantor Senior Indebtedness of the Subsidiary Guarantors shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Article Twelve, and all dealings between the Subsidiary Guarantors and the holders and owners of the Guarantor Senior Indebtedness of the Subsidiary Guarantors shall be deemed to have been consummated in reliance upon this Article Twelve. Section 12.5. Obligations of the Subsidiary Guarantors Unconditional. 87 (a) Nothing contained in this Article Twelve or elsewhere in this Indenture or in the Guarantees is intended to or shall impair, as between the Subsidiary Guarantors and the Holders, the obligation of the Subsidiary Guarantors, which is absolute and unconditional, to pay to the Holders all amounts due and payable under the Guarantees as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Subsidiary Guarantors other than the holders of the Guarantor Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Twelve, of the holders of Guarantor Senior Indebtedness in respect of cash, property or securities of the Subsidiary Guarantors received upon the exercise of any such remedy. Upon any payment or distribution of assets of any Subsidiary Guarantor referred to in this Article Twelve, the Trustee, subject to the provisions of Sections 8.1 and 8.2, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any liquidation, dissolution, winding-up or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee or agent or other Person making any payment or distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Guarantor Senior Indebtedness and other Indebtedness of any Subsidiary Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Twelve. Nothing in this Article Twelve shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 8.7. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of any Guarantor Senior Indebtedness (or a trustee on behalf of, or other representative of, such holder) to establish that such notice has been given by a holder of such Guarantor Senior Indebtedness or a trustee or Representative on be half of any such holder. (b) In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Guarantor Senior Indebtedness to participate in any payment or distribution pursuant to this Article Twelve, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Guarantor Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Twelve, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 12.6. Trustee Entitled To Assume Payments Not Prohibited in Absence of Notice. The Trustee shall not at any time be charged with knowledge of the existence of any facts that would prohibit the making of any payment to or by the Trustee unless and until the Trustee or any Paying Agent shall have received notice thereof from the Company or any Subsidiary Guarantor or from one or more holders of Guarantor Senior Indebtedness or from any Representative therefore and, prior to the receipt of any such notice, the Trustee, subject to the provisions of Sections 8.1 and 8.2, shall be entitled in all respects conclusively to assume (in the absence of actual knowledge to the contrary) that no such fact exists. 88 Section 12.7. Application by Trustee of Assets Deposited with It. U.S. Legal Tender or U.S. Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Sections 9.1 and 9.2 shall be for the sole benefit of Holders of the Securities and, to the extent allocated for the payment of Securities, shall not be subject to the subordination provisions of this Article Twelve or Article Four. Otherwise, any deposit of assets or securities by or on behalf of a Subsidiary Guarantor with the Trustee or any Paying Agent (whether or not in trust) for payment of the Guarantees shal l be subject to the provisional signs of this Article Twelve; provided, however, that if prior to the second Business Day preceding the date - -------- ------- on which by the terms of this Indenture any such assets may become distributable for any purpose (including, without limitation, the payment of either principal of or interest on any Security) the Trustee or such Paying Agent shall not have received with respect to such assets the notice provided for in Section 12.6, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary received by it on or after such date. The foregoing shall not apply to the Paying Agent if the Company or any Subsidiary or Affiliate of the Company is acting as Paying Agent. Nothing contained in this Section 12.7 shall limit the right of the holders of Guarantor Senior Indebtedness to recover payments as contemplated by this Article Twelve. Section 12.8. No Waiver of Subordination Provisions. (a) No right of any present or future holder of any Guarantor Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Subsidiary Guarantor or by any act or failure to act, by any such holder, or by any non-compliance by any Subsidiary Guarantor with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) Without limiting the generality of subsection (a) of this Section 12.8, the holders of Guarantor Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article Twelve or the obligations hereunder of the Holders of the Securities to the holders of Guarantor Senior Indebtedness, do any one or more of the following: (1) change the manner, place, terms or time of payment of, or renew or alter, Guarantor Senior Indebtedness or any instrument evidencing the same or any agreement under which Guarantor Senior Indebtedness is outstanding or otherwise amend, renew, exchange, restate, modify or supplement in any manner Guarantor Senior Indebtedness or any instrument evidencing or guaranteeing Guarantor Senior Indebtedness or securing the same or any agreement under which Guarantor Senior Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Guarantor Senior Indebtedness; (3) settle or compromise any Guarantor Senior Indebtedness release any Person liable in any manner for the collection or payment of Guarantor Senior Indebtedness; and (4) exercise or delay in or refrain from exercising any rights against the Subsidiary Guarantors and any other Person, fail to take or to record or otherwise perfect, for 89 any reason or for no reason, any lien or security interest securing Guarantor Senior Indebtedness, elect any remedy or otherwise deal freely with the Company. Section 12.9. Holders Authorize Trustee To Effectuate Subordination of Guarantee Obligations. Each Holder of the Guarantee Obligations by its acceptance thereof authorizes and expressly directs the Trustee on its behalf to take such action as may be necessary or appropriate to effect the subordination provisions contained in this Article Twelve, and appoints the Trustee its attorney-in-fact for such purpose, including, in the event of any liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of any Subsidiary Guarantor tending towards liquidation or reorganization of the business and assets of any Subsidiary Guarantor, the immediate filing of a claim for the unpaid balance under its or his Guarantee Obligations in the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then any of the other holders of the Guarantor Senior Indebtedness or their Representative is hereby authorized, to file an appropriate claim for and on behalf of the Holders of said Guarantee Obligations. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Guarantor Senior Indebtedness or their Representative to authorize or consent to or accept or adopt on behalf of any holder of Guarantee Obligations any plan of reorganization, arrangement, adjustment or composition affecting the Guarantee Obligations or the rights of any Holder thereof, or to authorize the Trustee or the holders of Guarantor Senior Indebtedness or their Representative to vote in respect of the claim of any holder of Guarantee Obligations in any such proceeding. Section 12.10. Right of Trustee To Hold Guarantor Senior Indebtedness. The Trustee shall be entitled to all of the rights set forth in this Article Twelve in respect of any Guarantor Senior Indebtedness at any time held by it to the same extent as any other holder of Guarantor Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. Section 12.11. No Suspension of Remedies. (a) The failure to make a payment in respect of the Guarantees by reason of any provision of this Article Twelve shall not be construed as preventing the occurrence of a Default or an Event of Default under Section 7.1. (b) Except as the effectiveness of acceleration is limited by Section 12.2(c), nothing contained in this Article Twelve shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to Article Seven or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article Twelve of the holders, from time to time, of Guarantor Senior Indebtedness. 90 Section 12.12. No Fiduciary Duty of Trustee to Holders of Guarantor Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior Indebtedness, and it undertakes to perform or observe such of its covenants and obligations as are specifically set forth in this Article Twelve, and no implied covenants or obligations with respect to the Guarantor Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be liable to any such holders (other than for its willful misconduct or gross negligence) if it shall pay over or deliver to the holders of Guarantee Obligations or the Guarantors or any other Person, money or assets in compliance with the terms of this Indenture. Nothing in this Section 12.12 shall affect the obligation of any Person other than the Trustee to hold such payment for the benefit of, and to pay such payment over to, the holders of Guarantor Senior Indebtedness or their Representative. ARTICLE XIII. MISCELLANEOUS Section 13.1. TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by operation of the TIA, the TIA shall control. Section 13.2. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company or any Subsidiary Guarantor: Rental Service Corporation 6929 E. Greenway Park Suite 200 Scottsdale, Arizona 85254 Attention: Chief Executive Officer, Chief Financial Officer and Manager of Financial Reporting with a copy to: Latham & Watkins 633 W. Fifth Street Suite 4000 Los Angeles, California 90071 Attention: Elizabeth Blendell 91 if to the Trustee: Norwest Bank Minnesota, N.A. 6th and Marquette Minneapolis, Minnesota 55479-0069 Attention: Corporate Trust Administration Each of the Company, the Trustee and the Subsidiary Guarantors by written notice to each other such person may designate additional or different addresses for notices to such person. Any notice or communication to the Company, the Trustee and the Subsidiary Guarantors shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that any notice or communication to the Trustee or a notice of change of address shall not be deemed to have been given until actually received by the Trustee or the addressee, as applicable). Any notice or communication mailed to a Holder shall be mailed to him or her by first class mail or other equivalent means at his or her address as it appears on the registration books of the Registrar and shall be sufficiently given to him or her if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 13.3. Communications by Holders with Other Holders. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Company, the Subsidiary Guarantors, the Trustee, the Registrar and any other person shall have the protection of TIA Section 312(c). Section 13.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company, upon request, shall furnish to the Trustee: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Section 13.5. Statements Required in Certificate or Opinion. 92 Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 5.7, shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, -------- ------- that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. Section 13.6. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. Section 13.7. Legal Holidays. A "Legal Holiday" used with respect to a particular place of ------------- payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York, in the city in which the principal corporate trust office of the Trustee is located or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. Section 13.8. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture. Section 13.9. No Adverse Interpretation of Other Agreements. 93 This Indenture may not be used to interpret another indenture, loan or debt agreement of any of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 13.10. No Recourse Against Others. No director, officer, employee, stockholder or incorporator of the Company or its Subsidiaries, as such, shall have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Securities. Section 13.11. Successors. All agreements of the Company and each Subsidiary Guarantor in this Indenture and the Securities shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successor. Section 13.12. Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. Section 13.13. Headings and Table of Contents. The headings and table of contents contained in this Indenture are for reference purposes only and shall not affect in any way the meaning or interpretation of this Indenture. Section 13.14. Severability. In case any one or more of the provisions in this Indenture or in the Securities shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions shall be enforceable to the full extent permitted by law. SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. RENTAL SERVICE CORPORATION By: /s/ Robert M. Wilson ------------------------------ Name: Robert M. Wison Title: Senior Vice President (Signature Page Continues) SUBSIDIARY GUARANTORS: RSC ACQUISITION CORP., RSC ALABAMA, INC., RSC CENTER, INC., RSC DUVAL, INC., RSC HOLDINGS, INC., RSC INDUSTRIAL CORPORATION, RSC RENTS, INC. and WALKER JONES EQUIPMENT, INC., as guarantors By: /s/ Robert M. Wilson ------------------------------- Name: Robert M. Wilson Title: Senior Vice President (for each of the above-listed guarantors) (Signature Page Continues) NORWEST BANK MINNESOTA, N.A., as Trustee By: /s/ Raymond S. Haverstock ------------------------------- Name: Raymond S. Haverstock Title: Authorized Signatory 1 EXHIBIT A FORM OF SECURITY [FACE OF SECURITY] RENTAL SERVICE CORPORATION 9% Senior Subordinated Note due 2008 No. $_______________________ CUSIP No. ___________ RENTAL SERVICE CORPORATION, a Delaware corporation (the "Company," which term includes any successor corporation), for value received promises to pay to CEDE & CO. or registered assigns, the principal sum of ________________ Dollars, on May 15, 2008. Interest Payment Dates: May 15 and November 15 commencing on November 15, 1998. Record Dates: May 1 and November 1. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. A-1 2 IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officer. Dated: May 15, 1998 RENTAL SERVICE CORPORATION By: ------------------------------- Name: Title: Trustee's Certification of Authentication This is one of the 9% Senior Subordinated Notes Due 2008 described in the within-mentioned Indenture. NORWEST BANK MINNESOTA, N.A., as Trustee By: ------------------------------- Authorized Signatory A-2 3 [REVERSE SIDE OF SECURITY] RENTAL SERVICE CORPORATION 9% SENIOR SUBORDINATED NOTE DUE 2008 THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH RENTAL SERVICE CORPORATION OR ANY AFFILIATE OF RENTAL SERVICE CORPORATION WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO RENTAL SERVICE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, AND TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON- U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPHS (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT (AND IF ACQUIRING THE SECURITIES FROM SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," IS ACQUIRING SECURITIES HAVING AN AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $250,000), OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; SUBJECT IN EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH INVESTOR ACCOUNT OR ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS PROVIDED THAT RENTAL SERVICE CORPORATION AND THE TRUSTEE SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF A-3 4 THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. 1. Interest. RENTAL SERVICE CORPORATION (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semi-annually on each May 15 and November 15 of each year (the "Interest Payment Date"), commencing on November 15, 1998, to the Holders of record on the immediately preceding May 1 and November 1. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance of the Securities. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Company shall pay interest on overdue principal and interest on overdue installments of interest, to the extent lawful, at a rate equal to the rate of interest otherwise payable on the Securities. Pursuant to a registration rights agreement (the "Registration Rights Agreement") dated as of the date hereof, the Company and the Subsidiary Guarantors have agreed to register the Securities and the guarantees thereof under the Act. The Securities are subject to the payment of additional interest if the Company is not in compliance with its obligations under the Registration Rights Agreement within the time periods specified therein. 2. Method of Payment. The Company shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Record Date immediately preceding the interest Payment Date even if the Securities are canceled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by wire transfer of Federal funds, or interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. Notwithstanding the foregoing, the Company shall pay or cause to be paid all amounts payable with respect to non-DTC eligible Securities by wire transfer of Federal funds to the account of the Holders of such Securities. 3. Paying Agent and Registrar. Initially, Norwest Bank Minnesota, N.A. (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Paying Agent, Registrar or co-Registrar. A-4 5 4. Indenture and Guarantees. The Company issued the Securities under an Indenture, dated as of May 13, 1998 (the "Indenture"), among the Company, the Subsidiary Guarantors and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and said Act for a statement of them. The Securities are general unsecured obligations of the Company limited in aggregate principal amount not to exceed $300.0 million, of which $200.0 million will be offered as of the Issue Date and will mature on May 15, 2008. Payment on each Security is guaranteed on a senior subordinated basis, jointly and severally, by the Subsidiary Guarantors pursuant to Article Eleven of the Indenture. 5. Optional Redemption. On or after May 15, 2003, the Securities may be redeemed in whole at any time or in part from time to time, at the option of the Company, upon not less than 30 nor more than 60 days notice, at a redemption price equal to the applicable percentage of the principal amount thereof set forth below, together with accrued and unpaid interest (if any) to the Redemption Date, if redeemed during the twelve-month period commencing on May 15 of the year set forth below:
Year Redemption Price 2003.................. 104.500% 2004.................. 103.000% 2005.................. 101.500% 2006 and thereafter... 100.000%
In addition, on or prior to May 15, 2001, the Company may, at its option, use the net cash proceeds of one or more Equity Offering to redeem the Securities at a Redemption Price equal to 109% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the Redemption Date; provided, that at least 65% of the principal amount of Securities originally - -------- issued remains outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Equity Offering. 6. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's registered address. In order to effect a redemption with the proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 120 days after the A-5 6 consummation of such Equity Offering. Securities in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, from and after any Redemption Date, if monies for the redemption of the Securities called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date and payment of the Securities called for redemption is not prohibited under Article Four or Article Twelve of the Indenture, then, unless the Company defaults in the payment of such Redemption Price, the Securities called for redemption will cease to bear interest and the only right of the Holders of such Securities will be to receive payment of the Redemption Price. 7. Change of Control Offer. Upon the occurrence of a Change of Control, each Holder shall have the right to require the repurchase of such Holder's Securities pursuant to a Change of Control Offer at a purchase price equal to 101% of the principal amount thereof plus accrued interest, if any, to the date of purchase. The Company shall not be required to make a Change of Control Offer, as provided above, if, in connection with any Change of Control, it had made an offer to purchase (an "Alternate Offer") any and all Securities validly tendered at a cash price equal to or higher than the Change of Control Offer Price and has purchased all Securities properly tendered in accordance with the terms of such Alternate Offer. 8. Limitation on Asset Sales. Under certain circumstances the Company is required to apply the net proceeds from Asset Sales to the repayment of Senior Indebtedness, an investment in properties and assets that replace the properties and assets that are the subject of such Asset Sale, an investment in properties and assets that will be used in the business of the Company and its Restricted Subsidiaries existing on the Issue Date or in businesses reasonably related thereto or to purchase in a Net Proceeds Offer (at a price equal to 100% of the aggregate principal amount thereof, plus accrued interest to the date of purchase) such aggregate principal amount of Securities which, when added to the accrued interest thereon, shall be equal to the net proceeds required to be applied thereto. 9. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption. 10. Persons Deemed Owners. A-6 7 The registered Holder of a Security shall be treated as the owner of it for all purposes. 11. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agents will pay the money back to the Company at its request. After that, all liability of the Trustee and such Paying Agents with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Securities to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Securities (including the financial covenants, but excluding its obligation to pay the principal of and interest on the Securities). 13. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture, the Securities and the Guarantees may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding except a default in payment of the principal of or interest on any Securities. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, comply with Article Six or Section 11.6 of the Indenture, so long as such change does not adversely affect the rights of any of the Holders in any material respect. 14. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to, among other things, incur additional Indebtedness or Liens, make payments in respect of its Capital Stock and merge or consolidate with any other person and sell, lease, transfer or otherwise dispose of substantially all of its properties or assets. The limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 15. Subordination. The Securities will be subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full of all Senior Indebtedness of the Company. The Guarantees are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full of Guarantor Senior Indebtedness. A-7 8 To the extent and in the manner provided in the Indenture, Senior Indebtedness, and in the case of payment by a Subsidiary Guarantor, Guarantor Senior Indebtedness, must be paid before any payment may be made to any Holder of this Security. Any Holder by accepting this Security agrees to the subordination and authorizes the Trustee to give it effect. 16. Successors. When a successor assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor will be released from those obligations. 17. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 18. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 19. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 20. Authentication. This Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on this Security. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the A-8 9 entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Securities immediately prior to the qualification of the Indenture under the TIA as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. The Company will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture. A-9 10 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) ________________________________________________________________________________ (Print or type assignee's Social Security or other identifying number) and irrevocably appoint_________________________________________________________ as agent to transfer this Security on the books of the Company. The agent may substitute another to act for him or her. Dated:________________ Signature:________________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee:_________________________________ Note: Signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") covering resales of this Security (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) the second anniversary of the Issue Date (provided, -------- however, that neither the Company nor any affiliate of the Company has held any - ------- beneficial interest in such Security, or portion thereof, at any time on or prior to the second anniversary of the Issue Date), the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer: A-10 11 [Check One] (1) ____ to the Company or a Subsidiary thereof; or (2) ____ pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or (3) ____ to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee); or (4) ____ outside the United states to a "foreign person'' in compliance with Rule 904 of Regulation S under the Securities Act of 1933, as amended; or (5) ____ pursuant to the exemption from registration provided by Rule 144 under the Securities Act of 1933, as amended; or (6) ____ pursuant to an effective registration statement under the Securities Act of 1933, as amended; or (7) ____ pursuant to another available exemption from the registration requirements of the Securities Act of 1933, as amended. and unless the box below is checked, the undersigned confirms that such Security is not being transferred to an "affiliate"' of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): The transferee is an Affiliate of the Company. Unless one of the items is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if item (3), (4), -------- ------- (5) or (7) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Securities, in their sole discretion, such written legal opinions, certifications (including an investment letter in the case of box (3) or (4)) and other information as the Trustee or the Company have reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. If none of the foregoing items are checked, the Trustee or Registrar shall not be obligated to register this Security in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.17 of the Indenture shall have been satisfied. Dated: ____________________ Signed: ________________________________ A-11 12 (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: ___________________________________________________________ TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: _________________________ Signed: ____________________________________ NOTICE: To be executed by an executive officer A-12 13 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 5.15 or 5.16 of the Indenture, check the space below: __ Section 5.15 __ Section 5.16 If you want to elect to have only part of the Security purchased by the Company pursuant to Section 5.15 or Section 5.16 of the Indenture, as the case may be, state the amount you elect to have purchased: $_________________. Date:_______________________ _______________________________________________________ (Sign exactly as your name appears on the face of this Security) Tax Identification No: ________________________________ _______________________________________________________ (Signature Guaranteed) Note: Signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-13 1 EXHIBIT B [FORM OF LEGEND FOR GLOBAL SECURITIES] UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THE INDENTURE. B-1 1 EXHIBIT C Form of Certificate To Be Delivered in Connection with Transfers to Non-QIB Accredited Investors ----------------------------------------- _____________ __, ____ [Address] Re: RENTAL SERVICE CORPORATION (the "Company") - 9% Senior Subordinated Notes due 2008 (the "Notes") --------------------------------------------------- _______________________ Ladies and Gentlemen: In connection with our proposed purchase of 9% Senior Subordinated Notes due 2008 (the "Notes") of RENTAL SERVICE CORPORATION (the "Company"), we confirm that: 1. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the indenture relating to the Notes (the "Indenture") and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"), and all applicable State securities laws. 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act or any other applicable securities law, and that the Notes may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell any Notes, we will do so only (i) to the Company or any subsidiary thereof, (ii) inside the United States in accordance with Rule 144A under the Securities Act to a person who we reasonably believe is a "qualified institutional buyer" (as defined in Rule 144A promulgated under the Securities Act), (iii) inside the United States to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the Trustee (as defined in the Indenture) a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Notes (the form of which letter can be obtained from the Trustee), (iv) outside the United States in accordance with Rule 904 of Regulation S promulgated under the Securities Act, (v) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (vi) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. 3. We understand that, on any proposed resale of any Notes, we will be required to furnish to the Trustee and the Company such certification, legal opinions and other information as the Trustee and the Company may reasonably require to confirm that the C-1 proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or their investment, as the case may be. 5. We are acquiring the Notes purchased by us for our account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. 6. We have received a copy of the Company's Offering Memorandum dated May __, 1998 and acknowledge that we have had access to such financial and other information and have been afforded the opportunity to ask such questions of representatives of the Company and receive answers thereto, as we deem necessary in connection with our decision to purchase the Notes. You, the Company, the Trustee, the Initial Purchasers and others are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, __________________________________________ [Name of Transferee] By: ___________________________________ Name: ___________________________________ Title: ___________________________________ C-2 1 EXHIBIT D Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S ______________ ___, _____ [Address] Re: RENTAL SERVICE CORPORATION (the "Company") - 9% Senior Subordinated Notes due 2008 (the "Notes") _______________________ Ladies and Gentlemen: In connection with our proposed sale of $[_________] aggregate principal amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Notes was not made to a person in the United States; (2) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither we nor any person acting on our behalf knows that the transaction has been prearranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and (5) we have advised the transferee of the transfer restrictions applicable to the Notes. You, the Company, the Trustee and counsel for the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferee] D-1 2 By: _________________________________________ Authorized Signature D-2 EX-5.1 4 OPINION OF LATHAM & WATKINS EXHIBIT 5.1 [LETTERHEAD OF LATHAM & WATKINS] June 11, 1998 Rental Service Corporation 6929 E. Greenway Parkway, Suite 200 Scottsdale, AZ 85254 Re: Registration Statement on Form S-4 Ladies and Gentlemen: In connection with the registration of $200,000,000 aggregate principal amount of 9% Senior Subordinated Notes due 2008 (the "New Notes") by Rental Service Corporation, a Delaware corporation (the "Company"), together with the guarantees of the New Notes pursuant to Article XI of the Indenture (as defined herein) (the "Subsidiary Guarantees") by RSC Acquisition Corp., RSC Alabama, Inc., RSC Center, Inc., RSC Duval Inc., RSC Holdings, Inc., RSC Industrial Corporation, RSC Rents, Inc. and Walker Jones Equipment, Inc. (collectively, the "Subsidiary Guarantors"), on Form S-4 filed with the Securities and Exchange Commission (the "Commission") herewith (the "Registration Statement"), you have requested our opinion with respect to the matters set forth below. The New Notes will be issued pursuant to an indenture (the "Indenture"), dated as of May 13, 1998, among the Company, the Subsidiary Guarantors and Norwest Bank Minnesota, N.A., as trustee (the "Trustee"). The New Notes will be issued in exchange for the Company's outstanding 9% Senior Subordinated Notes due 2008 (the "Old Notes") on the terms set forth in the prospectus contained in the Registration Statement and the Letter of Transmittal filed as an exhibit thereto (the "Exchange Offer"). In our capacity as your special counsel, we have made such legal and factual examinations and inquiries, including an examination of originals or copies certified or otherwise identified to our satisfaction of such documents, corporate records and instruments, as we have deemed necessary or appropriate for purposes of this opinion. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as copies. We are opining herein as to the effect on the subject transactions only of the internal laws of the State of New York and the General Corporation Law of the State of Delaware and we express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or, in the case of Delaware, any other laws, or as to any matters of municipal law or the laws of any local agencies within any state. Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof: 1. The New Notes have been duly authorized by all necessary corporate action of the Company, and when duly executed, authenticated and delivered in accordance with the terms of the Exchange Offer and the Indenture, will constitute legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. 2. Each of the Subsidiary Guarantees has been duly authorized by all necessary corporate action of the respective Subsidiary Guarantors, and upon due execution, authentication and delivery of the New Notes in accordance with the terms of the Exchange Offer and the Indenture, will be legally valid and binding obligations of the respective Subsidiary Guarantors, enforceable against the Subsidiary Guarantors in accordance with their terms. The opinions rendered in paragraphs 1 and 2 above are subject to the following exceptions, limitations and qualifications: (i) the effect of bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors; and (ii) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought. To the extent that the obligations of the Company and the Subsidiary Guarantors under the Indenture may be dependent upon such matters, we have assumed for purposes of this opinion that (i) the Trustee is validly existing and in good standing under the laws of its jurisdiction of organization; (ii) the Trustee has been duly qualified to engage in the activities contemplated by the Indenture; (iii) the Trustee is in compliance generally, and with respect to acting as Trustee under the Indenture, with all applicable laws and regulations; and (iv) the Trustee has the requisite organization and other power and authority to perform its obligations under the Indenture. We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm contained under the heading "Legal Matters." Very truly yours, /s/ Latham & Watkins EX-8.1 5 OPINION OF LATHAM & WATKINS (TAX MATTERS) EXHIBIT 8.1 [LETTERHEAD OF LATHAM & WATKINS] June 11, 1998 Rental Service Corporation 6929 E. Greenway Parkway Suite 200 Scottsdale, Arizona 85254 Re: Rental Service Corporation--Registration of 9% Senior Subordinated Notes due 2008 Ladies and Gentlemen: You have requested our opinion concerning the material federal income tax consequences expected to result to holders from the exchange of 9% Senior Subordinated Notes due 2008 of Rental Service Corporation, a Delaware corporation (the "Company"), for outstanding 9% Senior Subordinated Notes due 2008 of the Company, in connection with the Registration Statement on Form S-4 filed herewith (the "Registration Statement"). The facts, as we understand them, and upon which with your permission we rely in rendering the opinion expressed herein, are set forth in the Registration Statement. Based on such facts, we confirm that the information in the Registration Statement set forth under the caption "Material Federal Income Tax Considerations" constitutes our opinion as to the material federal income tax consequences of the exchange of Private Notes for Exchange Notes to holders of Private Notes. This opinion is based on various statutory provisions, regulations promulgated thereunder and interpretations thereof by the Internal Revenue Service and the courts having jurisdiction over such matters, all of which are subject to change either prospectively or retroactively. Also, any variation or difference in the facts from those set forth in the Registration Statement may affect the conclusion stated herein. We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm under the headings "Material Federal Income Tax Considerations" and "Legal Matters." Very truly yours, /s/ Latham & Watkins EX-10.9 6 1ST AMENDMENT TO 2ND AMENDED & RESTATED CREDIT AGREEMENT EXHIBIT 10.9 FIRST AMENDMENT AND CONSENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT THIS FIRST AMENDMENT AND CONSENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this "First Amendment") dated as of April 30, 1998 relates to that --------------- certain Second Amended and Restated Credit Agreement dated as of December 2, 1997 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), among RSC Alabama, Inc., RSC Center, Inc. ---------------- (formerly known as The Air & Pump Company), RSC Duval Inc., RSC Industrial Corporation, RSC Rents, Inc. and Walker Jones Equipment, Inc. (collectively, the "Borrowers"), RSC Acquisition Corp., RSC Holdings, Inc. and Rental Service --------- Corporation (collectively, the "Parent Guarantors"), each financial institution ----------------- identified on Annex I thereto (together with its successors and permitted assigns pursuant to Section 12.8 thereof, a "Lender"), Bankers Trust Company, as ------ Issuing Bank, and BT Commercial Corporation ("BTCC") acting as agent for the ---- Lenders and the Issuing Bank (in such capacity, together with any successor agent appointed pursuant to Section 11.8 thereof, the "Agent"). ----- 1. DEFINITIONS. Capitalized terms used and not otherwise defined ----------- herein have the meanings assigned to them in the Credit Agreement. 2. AMENDMENTS TO THE CREDIT AGREEMENT. Upon the "Amendment ---------------------------------- Effective Date" (as defined in Section 5 below), the Credit Agreement is hereby amended as follows: 2.1 AMENDMENTS TO SECTION 1.1. Section 1.1 of the Credit ------------------------- Agreement is hereby amended as follows: (a) the definition of "Applicable Eurodollar Rate Margin" is amended and restated in its entirety to read as set forth on Exhibit I --------- attached hereto and made a part hereof; (b) the definition of "Applicable Prime Rate Margin" is amended and restated in its entirety to read as set forth on Exhibit ------- II attached hereto and made a part hereof; -- (c) the definition of "Asset Sale" is amended and restated in its entirety to read as follows: Asset Sale means (i) any sale, lease, assignment, transfer ---------- or other disposition of assets by any Credit Party or any Subsidiary of any Credit Party (including the capital stock of any Subsidiary of any Credit Party) which requires the consent of the Requisite Lenders or any sale and leaseback transaction (whether permitted by Section 8.15 or ------------ otherwise consented to by the Requisite Lenders) and (ii) any event constituting, or which is deemed to be, an "Asset Sale" (as defined in the Senior Subordinated Note Indenture). (d) the definition of "Change in Control" is amended as follows: (i) to delete in its entirety the word "or" at the end of clause (ii) thereof; (ii) to delete in its entirety the period (".") at the end of clause (iii) thereof and to substitute "; or" in lieu thereof; and (iii) to add the following as clause (iv) thereof: (iv) a "Change of Control" (as defined in the Senior Subordinated Note Indenture). (e) the following definition of "First Amendment" is added to Section 1.1 of the Credit Agreement in proper alphabetical order: First Amendment means the First Amendment and Consent dated --------------- as of April 30, 1998 to Second Amended and Restated Credit Agreement dated as of December 2, 1997, among the Borrowers, the Parent Guarantors, the Agent and the Lenders. (f) the following definition of "First Amendment Effective Date" is added to Section 1.1 of the Credit Agreement in proper alphabetical order: First Amendment Effective Date means the "Amendment ------------------------------ Effective Date" under (and as defined in) the First Amendment. (g) the definition of "Net Cash Proceeds" is amended and restated in its entirety to read as follows: Net Cash Proceeds means, with respect to any Asset Sale ----------------- relating to any property of any Credit Party or its Subsidiaries, (i) the aggregate amount of cash consideration received by such Credit Party or such Subsidiary in connection with such transaction after deduction of all reasonable and customary fees, costs and expenses directly incurred by -2- such Credit Party or such Subsidiary in connection therewith, including, without limitation, reasonable and customary underwriting discount, brokerage or selling commissions, if any, and the reasonable fees and disbursements of counsel paid by such Credit Party or such Subsidiary in connection therewith and (ii) any other net proceeds which constitute or are deemed "Net Cash Proceeds" (as defined in the Senior Subordinated Note Indenture). (h) the definition of "Permitted Subordinated Indebtedness" is amended and restated in its entirety to read as follows: Permitted Subordinated Indebtedness means the Senior ----------------------------------- Subordinated Notes issued by RSC and the unsecured guarantee(s) thereof by certain of the other Credit Parties, in each case on the terms set forth in the Senior Subordinated Note Indenture. (i) the definition of "Pro Forma" is amended and restated in its entirety to read as follows: Pro Forma means the unaudited pro forma consolidated balance --------- sheet of RSC, dated as of March 31, 1998, and giving effect to the issuance of the Senior Subordinated Notes, the consummation of the acquisitions described therein and the extensions of credit contemplated by this Credit Agreement, attached hereto as Exhibit G. --------- (j) the definition of "Requisite Lenders" is amended to delete in its entirety the phrase "incurred by RSC" in clause (ii)(B) thereof; (k) the following definition of "Senior Subordinated Note Indenture" is added to Section 1.1 of the Credit Agreement in proper alphabetical order: Senior Subordinated Note Indenture means the Indenture ---------------------------------- pursuant to which the Senior Subordinated Notes are issued by RSC and guaranteed by certain of the other Credit Parties and the terms of which have been approved in accordance with the First Amendment. (l) the following definition of "Senior Subordinated Notes" is added to Section 1.1 of the Credit Agreement in proper alphabetical order: Senior Subordinated Notes means (i) the unsecured Senior ------------------------- Subordinated Notes issued by RSC on the First Amendment Effective Date with respect to which (A) the aggregate principal amount thereof -3- shall not exceed $200,000,000, (B) the effective interest rate thereon shall not exceed 10 1/2% per annum (provided, that the --- ----- -------- effective interest rate may be increased by not more than 1 1/2% per annum in the event RSC fails to comply with certain --- ----- requirements to file a registration statement with respect to such Senior Subordinated Notes) and (C) the maturity date shall not be earlier than the tenth anniversary of the First Amendment Effective Date and (ii) unsecured notes issued in exchange for the Senior Subordinated Notes described in clause (i) which have ---------- substantially identical terms as such Senior Subordinated Notes. 2.2 AMENDMENT TO SECTION 4.5(A). Section 4.5(a) of the Credit --------------------------- Agreement is hereby amended to delete in its entirety the reference to "4.00%" therein and to substitute in lieu thereof "3.75%". 2.3 AMENDMENTS TO SECTION 4.6. Section 4.6 of the Credit ------------------------- Agreement is hereby amended as follows: (a) to delete in its entirety each reference to "2.50%" therein and to substitute in lieu thereof "2.25%"; and (b) to delete in its entirety the reference to "4.00%" therein and to substitute in lieu thereof "3.75%". 2.4 AMENDMENTS TO SECTION 4.8(C). Section 4.8(c) of the Credit ---------------------------- Agreement is hereby amended as follows: (a) to delete in its entirety the reference to "270 days" therein and to substitute in lieu thereof "240 days"; (b) to delete in its entirety each reference to "365 days" therein and to substitute in lieu thereof "330 days"; and (c) to delete in its entirety the reference to "365th day" therein and to substitute in lieu thereof "330th day". 2.5 AMENDMENT TO SECTION 6.7. Section 6.7 of the Credit ------------------------ Agreement is hereby amended to insert the phrase "and the incurrence of any Permitted Subordinated Indebtedness" immediately following the phrase "After giving effect to the transactions contemplated by this Credit Agreement" therein. 2.6 AMENDMENT TO SECTION 6.9. Section 6.9 of the Credit ------------------------ Agreement is hereby amended and restated in its entirety to read as follows: -4- 6.9 Financial Data. The Credit Parties have provided to -------------- the Agent and each of the Lenders complete and accurate copies of (a) the audited consolidated financial statements for RSC and its Subsidiaries as of December 31, 1997, (b) the unaudited financial statements of RSC and its Subsidiaries as of March 31, 1998, (c) the Pro Forma and (d) the Projections. The Financial Statements described in clauses (a) and (b) have been prepared in accordance with GAAP ----------- --- consistently applied throughout the periods involved except as stated therein and fairly present the respective consolidated financial positions, results of operations and cash flows of RSC and its Subsidiaries for each of the periods covered, subject in the case of clause (b) to audit adjustments and reclassification and month-end ---------- reconciliations. None of the Credit Parties has any Contingent Obligation, contingent liability or liability for taxes, long-term leases or commitments, which is not reflected (to the extent required by GAAP consistently applied) in such Financial Statements (other than the guarantee(s) of the Senior Subordinated Notes by certain of the Credit Parties). The Pro Forma fairly presents on a pro forma basis --- ----- the financial condition of RSC and its Subsidiaries as of March 31, 1998 but after giving effect to the incurrence of Permitted Subordinated Indebtedness and the consummation of the acquisitions and transactions described therein, and reflects on a pro forma basis --- ----- those liabilities reflected in the notes thereto and resulting from the incurrence of Permitted Subordinated Indebtedness and the consummation of the acquisitions and transactions described therein and the transactions contemplated by the Credit Documents. The Projections and the assumptions expressed in the Pro Forma are reasonable based on the information available to the Credit Parties at the time so furnished. 2.7 AMENDMENT TO SECTION 7.2(C). Section 7.2(c) of the Credit --------------------------- Agreement is hereby amended to insert the phrase "Schedule B to this ---------- Agreement and" immediately after the word "modify" in the last sentence thereof. 2.8 AMENDMENT TO SECTION 8.2. Section 8.2 of the Credit ------------------------ Agreement is hereby amended to delete in its entirety the text thereof and to substitute in lieu thereof the text set forth on Exhibit III attached ----------- hereto and made a part hereof. 2.9 AMENDMENT TO SECTION 8.3. Section 8.3 of the Credit ------------------------ Agreement is hereby amended to delete in its entirety the text thereof and to substitute in lieu thereof the text set forth on Exhibit IV attached ---------- hereto and made a part hereof. 2.10 AMENDMENT TO SECTION 8.4. Section 8.4 of the Credit ------------------------ Agreement is hereby amended to delete in its entirety the text thereof and to substitute in lieu thereof the text set forth on Exhibit V attached --------- hereto and made a part hereof. -5- 2.11 AMENDMENTS TO SECTION 8.5. Section 8.5 of the Credit ------------------------- Agreement is hereby amended as follows: (a) to amend and restate in its entirety the table of Fiscal Years and Maximum Expenditure Amounts in subsection (f) thereof to read as follows:
================================== FISCAL YEAR MAXIMUM AMOUNT ================================== 1997 $160,000,000 ================================== 1998 $220,000,000 ================================== 1999 $235,000,000 ================================== 2000 $250,000,000 ================================== 2001 $270,000,000 ================================== 2002 $340,000,000 ================================== 2003 $340,000,000 ================================== 2004 $340,000,000 ==================================
(b) to delete in its entirety the reference in clause (iii) of subsection (g) thereof to "$15,000,000" and to substitute in lieu thereof "$25,000,000". 2.12 AMENDMENTS TO SECTION 8.7. Section 8.7 of the Credit -------------------------- Agreement is hereby amended as follows: (a) to add the following phrase immediately before the semi- colon (";") at the end of subsection (c) thereof: ", provided, that -------- such Purchase Money Liens and other Liens are created within 90 days after the incurrence of the related Indebtedness"; and (b) to add the following phrase immediately before the semi- colon (";") at the end of subsection (e) thereof: "so long as any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired". 2.13 AMENDMENT TO SECTION 8.8. Section 8.8 of the Credit ------------------------ Agreement is hereby amended to add the following immediately before the period (".") at the end thereof: -6- and (iii) unsecured guarantees by Subsidiaries of RSC of the Senior Subordinated Notes, provided that, prior to or concurrently with the -------- execution of any such guarantee by any such Subsidiary, such Subsidiary shall have become a Borrower or a Subsidiary Guarantor pursuant to, and shall have otherwise complied with the requirements of, Section 8.20. ------------ 2.14 AMENDMENTS TO SECTION 8.10. Section 8.10 of the Credit -------------------------- Agreement is hereby amended as follows: (a) to amend and restate in its entirety clause (iv) of subsection (a) thereof to read as follows: (iv) the Borrowers may declare and pay cash to RSC Acquisition and RSC Holdings, and RSC Acquisition and RSC Holdings may declare and pay to RSC, cash (provided that to the extent the payment is a loan, the loan is permitted by Section 8.6(g) and any promissory notes evidencing such loan -------------- are delivered to the Agent, for the benefit of the Holders, pursuant to the Security Agreement) to the extent necessary to enable RSC to pay scheduled payments of principal and interest (including additional interest at the rate described in the definition of "Senior Subordinated Notes") on the Senior Subordinated Notes permitted to be made pursuant to subsection (b) below, provided, that any payment -------------- -------- permitted under this clause (iv) is payable and is paid no ----------- earlier than one Business Day prior to the date when such cash interest payment is due. (b) to amend and restate in its entirety subsection (b) thereof to read as follows: (b) None of the Credit Parties or their respective Subsidiaries shall, directly or indirectly, make any payment or prepayment of principal or, premium, if any, or interest on, or redemption (including, without limitation, by making payments to a sinking or analogous fund) or repurchase of, or deposit to defease fully or partially any of their respective covenants or obligations with respect to (i) any Permitted Subordinated Indebtedness or (ii) any Mandatory Redeemable Obligation; provided, that RSC may make scheduled payments of principal and -------- interest (including additional interest at the rate described in the definition of "Senior Subordinated Notes") on the Senior Subordinated Notes to the extent the same are permitted to be made pursuant to the terms of the Senior Subordinated Note Indenture as the same is in effect on the First Amendment Effective Date. -7- 2.15 AMENDMENTS TO SECTION 8.20. Section 8.20 of the Credit -------------------------- Agreement is hereby amended to delete in its entirety the phrase "a Subsidiary of a Borrower acquired in an Acquisition" in the proviso to clause (ii) thereof and to substitute in lieu thereof ", unless a Subsidiary of a Borrower acquired in an Acquisition shall otherwise be required to become a Borrower or a Subsidiary Guarantor pursuant to Section 8.8, such Subsidiary". 2.16 AMENDMENT TO ANNEX I. Annex I to the Credit Agreement is -------------------- hereby deleted in its entirety and new Annex I, attached hereto as Exhibit ------- VI, is substituted in lieu thereof. -- 2.17 AMENDMENT TO EXHIBIT G. Exhibit G to the Credit Agreement ---------------------- (Pro Forma) is hereby deleted in its entirety and new Exhibit G, attached hereto as Exhibit VII, is substituted in lieu thereof. ----------- 2.18 AMENDMENT TO EXHIBIT H. Exhibit H to the Credit Agreement ---------------------- (Projections) is hereby deleted in its entirety and new Exhibit H, attached hereto as Exhibit VIII, is substituted in lieu thereof. ------------ 2.19 AMENDMENT TO EXHIBIT S. Exhibit S to the Credit Agreement ---------------------- (Acquisition Document List) is hereby amended to delete in its entirety the reference to "$15,000,000" in paragraph C thereof and to insert "$25,000,000" in lieu thereof. 2.20 AMENDMENT TO EXHIBIT U. Exhibit U to the Credit Agreement ---------------------- (New Subsidiary Document List) is hereby amended to delete in its entirety the phrase "A Subsidiary of a Borrower acquired in an Acquisition" and to substitute in lieu thereof "Unless a Subsidiary of a Borrower acquired in an Acquisition shall otherwise be required to become a Borrower or a Subsidiary Guarantor pursuant to Section 8.8 of the Credit Agreement, such Subsidiary". 3. CONSENT. As of the Amendment Effective Date, the Lenders hereby ------- consent to the issuance by RSC of the Senior Subordinated Notes and the guarantee thereof by RSC Acquisition, RSC Holdings and each Borrower (and, subject to Section 8.8 of the Credit Agreement, any Subsidiary which becomes a guarantor of the Senior Subordinated Notes after the Amendment Effective Date), provided that (i) the aggregate principal amount of the Senior Subordinated - -------- Notes shall not exceed $200,000,000, (ii) the effective interest rate thereon shall not exceed 10 1/2% per annum (provided, that the effective interest rate --- ----- -------- may be increased by not more than 1 1/2% per annum in the event RSC fails to --- ----- comply with certain requirements to file a registration statement with respect to such Senior Subordinated Notes), (iii) the maturity date shall not be earlier than the tenth anniversary of the First Amendment Effective Date, (iv) no collateral or security secures the payment or performance of the Senior Subordinated Notes or any guaranty thereof and (v) all of the other material terms and conditions of the Senior -8- Subordinated Notes and the guaranties thereof shall be as set forth on Exhibit ------- IX attached hereto and made a part hereof. - -- 4. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers hereby ------------------------------ represents and warrants to each Lender, the Issuing Bank and the Agent that, as of the Amendment Effective Date (after giving effect to this First Amendment and the incurrence of Permitted Subordinated Indebtedness): (a) Each of the representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct on and as of such dates, as if then made, other than representations and warranties that relate solely to an earlier date; (b) No Default or Event of Default shall have occurred and is continuing; (c) No change, occurrence, event or development or event involving a prospective change that is reasonably likely to have a Material Adverse Effect shall have occurred and be continuing; (d) No Change of Control has occurred; and (e) All consents necessary to permit the incurrence of Permitted Subordinated Indebtedness by the Credit Parties pursuant to the Senior Subordinated Note Indenture have been obtained, and no material breach of any term or provision of the Senior Subordinated Note Indenture or the Senior Subordinated Notes has occurred, and no action has been taken by any competent authority which restrains, prevents or imposes material adverse conditions upon, or seeks to restrain, prevent or impose material adverse conditions upon, the Credit Parties' incurrence of Permitted Subordinated Indebtedness, and the Senior Subordinated Notes have been issued in compliance in all material respects with all applicable Requirements of Law. 5. AMENDMENT EFFECTIVE DATE. This First Amendment shall become ------------------------ effective as of the date on or before May 31, 1998 (the "Amendment Effective ------------------- Date") when each of the following conditions shall have been satisfied: - ---- (a) the Agent shall have received each of the following documents, in each case in form and substance reasonably satisfactory to the Agent: (i) counterparts hereof executed by each Borrower, each Parent Guarantor, the Agent and each Revolving Credit Lender identified on Annex I to the Credit Agreement (after giving effect to this First Amendment) and the Majority Term Loan Lenders; -9- (ii) to the extent necessary in connection with any reallocation of the Revolving Credit Commitments or Term Loan Outstandings, (A) replacement Revolving Credit Notes or Term Notes, executed by the applicable Borrower and in substantially the form of Exhibit I or Exhibit M, as the case may be and (B) any necessary --------- --------- assignment agreements relating to such reallocation; (iii) a certificate of the Secretary or Assistant Secretary of each Credit Party certifying (A) the resolutions of the Board of Directors of such Credit Party authorizing, to the extent applicable, the issuance or guaranty of the Senior Subordinated Notes and the execution, delivery and performance of this First Amendment, (B) the names, incumbency and signatures of the officers of such Credit Party authorized to execute, deliver and perform the Credit Documents (including any officers which may be executing Credit Documents in connection with an Acquisition) and (C) the accuracy and completeness of the Governing Documents delivered to the Agent, the Issuing Banks and the Lenders prior to the Amendment Effective Date, attaching thereto any and all amendments and modifications of such Governing Documents not previously delivered to such parties; (iv) a certificate of the chief executive officer or a Financial Officer of each Credit Party executed and delivered on behalf of such Credit Party certifying that all conditions precedent to the effectiveness of this First Amendment (other than conditions within the control of the Agent and the Lenders) have been met (or, concurrently with the Amendment Effective Date, will be met), all representations and warranties made in this First Amendment are true and correct and (after giving effect to this First Amendment) no Default or Event of Default has occurred and is continuing; (v) a Solvency Certificate for the Credit Parties, on a combined basis, executed by a Financial Officer of each Credit Party , giving effect to this First Amendment and the issuance and guaranty of the Senior Subordinated Notes; (vi) certified copies of the Senior Subordinated Note Indenture and the offering memorandum and prospectus for the Senior Subordinated Notes; (vii) a funds flow memorandum certified by a Financial Officer of each Credit Party with respect to the proceeds of the Senior Subordinated Notes and the payment of transaction costs related thereto; (viii) an opinion of Latham & Watkins, special counsel to the Credit Parties, with respect to this First Amendment, non- contravention of the Credit Agreement, as amended by this First Amendment, with the Senior Subordinated Note Indenture and such other matters as the Agent may reasonably request; -10- (ix) to the extent similar opinions are delivered in connection with the issuance and guaranty of the Senior Subordinated Notes, opinions of Texas, Mississippi and Alabama counsel to the Credit Parties, with respect to this First Amendment and such other matters as the Agent may reasonably request; and (x) such additional documentation as the Agent may reasonably request. (b) RSC shall have issued the Senior Subordinated Notes in an aggregate principal amount of at least $150,000,000, the net proceeds of which shall have been paid to the Agent, for the benefit of the Revolving Credit Lenders, for application on the outstanding principal amount of the Revolving Loans. (c) No law, regulation, order, judgment or decree of any Governmental Authority shall, and the Agent shall not have received any notice that litigation is pending or threatened which is likely to, enjoin, prohibit or restrain the issuance of the Senior Subordinated Notes or the transactions contemplated by this First Amendment, except for such laws, regulations, orders or decrees, or pending or threatened litigation that in the aggregate could not reasonably be expected to result in a Material Adverse Effect. (d) All Fees, and all Expenses as to which the Credit Parties have received an invoice, in each case which are payable on or before the Amendment Effective Date shall have been paid. 6. MISCELLANEOUS. This First Amendment is a Credit Document. The ------------- headings herein are for convenience of reference only and shall not alter or otherwise affect the meaning hereof. Except to the extent specifically amended or modified hereby for the periods specified herein, the provisions of the Credit Agreement shall not be amended, modified, impaired or otherwise affected hereby and the Credit Agreement and all of the Obligations are hereby confirmed in full force and effect. The execution, delivery and effectiveness of this First Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Agent, any Lender or the Issuing Bank under any of the Credit Documents, nor constitute a waiver of any provision of any of the Credit Documents. 7. COUNTERPARTS. This First Amendment may be executed in any number ------------ of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 8. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF ------------- THIS FIRST AMENDMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS FIRST AMENDMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE -11- INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS OTHER THAN THOSE CONTAINED IN NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401) AND DECISIONS OF THE STATE OF NEW YORK. -12- IN WITNESS WHEREOF, the Agent, the Lenders, the Borrowers and the Parent Guarantors have caused this First Amendment to be executed by their respective officers thereunto duly authorized as of the date first above written. BORROWERS: RSC ALABAMA, INC. - --------- By: /s/ Robert M. Wilson --------------------------- Name: Robert M. Wilson ------------------------- Title: Secretary ------------------------ RSC CENTER, INC. By: /s/ Robert M. Wilson --------------------------- Name: Robert M. Wilson ------------------------- Title: Secretary ------------------------ RSC DUVAL INC. By: /s/ Robert M. Wilson --------------------------- Name: Robert M. Wilson ------------------------- Title: Secretary ------------------------ RSC INDUSTRIAL CORPORATION By: /s/ Robert M. Wilson --------------------------- Name: Robert M. Wilson ------------------------- Title: Secretary ------------------------ RSC RENTS, INC. By: /s/ Robert M. Wilson --------------------------- Name: Robert M. Wilson ------------------------- Title: Secretary ------------------------ S-1- WALKER JONES EQUIPMENT, INC. By: /s/ Robert M. Wilson ---------------------------- Name: Robert M. Wilson -------------------------- Title: Secretary ------------------------- PARENT GUARANTORS: RSC ACQUISITION CORP. - ----------------- By: /s/ Robert M. Wilson --------------------------- Name: Robert M. Wilson ------------------------- Title: Secretary ------------------------ RSC HOLDINGS, INC. By: /s/ Robert M. Wilson --------------------------- Name: Robert M. Wilson ------------------------- Title: Secretary ------------------------ RENTAL SERVICE CORPORATION By: /s/ Robert M. Wilson --------------------------- Name: Robert M. Wilson ------------------------- Title: Secretary ------------------------ AGENT: BT COMMERCIAL CORPORATION, - ----- as Agent, as a Revolving Credit Lender and as a Term Loan Lender By: /s/ Richard Faulkner --------------------------- Name: Richard Faulkner ------------------------- Title: Associate ------------------------ REVOLVING CREDIT LENDERS: BANKBOSTON, N.A. - ------------------------ By: /s/ Robert J. Brandow --------------------------- Name: Robert J. Brandow ------------------------- Title: Director ------------------------ S-2- THE BANK OF NOVA SCOTIA By: /s/ M. Van Otterloo ---------------------------------- Name: M. Van Otterloo -------------------------------- Title: Senior Relationship Manager ------------------------------- BANK ONE, ARIZONA, NA By: /s/ Michael V. McCann ---------------------------------- Name: Michael V. McCann -------------------------------- Title: Vice President ------------------------------- BANQUE PARIBAS By: /s/ Matthew C. Bishop ----------------------------------- Name: Matthew C. Bishop --------------------------------- Title: Assistant Vice President -------------------------------- By: /s/ Claire Bailhe ----------------------------------- Name: Claire Bailhe --------------------------------- Title: Director -------------------------------- BNY FINANCIAL CORPORATION By: /s/ Gregory C. Harbaugh ----------------------------------- Name: Gregory C. Harbaugh --------------------------------- Title: Vice President -------------------------------- THE CIT GROUP/BUSINESS CREDIT, INC. By: /s/ William Shiao ----------------------------------- Name: William Shiao --------------------------------- Title: Assistant Vice President -------------------------------- S-3- U.S. BANK NATIONAL ASSOCIATION f/k/a COLORADO NATIONAL BANK By: /s/ Kelly Condon ----------------------------- Name: Kelly Condon --------------------------- Title: Vice President -------------------------- COMERICA BANK By: /s/ Eoin Collins ----------------------------- Name: Eoin Collins --------------------------- Title: Account Officer -------------------------- CONGRESS FINANCIAL CORPORATION (WESTERN) By: /s/ Randy J. Bowman ----------------------------- Name: Randy J. Bowman --------------------------- Title: Sr. Vice President -------------------------- CORESTATES BANK, N.A. By: /s/ Jennifer Avrigian ----------------------------- Name: Jennifer Avrigian --------------------------- Title: Assistant Vice President -------------------------- CREDITANSTALT CORPORATE FINANCE, INC. By: ----------------------------- Name: --------------------------- Title: -------------------------- By: ----------------------------- Name: --------------------------- Title: ----------------------------- S-4- DEUTSCHE FINANCIAL SERVICES CORPORATION By: /s/ Kenneth C. MacDonell --------------------------- Name: Kenneth C. MacDonell ------------------------- Title: Vice President ------------------------ FLEET CAPITAL CORPORATION By: /s/ Richard Kritsch ---------------------------- Name: Richard Kritsch -------------------------- Title: VP Senior Loan Officer ------------------------- HELLER FINANCIAL, INC. By: ---------------------------- Name: -------------------------- Title: ------------------------- IBJ SCHRODER BUSINESS CREDIT CORPORATION By: /s/ Christopher J. Norrito ---------------------------- Name: Christopher J. Norrito -------------------------- Title: Vice President ------------------------- KEY CORPORATE CAPITAL INC. By: /s/ Michael F. McCullough ---------------------------- Name: Michael F. McCullough -------------------------- Title: Vice President ------------------------- LASALLE NATIONAL BANK, N.A. By: /s/ Christopher G. Clifford ---------------------------- Name: Christopher G. Clifford -------------------------- Title: Sr. Vice President ------------------------- S-5- THE LONG TERM CREDIT BANK OF JAPAN, LTD., LOS ANGELES AGENCY By: /s/ T. Morgan Edwards II ----------------------------- Name: T. Morgan Edwards II --------------------------- Title: Deputy General Manager -------------------------- MELLON BANK, N.A. By: /s/ Norman R. Smith ---------------------------- Name: Norman R. Smith -------------------------- Title: Vice President ------------------------- NATIONAL BANK OF CANADA By: /s/ R. A. McKerroll ---------------------------- Name: R. A. McKerroll -------------------------- Title: Vice President ------------------------- By: /s/ Thomas H. Hopkins ---------------------------- Name: Thomas H. Hopkins -------------------------- Title: Vice President ------------------------- NATIONSBANK OF TEXAS, N.A. By: /s/ E. James Beckemeier ----------------------------- Name: E. James Beckemeier -------------------------- Title: Vice President ------------------------- SANWA BANK CALIFORNIA By: /s/ Robert G. Moore ---------------------------- Name: Robert G. Moore -------------------------- Title: Vice President ------------------------- S-6- SOUTHERN PACIFIC BANK By: ------------------------------- Name: ----------------------------- Title: ---------------------------- SUMITOMO BANK OF CALIFORNIA By: /s/ Matthew R. Van Steenhuyse ------------------------------- Name: Matthew R. Van Steenhuyse ----------------------------- Title: Vice President ---------------------------- SUMMIT COMMERCIAL/GIBRALTAR CORP. (formerly known as Gibraltar Corporation of America) By: /s/ Harvey Friedman ------------------------------- Name: Harvey Friedman ----------------------------- Title: Executive Vice President ---------------------------- UNION BANK OF CALIFORNIA, N.A. By: /s/ Alan Young ------------------------------ Name: Alan Young ---------------------------- Title: Assistant Vice President --------------------------- TERM LOAN LENDERS: ARES LEVERAGED INVESTMENT - ----------------- FUND L.P. By: Ares Management, L.P. Its general partner By: Ares Operating Member LLC, Its general partner By: /s/ Merritt S. Hooper ----------------------------- Name: Merritt S. Hooper --------------------------- Title: Vice President -------------------------- S-7- PARIBAS CAPITAL FUNDING LLC By: /s/ Jeffrey J. Youle ---------------------------- Name: Jeffrey J. Youle -------------------------- Title: Director ------------------------- SENIOR HIGH INCOME PORTFOLIO, INC. By: /s/ John M. Johnson --------------------------- Name: John M. Johnson ------------------------- Title: Authorized Signatory ------------------------ MERRILL LYNCH DEBT STRATEGIES PORTFOLIO By: Merrill Lynch Asset Management, L.P., as Investment Advisor By: /s/ John M. Johnson --------------------------- Name: John M. Johnson ------------------------- Title: Authorized Signatory ------------------------ KZH-ING-2 CORPORATION By: --------------------------- Name: ------------------------- Title: ------------------------ BANKERS TRUST COMPANY By: /s/ James Reilly --------------------------- Name: James Reilly ------------------------- Title: Vice President ------------------------ S-8- CRESCENT/MACH I PARTNERS, L.P. By: TCW Asset Management Company, its Investment Manager By: --------------------------- Name: ------------------------- Title: ------------------------ TCW LEVERAGED INCOME TRUST, L.P. By: TCW Advisers (Bermuda), Ltd., as General Partner By: -------------------------- Name: ------------------------- Title: ------------------------ By: TCW Investment Management Company, as Investment Adviser By: --------------------------- Name: ------------------------- Title: ------------------------ TORONTO DOMINION (TEXAS), INC. By: --------------------------- Name: ------------------------- Title: ------------------------ S-9- CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., as Attorney-in-Fact and on behalf of First All American Financial Life Insurance Company By: /s/ Philip C. Robbins ----------------------------- Name: Philip C. Robbins --------------------------- Title: Vice President -------------------------- CYPRESSTREE INVESTMENT PARTNERS I, LIMITED By: CypressTree Investment Management Company, Inc., as Portfolio Manager By: /s/ Philip C. Robbins ----------------------------- Name: Philip C. Robbins --------------------------- Title: Vice President -------------------------- MORGAN STANLEY SENIOR FUNDING, INC. By: /s/ Christopher A. Pucillo ----------------------------- Name: Christopher A. Pucillo --------------------------- Title: Vice President -------------------------- S-10- EXHIBIT I TO FIRST AMENDMENT AND CONSENT New Definition of Applicable Eurodollar Rate Margin --------------------------------------------------- Applicable Eurodollar Rate Margin means, with respect to any Revolving --------------------------------- Loan accruing interest in accordance with Section 4.2(b), a rate per annum equal -------------- --- ----- to (i) for the period commencing on the Effective Date and ending on March 31, 1998, 1.75%; (ii) for the period commencing on April 1, 1998 until the First Amendment Effective Date, 2.00%, provided that, from and after April 1, 1998, if -------- the Total Indebtedness Ratio for the applicable period ending on the then most recent Quarterly Determination Date (as shown on the quarterly Compliance Certificate delivered pursuant to Section 7.1(c)) is within the ranges set out -------------- below and no Default or Event of Default exists as of such Quarterly Determination Date, the Applicable Eurodollar Rate Margin shall be the per annum --- ----- rate set out opposite the applicable range indicated below:
TOTAL INDEBTEDNESS RATIO APPLICABLE EURODOLLAR RATE MARGIN ====================================================================== Less than or equal 1.75% to 2.75:1 and greater than 2.50:1 - ---------------------------------------------------------------------- Less than or equal 1.50% to 2.50:1 and greater than 2.25:1 - ----------------------------------------------------------------------- Less than or equal 1.25% to 2.25:1 =======================================================================
(iii) for the period commencing on the First Amendment Effective Date and ending on December 31, 1998, 1.50%; and (iv) from and after January 1, 1999, 1.75%, provided that, from and after January 1, 1999, if the Total Indebtedness Ratio - -------- for the applicable period ending on the then most recent Quarterly Determination Date (as shown on the quarterly Compliance Certificate delivered pursuant to Section 7.1(c)) is within the ranges set out below and no Default - -------------- or Event of Default exists as of such Quarterly Determination Date, the Applicable Eurodollar Rate Margin shall be the per annum rate set out opposite --- ----- the applicable range indicated below:
TOTAL INDEBTEDNESS RATIO APPLICABLE EURODOLLAR RATE MARGIN ================================================================== Less than or equal 1.50% to 3.00:1 and greater than 2.50:1 - ------------------------------------------------------------------ Less than or equal 1.25% to 2.50:1 and greater than 2.25:1 - ------------------------------------------------------------------ Less than or equal 1.00% to 2.25:1 and greater than 1.75:1 - ------------------------------------------------------------------ Less than or equal 0.75% to 1.75:1 ==================================================================
In the event of the delivery of a Compliance Certificate showing an increase or decrease in the Total Indebtedness Ratio which requires a change in the Applicable Eurodollar Rate Margin, the change in the Applicable Eurodollar Rate Margin shall be effective from the first day of the calendar month immediately following receipt of the Compliance Certificate (provided that the Compliance -------- Certificate is received by the Agent no later than 3:00 P.M. New York City time at least one (1) Business Day prior to the first day of such calendar month) until the next such date on which the Applicable Eurodollar Rate Margin is subject to change following the delivery of (or failure to deliver) a Compliance Certificate showing an increase or decrease in the Total Indebtedness Ratio which requires a change in the Applicable Eurodollar Rate Margin. The failure to deliver any Compliance Certificate by the date required under the Credit Agreement (after giving effect to any applicable grace period) shall automatically cause the Applicable Eurodollar Rate Margin to be the maximum per --- annum rate for the applicable period described above, effective as of the first - ----- day of the calendar month immediately following the date on which the delivery of the Compliance Certificate was otherwise required. -I-2 EXHIBIT II TO FIRST AMENDMENT AND CONSENT New Definition of Applicable Prime Rate Margin ---------------------------------------------- Applicable Prime Rate Margin means, with respect to any Revolving Loan ---------------------------- accruing interest in accordance with Section 4.1(a), a rate per annum equal to -------------- --- ----- (i) for the period commencing on the Effective Date and ending on March 31, 1998, 0.25%; (ii) for the period commencing on April 1, 1998 until the First Amendment Effective Date, 0.50%, provided that, from and after April 1, 1998, if -------- the Total Indebtedness Ratio for the applicable period ending on the then most recent Quarterly Determination Date (as shown on the quarterly Compliance Certificate delivered pursuant to Section 7.1(c)) is within the ranges set out -------------- below and no Default or Event of Default exists as of such Quarterly Determination Date, the Applicable Prime Rate Margin shall be the per annum rate --- ----- set out opposite the applicable range indicated below:
APPLICABLE PRIME TOTAL INDEBTEDNESS RATIO RATE MARGIN ====================================================== Less than or equal 0.25% to 2.75:1 and greater than 2.50:1 Less than or equal -0- to 2.50:1 and greater than 2.25:1 Less than or equal (0.25%) to 2.25:1 =====================================================
(iii) for the period commencing on the First Amendment Effective Date and ending on December 31, 1998, zero (-0-); and (iv) from and after January 1, 1999, 0.25%, provided that, from and after January 1, 1999, if the Total Indebtedness -------- Ratio for the applicable period ending on the then most recent Quarterly Determination Date (as shown on the quarterly Compliance Certificate delivered pursuant to Section 7.1(c)) is within the ranges set out below and no Default -------------- -II-1- or Event of Default exists as of such Quarterly Determination Date, the Applicable Prime Rate Margin shall be the per annum rate set out opposite the --- ----- applicable range indicated below:
APPLICABLE PRIME TOTAL INDEBTEDNESS RATIO RATE MARGIN ============================================================= Less than or equal -0- to 3.00:1 and greater than 2.50:1 ------------------------------------------------------------- Less than or equal (0.25%) to 2.50:1 and greater than 2.25:1 ------------------------------------------------------------- Less than or equal (0.50%) to 2.25:1 and greater than 1.75:1 ------------------------------------------------------------- Less than or equal (0.75%) to 1.75:1 =============================================================
In the event of the delivery of a Compliance Certificate showing an increase or decrease in the Total Indebtedness Ratio which requires a change in the Applicable Prime Rate Margin, the change in the Applicable Prime Rate Margin shall be effective from the first day of the calendar month immediately following receipt of the Compliance Certificate (provided that the Compliance -------- Certificate is received by the Agent no later than 3:00 P.M. New York City time at least one (1) Business Day prior to the first day of such calendar month) until the next such date on which the Applicable Prime Rate Margin is subject to change following the delivery of (or failure to deliver) a Compliance Certificate showing an increase or decrease in the Total Indebtedness Ratio which requires a change in the Applicable Prime Rate Margin. The failure to deliver any Compliance Certificate by the date required under the Credit Agreement (after giving effect to any applicable grace period) shall automatically cause the Applicable Prime Rate Margin to be the maximum per annum --- ----- rate for the applicable period described above, effective as of the first day of the calendar month immediately following the date on which the delivery of the Compliance Certificate was otherwise required. -II-2- EXHIBIT III TO FIRST AMENDMENT AND CONSENT Amended and Restated Section 8.2 -------------------------------- 8.2 Minimum Interest Coverage Ratio. The Credit Parties shall not ------------------------------- permit the ratio of (i) EBITA to (ii) Interest Expense, determined as of each Quarterly Determination Date set out below for the twelve-month period ending on such Quarterly Determination Date, to be less than the ratio set out opposite such date below:
QUARTERLY DETERMINATION DATE MINIMUM RATIO ===================================================== December 31, 1997 2.0x ----------------------------------------------------- March 31, 1998 2.0x ----------------------------------------------------- June 30, 1998 2.1x ----------------------------------------------------- September 30, 1998 2.1x ----------------------------------------------------- December 31, 1998 2.1x ----------------------------------------------------- March 31, 1999 2.1x ----------------------------------------------------- June 30, 1999 2.1x ----------------------------------------------------- September 30, 1999 2.1x ----------------------------------------------------- December 31, 1999 2.2x ----------------------------------------------------- March 31, 2000 2.2x ----------------------------------------------------- June 30, 2000 2.3x ----------------------------------------------------- September 30, 2000 2.3x ----------------------------------------------------- December 31, 2000 2.3x ----------------------------------------------------- March 31, 2001 2.4x ----------------------------------------------------- June 30, 2001 2.5x ----------------------------------------------------- September 30, 2001 2.5x ----------------------------------------------------- December 31, 2001 2.6x -----------------------------------------------------
-III-1-
QUARTERLY DETERMINATION DATE MINIMUM RATIO ===================================================== March 31, 2002 2.6x ----------------------------------------------------- June 30, 2002 2.6x ----------------------------------------------------- September 30, 2002 2.6x ----------------------------------------------------- December 31, 2002 2.6x ----------------------------------------------------- March 31, 2003 2.7x ----------------------------------------------------- June 30, 2003 2.7x ----------------------------------------------------- September 30, 2003 2.7x ----------------------------------------------------- December 31, 2003 2.7x ----------------------------------------------------- March 31, 2004 2.7x ----------------------------------------------------- June 30, 2004 2.7x ----------------------------------------------------- September 30, 2004 2.7x ----------------------------------------------------- December 31, 2004 2.7x =====================================================
-III-2- EXHIBIT IV TO FIRST AMENDMENT AND CONSENT Amended and Restated Section 8.3 -------------------------------- 8.3 Maximum Total Indebtedness Ratio. The Credit Parties shall not -------------------------------- permit the ratio of (i) the aggregate amount of all Indebtedness of the Credit Parties outstanding at any time during the periods set out below, to (ii) EBITDA, determined as of each Quarterly Determination Date set out below for the twelve-month period ending on such Quarterly Determination Date, to be greater than the ratio set out opposite such date below:
QUARTERLY DETERMINATION DATE MAXIMUM RATIO ========================================================== December 31, 1997 5.5x ---------------------------------------------------------- March 31, 1998 4.5x ---------------------------------------------------------- June 30, 1998 4.5x ---------------------------------------------------------- September 30, 1998 4.0x ---------------------------------------------------------- December 31, 1998 3.8x ---------------------------------------------------------- March 31, 1999 3.6x ---------------------------------------------------------- June 30, 1999 3.6x ---------------------------------------------------------- September 30, 1999 3.4x ---------------------------------------------------------- December 31, 1999 3.4x ---------------------------------------------------------- March 31, 2000 3.4x ---------------------------------------------------------- June 30, 2000 3.4x ---------------------------------------------------------- September 30, 2000 3.2x ---------------------------------------------------------- December 31, 2000 3.2x ---------------------------------------------------------- March 31, 2001 3.2x ---------------------------------------------------------- June 30, 2001 3.2x ---------------------------------------------------------- September 30, 2001 3.0x ---------------------------------------------------------- December 31, 2001 3.0x ----------------------------------------------------------
-IV-1-
QUARTERLY DETERMINATION DATE MAXIMUM RATIO ========================================================== March 31, 2002 3.0x ---------------------------------------------------------- June 30, 2002 3.0x ---------------------------------------------------------- September 30, 2002 2.9x ---------------------------------------------------------- December 31, 2002 2.9x ---------------------------------------------------------- March 31, 2003 2.9x ---------------------------------------------------------- June 30, 2003 2.9x ---------------------------------------------------------- September 30, 2003 2.8x ---------------------------------------------------------- December 31, 2003 2.8x ---------------------------------------------------------- March 31, 2004 2.8x ---------------------------------------------------------- June 30, 2004 2.8x ---------------------------------------------------------- September 30, 2004 2.7x ---------------------------------------------------------- December 31, 2004 2.7x ==========================================================
-IV-2 EXHIBIT V TO FIRST AMENDMENT AND CONSENT Amended and Restated Section 8.4 -------------------------------- 8.4 Minimum EBITDA. The Credit Parties shall not permit EBITDA, -------------- determined as of each Quarterly Determination Date set out below for the twelve- month period ending on such Quarterly Determination Date, to be less than the amount set out opposite such date below:
QUARTERLY DETERMINATION DATE MINIMUM AMOUNT =================================================== December 31, 1997 $ 70,400,000 --------------------------------------------------- March 31, 1998 $ 80,400,000 --------------------------------------------------- June 30, 1998 $115,000,000 --------------------------------------------------- September 30, 1998 $140,000,000 --------------------------------------------------- December 31, 1998 $160,000,000 --------------------------------------------------- March 31, 1999 $180,000,000 --------------------------------------------------- June 30, 1999 $200,000,000 --------------------------------------------------- September 30, 1999 $210,000,000 --------------------------------------------------- December 31, 1999 $220,000,000 --------------------------------------------------- March 31, 2000 $230,000,000 --------------------------------------------------- June 30, 2000 $240,000,000 --------------------------------------------------- September 30, 2000 $260,000,000 --------------------------------------------------- December 31, 2000 $270,000,000 --------------------------------------------------- March 31, 2001 $280,000,000 --------------------------------------------------- June 30, 2001 $290,000,000 --------------------------------------------------- September 30, 2001 $300,000,000 --------------------------------------------------- December 31, 2001 $320,000,000 --------------------------------------------------- March 31, 2002 $340,000,000 ---------------------------------------------------
-V-1-
QUARTERLY DETERMINATION DATE MINIMUM AMOUNT ================================================== June 30, 2002 $350,000,000 --------------------------------------------------- September 30, 2002 $370,000,000 --------------------------------------------------- December 31, 2002 $380,000,000 --------------------------------------------------- March 31, 2003 $390,000,000 --------------------------------------------------- June 30, 2003 $400,000,000 --------------------------------------------------- September 30, 2003 $410,000,000 --------------------------------------------------- December 31, 2003 $420,000,000 --------------------------------------------------- March 31, 2004 $430,000,000 --------------------------------------------------- June 30, 2004 $440,000,000 --------------------------------------------------- September 30, 2004 $450,000,000 ---------------------------------------------------- December 31, 2004 $460,000,000 ====================================================
-V-2- EX-10.46 7 RESTRICTED STOCK AGREEMENT EXHIBIT 10.46 RESTRICTED STOCK AGREEMENT THIS RESTRICTED STOCK AGREEMENT (the "Agreement") made effective as of the 14th day of January, 1998, between Rental Service Corporation, a Delaware corporation (the "Company" or the "Employer") and Martin R. Reid, an employee of the Company (the "Employee"). WHEREAS, the Company has established the 1996 Equity Participation Plan (the "Plan"); and WHEREAS, the Company wishes to carry out the Plan (the terms of which are hereby incorporated by reference and made a part of this Agreement); and WHEREAS, the Plan provides for the issuance of shares of Common Stock, $.01 par value, subject to certain restrictions thereon (hereinafter referred to as "Restricted Stock"); and WHEREAS, the Compensation Committee of the Company's Board of Directors (the "Committee"), appointed to administer the Plan, has determined that it would be to the advantage and best interest of the Company and its stockholders to issue the Restricted Stock provided for herein to Employee in consideration of past and future services to the Employer and other good and valuable consideration provided for herein; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE I DEFINITIONS Whenever the following terms are used in this Agreement they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates. All capitalized terms used herein without definition shall have the meaning ascribed to such terms in the Plan. Section 1.1 - Board "Board" shall mean the Board of Directors of the Company. Section 1.2 - Code "Code" shall mean the Internal Revenue Code of 1986, as amended. Section 1.3 - Committee "Committee" shall mean the Compensation Committee of the Board, appointed as provided in the Plan. Section 1.4 - Company Subsidiary "Company Subsidiary" shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Company Subsidiary" shall also mean any partnership in which the Company and/or any Company Subsidiary owns more than 50 percent of the capital or profits interests. Section 1.5 - Employment Agreement "Employment Agreement" shall mean the employment agreement between Company and Employee dated the same date as this Agreement. Section 1.6 - Exchange Act "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. Section 1.7 - Restricted Stock "Restricted Stock" shall mean Common Stock of the Company issued under this Agreement and subject to the Restrictions imposed hereunder. Section 1.8 - Restrictions "Restrictions" shall mean the restrictions on sale or other transfer set forth in Section 4.2 and 4.3(a) and the exposure to forfeiture or repurchase set forth in Section 3.1. Section 1.9 - Rule 16b-3 "Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as such Rule may be amended from time to time. Section 1.10 - Secretary "Secretary" shall mean the Secretary of the Company. Section 1.11 - Securities Act "Securities Act" shall mean the Securities Act of 1933, as amended. 2 ARTICLE II ISSUANCE OF RESTRICTED STOCK Section 2.1 - Issuance of Restricted Stock In consideration of Employee's past services to the Company and for his agreement to remain in the employ of at least one of such entities and for other good and valuable consideration, on the date hereof the Company irrevocably issues to Employee 10,000 shares of its $.01 par value Common Stock upon the terms and conditions set forth in this Agreement. Section 2.2 - Purchase Price The purchase price of the Restricted Stock shall be $.01 per share without commission or other charge, payable in cash or by check. Section 2.3 - Consideration to Company As partial consideration for the issuance of Restricted Stock by the Company, Employee agrees to render faithful and efficient services to the Company pursuant to his Employment Agreement for a period of at least one (1) year from the date this Restricted Stock is issued. Nothing in this Agreement or in the Plan shall confer upon Employee any right to continue in the employ of the Company. Section 2.4 - Adjustments in Restricted Stock In the event that the outstanding shares of the Company's Common Stock are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split-up, stock dividend or combination of shares, the Committee, subject to the provisions of the Plan and this Agreement, shall make an appropriate and equitable adjustment in the number and kind of shares of Restricted Stock, to the end that after such event Employee's proportionate interest shall be maintained as before the occurrence of such event. Any such adjustment made by the Committee shall be final and binding upon Emloyee, the Company and all other interested persons. ARTICLE III RESTRICTIONS Section 3.1 - Repurchase of Restricted Stock Immediately upon a termination of Employee's employment, the Company shall have the right to repurchase from the Employee all shares of Restricted Stock then subject to Restrictions at a cash price of $.01 per share; provided that no such right of repurchase shall exist 3 if the Restrictions lapse upon any such termination pursuant to the Employment Agreement, this Agreement or any other agreement. Section 3.2 - Legend Certificates representing shares of Restricted Stock issued pursuant to this Agreement shall, until all Restrictions lapse and new certificates are issued pursuant to Section 3.3, bear the following legend: "The shares represented by this certificate are subject to reacquisition by Rental Service Corporation and such shares may not be sold or otherwise transferred except pursuant to the provisions of the Restricted Stock Agreement by and between Rental Service Corporaton and the registered owner of such shares." Section 3.3 - Lapse of Restrictions (a) Subject to Sections 3.4 and 4.5, the Restrictions shall lapse as to one-fourth of the Restricted Stock on each of the first, second, third and fourth anniversaries of the grant of the Restricted Stock. (b)Upon the lapse of the Restrictions, the Company shall cause new certificates to be issued with respect to such shares and delivered to Employee or his legal representative, free from the legend provided for in Section 3.2 and any of the other Restrictions. Notwithstanding the foregoing, no such new certificate shall be delivered to Employee or his legal representative unless and until Employee or his legal representative shall have paid to the Company in cash the full amount of all federal and state withholding or other employment taxes applicable to the taxable income of Employee resulting from the grant of Restricted Stock or the lapse of the Restrictions. Section 3.4 - Merger, Consolidation, Exchange, Acquisition,Liquidation or Dissolution In the event of the merger or consolidation of the Company into another corporation, or the exchange of all or substantially all of the assets of the Company for the securities of another corporation, or the acquisition by another corporation or person of all or substantially all of the Company's assets or 80% or more of the Company's then outstanding voting stock, or the liquidation or dissolution of the Company (any such event being an "Acquisition"), the Committee may, in its absolute discretion and on such terms and conditions as it deems appropriate, provide by resolution adopted prior to such event that at some time prior to the effective date of such event, the Restrictions upon some or all shares of Restricted Stock shall immediately lapse and/or that some or all of such shares shall cease to be subject to repurchase or forfeiture under Section 3.1 after such event. The Committee may make such determinations and adopt such rules and conditions as it, in its absolute discretion, deems appropriate in connection with such acceleration of the lapse of the Restrictions, including, but not by way of limitation, provisions to ensure that 4 any such acceleration shall be conditioned upon the consummation of the contemplated corporate transaction. Notwithstanding the foregoing, the provisions of the Employment Agreement dealing with lapse of Restrictions on a Change of Control (as defined therein) shall govern with respect to an Acquisition that is also a Change of Control. Section 3.5 - Restrictions On New Shares In the event that the outstanding shares of the Company's Common Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation pursuant to a merger of the Company into another corporation, or the exchange of all or substantially all of the assets of the Company for the securities of another corporation, or the acquisition by another corporation of 80% or more of the Company's then outstanding voting stock, or the liquidation or dissolution of the Company, or a stock split-up or stock dividend, such new or additional or different shares or securities which are attributable to Employee in his capacity as the owner of the Restricted Stock then subject to Restrictions, shall be considered to be Restricted Stock and shall be subject to all of the Restrictions, unless the Committee provides, pursuant to Section 3.4, for the expiration of the Restrictions on the shares of Restricted Stock underlying the distribution of the new or additional shares or securities. ARTICLE IV MISCELLANEOUS Section 4.1 - Administration The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon Employee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination, or interpretation made in good faith with respect to the Plan or the Restricted Stock. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement except with respect to matters, if any, which under Rule 16b-3 are required to be determined in the sole discretion of the Committee. Section 4.2 - Restricted Stock Not Transferable Restricted Stock (including any shares received by holders thereof with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) shall be subject to the following Restrictions until such Restrictions lapse or expire pursuant to this Agreement: 5 Neither the Restricted Stock nor any interest or right therein or part thereof shall be liable for the debts, contracts, or engagements of Employee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy) and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 4.2 shall not prevent transfers by will or by the applicable laws of descent and distribution. Section 4.3 - Conditions to Issuance of Stock Certificates Shares of Restricted Stock may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock pursuant to this Agreement prior to fulfillment of all of the following conditions: (a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and (b) The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable; and (c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and (d) The lapse of such reasonable period of time as the Committee may from time to time establish for reasons of administrative convenience; and (e) The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax. Section 4.4 - Escrow The Secretary or such other escrow holder as the Committee may appoint shall retain physical custody of the certificates representing the Restricted Stock, including shares of Restricted Stock issued pursuant to Section 3.5, until all of the Restrictions expire or shall have been removed; provided, however, that in no event shall Employee retain physical custody of any certificates representing Restricted Stock issued to him. Section 4.5 - Notices Any notice to be given by the Employee under the terms of this Agreement shall be addressed to the Secretary of the Company or his office. Any notice to be given to the 6 Employee shall be addressed to him at the address given beneath his signature hereto. By a notice given pursuant to this Section, either party may hereafter designate a different address for notices to be given to him. Any notice which is required to be given to Employee shall, if Employee is then deceased, be given to Employee's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section. Any notice be deemed duly given when deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. Section 4.6 - Rights as Stockholder Except as otherwise provided herein, upon the delivery of Restricted Stock to the escrow holder pursuant to Section 4.4, the holder of the Restricted Stock shall have all the rights of a stockholder with respect to the Restricted Stock, including the right to vote the Restricted Stock and the right to receive all dividends or other distributions paid or made with respect to the Restricted Stock; provided, however, that in the discretion of the Committee, any extraordinary distributions with respect to the Common Stock that is subject to the Restrictions may also be subject to the Restrictions. Section 4.7 - Titles Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. Section 4.8 - Construction This Agreement shall be administered, interpreted and enforced under the internal laws of the State of Delaware. Section 4.9 - Conformity to Securities Laws The Employee acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of all applicable federal and state laws, rules and regulations (including, but not limited to the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, including without limitation the applicable exemptive conditions of Rule 16b-3) and to such approvals by any listing, regulatory or other governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Restricted Stock is granted, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan, this Agreement and the Restricted Stock shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. Section 4.10 - Amendments This Agreement and the Plan may be amended without the consent of the Employee provided that such amendment would not impair any rights of the Employee under 7 this Agreement. No amendment of this Agreement shall, without the consent of the Employee, impair any rights of the Employee under this Agreement. IN WITNESS WHEREOF, this Employment Agreement has been executed and delivered by the parties hereto. RENTAL SERVICE CORPORATION By: /s/ Robert M. Wilson ------------------------------ Robert M. Wilson Senior Vice President, Chief Financial Officer, Secretary and Treasurer /s/ Martin R. Reid - ------------------------------ Martin R. Reid 10801 E. Happy Valley Road, #44 Scottsdale, AZ 85255 8 EX-10.49 8 REGISTRATION RIGHTS AGREEMENT DATED AS OF 05-13-98 EXHIBIT 10.49 ----------------------------------------- REGISTRATION RIGHTS AGREEMENT Dated as of May 13, 1998 Among RENTAL SERVICE CORPORATION and THE GUARANTORS NAMED HEREIN as Issuers and BT ALEX. BROWN INCORPORATED MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED MORGAN STANLEY & CO. INCORPORATED WILLIAM BLAIR & COMPANY, as Initial Purchasers 9% Senior Subordinated Notes due 2008 -------------------------------------- REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is dated as of --------- May 13, 1998, among RENTAL SERVICE CORPORATION, a Delaware corporation (the "Company"), the subsidiaries of the Company listed on the signature pages - -------- hereto, as guarantors (the "Guarantors"), and together with the Company, the ---------- "Issuers"), and BT ALEX. BROWN INCORPORATED, MERRILL LYNCH, PIERCE, FENNER & - -------- SMITH INCORPORATED, MORGAN STANLEY & CO. INCORPORATED AND WILLIAM BLAIR & COMPANY, as initial purchasers (collectively, the "Initial Purchasers"). ------------------ This Agreement is entered into in connection with the Purchase Agreement, dated May 8, 1998, among the Issuers and the Initial Purchasers (the "Purchase Agreement"), which provides for the sale by the Company to the Initial ------------------ Purchasers of $200,000,000 aggregate principal amount of the Company's 9% Senior Subordinated Notes due 2008 (the "Notes"), guaranteed by the Guarantors (the ----- "Guarantees"). In order to induce the Initial Purchasers to enter into the - ----------- Purchase Agreement, the Issuers have agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchasers and any subsequent holder or holders of the Notes. The execution and delivery of this Agreement is a condition to the Initial Purchasers' obligation to purchase the Notes under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions ----------- As used in this Agreement, the following terms shall have the following meanings: Additional Interest: See Section 4 hereof. ------------------- Advice: See the last paragraph of Section 5 hereof. ------ Agreement: See the introductory paragraphs hereto. --------- Applicable Period: See Section 2 hereof. ----------------- Effectiveness Date: The 150th day after the Issue Date; provided, ------------------ -------- however, that with respect to any Shelf Registration, the Effectiveness Date - ------- shall be the 60th day after the Filing Date with respect thereto. Effectiveness Period: See Section 3(a) hereof. -------------------- Event Date: See Section 4(b) hereof. ---------- Exchange Act: The Securities Exchange Act of 1934, as amended, and ------------ the rules and regulations of the SEC promulgated thereunder. 2 Exchange Notes: See Section 2 hereof. -------------- Exchange Offer: See Section 2 hereof. -------------- Exchange Offer Registration Statement: See Section 2 hereof. ------------------------------------- Filing Date: (A) With respect to the Exchange Offer Registration ----------- Statement, the 90th day after the Issue Date and (B) with respect to a Shelf Registration Statement (which may be applicable notwithstanding the consummation of the Exchange Offer), the 30th day after the delivery of a Shelf Notice. Holder: Any registered holder of a Registrable Note or Registrable ------ Notes. Indemnified Person: See Section 7(c) hereof. ------------------ Indemnifying Person: See Section 7(c) hereof. ------------------- Indenture: The Indenture, dated as of May 13, 1998, by and among --------- the Issuers and Norwest Bank Minnesota, N.A., as Trustee, pursuant to which the Notes and the Guarantees are being issued, as the same may be amended or supplemented from time to time in accordance with the terms thereof. Initial Purchasers: See the introductory paragraphs hereto. ------------------ Initial Shelf Registration: See Section 3(a) hereof. -------------------------- Inspectors: See Section 5(m) hereof. ---------- Issue Date: May 13, 1998, the date of original issuance of the Notes. ---------- Issuers: See the introductory paragraphs hereto. ------- NASD: See Section 5(r) hereof. ---- Offering Memorandum: The final offering memorandum of the Company ------------------- dated May 8, 1998, in respect of the offering of the Notes. Participant: See Section 7(a) hereof ----------- Participating Broker-Dealer: See Section 2(b) hereof. --------------------------- Person: An individual, trustee, corporation, partnership, joint stock ------ company, trust, unincorporated association, union, business association, firm or other legal entity. Private Exchange: See Section 2(b) hereof. ---------------- 3 Private Exchange Notes: See Section 2(b) hereof. ---------------------- Prospectus: The prospectus included in any Registration Statement ---------- (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act and any term sheet filed pursuant to Rule 434 under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Purchase Agreement: See the introductory paragraphs hereof. ------------------ Records: See Section 5(m) hereof. ------- Registrable Notes: Each Note upon its original issuance and at all ----------------- times subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof is applicable upon original issuance and at all times subsequent thereto and each Private Exchange Note upon original issuance thereof and at all times subsequent thereto, until (i) a Registration Statement (other than, with respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the Exchange Offer Registration Statement) covering such Note, Exchange Note or Private Exchange Note has been declared effective by the SEC and such Note, Exchange Note or such Private Exchange Note, as the case may be, has been disposed of in accordance with such effective Registration Statement, (ii) such Note has been exchanged pursuant to the Ex change Offer for an Exchange Note or Exchange Notes that may be resold without complying with the prospectus delivery requirements of the 1933 Act, (iii) such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to be outstanding for purposes of the Indenture or (iv) such Note, Exchange Note or Private Exchange Note, as the case may be, has been or may be resold without restriction pursuant to Rule 144 under the Securities Act. Registration Statement: Any registration statement of the Company ---------------------- and/or the Guarantors that covers any of the Notes, the Exchange Notes or the Private Exchange Notes (and the related Guarantees) filed with the SEC under the Securities Act, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 promulgated under the Securities Act, as such Rule -------- may be amended from time to, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC. Rule 144A: Rule 144A promulgated under the Securities Act, as such --------- Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. 4 Rule 415: Rule 415 promulgated under the Securities Act, as such Rule -------- may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. --- Securities Act: The Securities Act of 1933, as amended, and the rules -------------- and regulations of the SEC promulgated thereunder. Shelf Notice: See Section 2(c) hereof. ------------ Shelf Registration: See Section 3(b) hereof. ------------------ Subsequent Shelf Registration: See Section 3(b) hereof. ----------------------------- TIA: The Trust Indenture Act of 1939, as amended. --- Trustee: The trustee under the Indenture and the trustee (if any) ------- under any in denture governing the Exchange Notes and Private Exchange Notes. Underwritten registration or underwritten offering: A registration in -------------------------------------------------- which securities of one or more of the Issuers are sold to an underwriter for reoffering to the public. 2. Exchange Offer -------------- (a) To the extent not prohibited by law or SEC staff interpretation, the Issuers shall file with the SEC, no later than the Filing Date, a Registration Statement (the "Exchange Offer Registration Statement") on an ------------------------------------- appropriate registration form with respect to a registered offer (the "Exchange Offer") to exchange any and all of the Registrable Notes for a --------------- like aggregate principal amount of notes of the Company, guaranteed by the Guarantors, that are identical in all material respects to the Notes, except that the Exchange Notes shall contain no restrictive legend thereon (the "Exchange Notes"), and which are entitled to the benefits of the -------------- Indenture or a trust indenture which is identical in all material respects to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with the TIA) and which, in either case, has been qualified under the TIA. The Exchange Offer shall comply with all applicable tender offer rules and regulations under the Exchange Act and other applicable law. The Issuers shall use their reasonable best efforts to (x) cause the Exchange Offer Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer open for at least 20 business days (or longer if required by applicable law) after the date that notice of the Exchange Offer is mailed to Holders; and (z) consummate the Exchange Offer on or prior to the 45th day following the date on which the Exchange Offer Registration Statement is declared effective by the SEC. If, after 5 the Exchange Offer Registration Statement is initially declared effective by the SEC, the Exchange Offer or the issuance of the Exchange Notes thereunder is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, the Exchange Offer Registration Statement shall be deemed not to have become effective for purposes of this Agreement. Each Holder that participates in the Exchange Offer will be required, as a condition to its participation in the Exchange Offer, to represent to the Company in writing (which may be contained in the applicable letter of transmittal) that any Exchange Notes to be received by it will be acquired in the ordinary course of its business, that at the time of the consummation of the Exchange Offer such Holder will have no arrangement or understanding with any Person to participate in the distribution of the Exchange Notes in violation of the provisions of the Securities Act, that such Holder is not an affiliate of the Company within the meaning of the Securities Act and that such Holder is not acting on behalf of a Person who could not make the foregoing representations. Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis ------- mutandis, solely with respect to Registrable Notes that are Private Exchange - -------- Notes, Exchange Notes as to which Section 2(c)(iv) is applicable and Exchange Notes held by Participating Broker-Dealers (as defined), and the Issuers shall have no further obligation to register Registrable Notes (other than Private Exchange Notes and other than in respect of any Exchange Notes as to which clause 2(c)(iv) hereof applies) pursuant to Section 3 hereof. No securities other than the Exchange Notes and Guarantees shall be included in the Exchange Offer Registration Statement. (b) The Issuers shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such brokerdealer in the Exchange Offer (a "Participating Broker-Dealer"), whether such positions or --------------------------- policies have been publicly disseminated by the staff of the SEC or such positions or policies represent the prevailing views of the staff of the SEC. Such "Plan of Distribution" section shall also expressly permit, to the extent permitted by applicable policies and regulations of the SEC, the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including, to the extent permitted by applicable policies and regulations of the SEC, all Participating Broker- Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Notes in compliance with the Securities Act. The Issuers shall use their reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained 6 therein in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as is necessary to comply with applicable law in connection with any resale of the Exchange Notes covered thereby; provided, -------- however, that such period shall not be required to exceed 90 days after such - ------- Exchange Offer Registration Statement is declared effective (or such longer period if extended pursuant to the last paragraph of Section 5 hereof) (the "Applicable Period"). ----------------- If, prior to consummation of the Exchange Offer, any Holder holds any Notes acquired by it that have, or that are reasonably likely to be determined to have, the status of an unsold allotment in an initial distribution, or any Holder is not entitled to participate in the Exchange Offer, the Company upon the request of any such Holder shall simultaneously with the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to any such Holder, in exchange (the "Private Exchange") for such Notes held by any such Holder, a like ---------------- principal amount of notes (the "Private Exchange Notes") of the Company, ---------------------- guaranteed by the Guarantors, that are identical in all material respects to the Exchange Notes except for the placement of a restrictive legend on such Private Exchange Notes. The Private Exchange Notes shall be issued pursuant to the same indenture as the Exchange Notes and bear the same CUSIP number as the Exchange Notes. In connection with the Exchange Offer, the Issuers shall: (i) mail, or cause to be mailed, to each Holder of record entitled to participate in the Exchange Offer a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (ii) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York; (iii) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last business day on which the Exchange Offer shall remain open; and (iv) otherwise comply in all material respects with all applicable laws, rules and regulations. As soon as practicable after the close of the Exchange Offer and the Private Exchange, if any, the Issuers shall: (i) accept for exchange all Registrable Notes validly tendered and not validly withdrawn pursuant to the Exchange Offer and the Private Exchange, if any; (ii) deliver to the Trustee for cancellation all Registrable Notes so accepted for exchange; and 7 (iii) cause the Trustee to authenticate and deliver promptly to each Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the Notes of such Holder so accepted for exchange. The Exchange Offer and the Private Exchange shall not be subject to any conditions, other than that (i) the Exchange Offer or Private Exchange, as the case may be, does not violate applicable law or any applicable interpretation of the staff of the SEC, (ii) no action or proceeding shall have been instituted or threatened in any court or by any governmental agency which might prohibit or materially impair the ability of the Issuers to proceed with the Exchange Offer or the Private Exchange, and no material adverse development shall have occurred in any existing action or proceeding with respect to the Issuers and (iii) all govern mental approvals shall have been obtained, which approvals the Issuers deem necessary for the consummation of the Exchange Offer or Private Exchange. In addition, each broker-dealer that desires to participate in the Exchange Offer and to receive Exchange Notes will be required to represent that the Notes being tendered by such broker-dealer were acquired in ordinary trading or market-making activities and not in transactions directly with any Issuer or Affiliate thereof. A broker-dealer that is not able to make the foregoing representation will not be permitted to participate in the Exchange Offer. The Exchange Notes and the Private Exchange Notes shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture and which, in either case, has been qualified under the TIA or is exempt from such qualification and shall provide that the Exchange Notes (but not the Private Exchange Notes) shall not be subject to the transfer restrictions set forth in the Indenture. The Indenture or such indenture shall provide that the Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent together on all matters as one class and that none of the Exchange Notes, the Private Exchange Notes or the Notes will have the right to vote or consent as a separate class on any matter. (c) If, (i) because of any change in law or in currently prevailing interpretations,of the staff of the SEC, the Issuers are not permitted to effect the Exchange Offer, (ii) the Exchange Offer is not consummated within 195 days of the Issue Date, (iii) any holder of Private Exchange Notes so requests in writing to the Company within 60 days after the consummation of the Exchange Offer, or (iv) in the case of any Holder that participates in the Exchange Offer, such Holder does not receive Exchange 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 an "underwriter", each within the meaning of the Securities Act), then in the case of each of clauses (i) to and including (iv) of this sentence, the Company shall promptly deliver to the Holders and the Trustee written notice thereof (the "Shelf Notice") and shall file a Shelf Registration pursuant to Section 3 ------------ hereof. 3. Shelf Registration ------------------ 8 If at any time a Shelf Notice is delivered as contemplated by Section 2(c) hereof, then: (a) Shelf Registration. The Issuers, as promptly as practicable, ------------------ shall file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Notes not exchanged in the Exchange Offer, Private Exchange Notes and Exchange Notes as to which Section 2(c)(iv) is applicable (the "Initial ------- Shelf Registration"). The Issuers shall use their reasonable best efforts ------------------- to file with the SEC the Initial Shelf Registration on or before the applicable Filing Date. The Initial Shelf Registration shall be on an appropriate form permitting registration of such Registrable Notes for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Issuers shall not permit any securities other than the Registrable Notes to be included in the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below). The Issuers shall use their reasonable best efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date and to keep the Initial Shelf Registration continuously effective under the Securities Act until the date which is two years from the Issue Date (the "Effectiveness Period"), or such shorter period -------------------- ending when (i) all Registrable Notes covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration, pursuant to Rule 144 or otherwise are no longer Registrable Notes or (ii) a Subsequent Shelf Registration covering all of the Registrable Notes covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration has been declared effective under the Securities Act; provided, however, that the Effectiveness Period in respect of the Initial -------- ------- Shelf Registration shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the Securities Act and as otherwise provided herein. No Holder may include any of its Registrable Notes in any Shelf Registration Statement pursuant to this Agreement or be entitled to receive Additional Interest (as defined below) pursuant to Section 4 hereof unless and until such Holder furnishes to the Company, in writing, within 15 business days after receipt of a request therefor, such information as is required by applicable law and as the Company may reasonably request for use in connection with any Shelf Registration Statement or Prospectus or preliminary prospectus included therein. Each Holder as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make information previously furnished to the Company by such Holder not materially misleading. (b) Subsequent Shelf Registrations. If the Initial Shelf ------------------------------ Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than as permitted in the second paragraph of Section 3(a) above because of the sale of all of the securities registered thereunder), the Issuers shall use their reasonable best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 30 days of such cessation of effectiveness amend the Initial Shelf Registration in a manner to 9 obtain the withdrawal of the order suspending the effectiveness thereof, or, in the Company's sole discretion, file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Notes covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration (each, a "Subsequent Shelf ---------------- Registration"). If a Subsequent Shelf Registration is filed, the ------------ Issuers shall use their reasonable best efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such subsequent Shelf Registration continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registration was previously continuously effective. As used herein the term "Shelf ----- Registration" means the Initial Shelf Registration and any Subsequent Shelf ------------ Registration. (c) Supplements and Amendments. The Issuers shall promptly -------------------------- supplement and amend any Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount of the Registrable Notes covered by such Registration Statement or by any underwriter of such Registrable Notes. 4. Additional Interest ------------------- (a) The Issuers and the Initial Purchasers agree that the Holders will suffer damages if the Issuers fail to fulfill their obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Company agrees to pay, as liquidated damages, additional interest on the Notes ("Additional Interest") under the circumstances and to the extent set ------------------- forth below (each of which shall be given independent effect): (i) if (A) neither the Exchange Offer Registration Statement nor the Initial Shelf Registration has been filed on or prior to the applicable Filing Date or (B) notwithstanding that the Issuers have consummated or will consummate the Exchange Offer, the Issuers are required to file a Shelf Registration and such Shelf Registration is not filed on or prior to the Filing Date applicable thereto, then, commencing on the day after any such 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, and such Additional Interest rate shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period; or (ii) if (A) neither the Exchange Offer Registration Statement nor the Initial Shelf Registration is declared effective by the SEC on or prior to the relevant Effectiveness Date or (B) notwithstanding that the Issuers have consummated or will consummate the Exchange Offer, the Issuers are 10 required to file a Shelf Registration and such Shelf Registration is not declared effective by the SEC on or prior to the Effectiveness Date in respect of such Shelf Registration, then, commencing on (x) the 151st day after the Issue Date, in the case of clause (A) or (y) the date after the 60th day following the applicable Filing Date in the case of clause (B), 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 the day after such date, and such Additional Interest rate shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period; or (iii) if (A) the Issuers have not exchanged Exchange Notes for all Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to the 45th day after the date on which the Exchange Offer Registration Statement relating thereto was declared effective or (B) if applicable, a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period, 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 the (x) 46th day after such effective date, in the case of (A) above, or (y) the day such Shelf Registration ceases to be effective in the case of (B) above, and such Additional Interest rate shall increase by an additional 0.25% per annum at the beginning of each such subsequent 90-day period; provided, however, that the Additional Interest rate on the Notes may not exceed - -------- ------- at any one time in the aggregate 1.50% per annum; provided, further, however, -------- ------- ------- that (1) upon the filing of the Exchange Offer Registration Statement or a Shelf Registration as required hereunder (in the case of clause (i) above of this Section 4), (2) upon the effectiveness of the Exchange Offer Registration Statement or a Shelf Registration Statement as required hereunder (in the case of clause (ii) of this Section 4), or (3) upon the exchange of the applicable Exchange Notes for all Notes tendered (in the case of clause (iii)(A) of this Section 4), or upon the effectiveness of the applicable Shelf Registration Statement which had ceased to remain effective (in the case of (iii)(B) of this Section 4), Additional Interest on the Notes in respect of which such events relate as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. (b) The Company shall notify the Trustee within three business days after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an "Event Date"). Any amounts ---------- of Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in cash semiannually on each May 15 and November 15 (to the holders of record on the May 1 and November 1 immediately preceding such dates), commencing with the first such date occurring after any such Additional Interest commences to accrue. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Registrable 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 11 comprised of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360. 5. Registration Procedures ----------------------- In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof, the Issuers shall effect such registrations to permit the sale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Issuers hereunder each of the Issuers shall: (a) Prepare and file with the SEC prior to the applicable Filing Date, a Registration Statement or Registration Statements as prescribed by Sections 2 or 3 hereof, and use its reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that, if (1) such filing is pursuant to -------- ------- Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Issuers shall furnish to and afford the Holders of the Registrable Notes included in such Registration Statement or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed prior to the effectiveness of such Registration Statement (in each case at least five business days prior to such filing, or such later date as is reasonable under the circumstances). The Issuers shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in aggregate principal amount of the Registrable Notes included in such Registration Statement, or any such Participating Broker-Dealer, as the case may be, their counsel, or the managing underwriters, if any, shall reasonably object on a timely basis. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration Statement or Exchange Offer Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to each of them with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such 12 Prospectus. The Issuers shall be deemed not to have used their reasonable best efforts to keep a Registration Statement effective during the Effectiveness Period or the Applicable Period, as the case may be, relating thereto if any Issuer voluntarily takes any action that would result in selling Holders of the Registrable Notes covered thereby or Participating Broker-Dealers seeking to sell Exchange Notes not being able to sell such Registrable Notes or such Exchange Notes during that period unless such action is required by applicable law or permitted by this Agreement. (c) If(1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto from whom the Company has received written notice that it will be a Participating Broker- Dealer in the Exchange Offer, notify the selling Holders of Registrable Notes, or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, promptly (but in any event within one day), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Issuers, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Notes or resales of Exchange Notes by Participating Broker-Dealers the representations and warranties of the Issuers contained in any agreement (including any underwriting agreement) contemplated by Section 5(1) hereof cease to be true and correct in all material respects, (iv) of the receipt by any Issuer of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated 13 therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Issuers' determination that a post-effective amendment to a Registration Statement would be appropriate. (d) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its reasonable best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its reasonable best efforts to obtain the withdrawal of any such order at the earliest possible moment. (e) If a Shelf Registration is filed pursuant to Section 3 and if requested by the managing underwriter or underwriters (if any), the Holders of a majority in aggregate principal amount of the Registrable Notes being sold in connection with an underwritten offering or any Participating Broker-Dealer, (i) as promptly as practicable incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters (if any), such Holders, any Participating Broker-Dealer or counsel for any of them reasonably request to be included therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after an Issuer has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to such Registration Statement. (f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, furnish to each selling Holder of Registrable Notes and to each such Participating Broker-Dealer who so requests and to their respective counsel and each managing underwriter, if any, at the sole expense of the Issuers, one conformed copy of the Registration Statement or Registration Statements and each post- effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, deliver to each selling Holder of Registrable Notes, or each such 14 Participating Broker-Dealer, as the case may be, their respective counsel, and the underwriters, if any, at the sole expense of the Issuers, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Issuers hereby consent to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Notes covered by, or the sale by Participating Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Notes or any delivery of a Prospectus contained in the Exchange Offer Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its reasonable best efforts to register or qualify, and to cooperate with the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Notes for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters reasonably request in writing; provided, however, that where Exchange Notes held by Participating Broker- -------- ------- Dealers or Registrable Notes are offered other than through an underwritten offering, the Issuers agree to cause their counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h), keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Exchange Notes held by Participating Broker-Dealers or the Registrable Notes covered by the applicable Registration Statement; provided, however, that no Issuer shall -------- ------- be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (i) If a Shelf Registration is filed pursuant to Section 3 hereof, cooperate with the selling Holders of Registrable Notes and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Notes to be in such denominations and 15 registered in such names as the managing underwriter or underwriters, if any, or Holders may request. (j) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at the sole expense of the Issuers, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Notes being sold thereunder or to the purchasers of the Exchange Notes to whom such Prospectus will be delivered by a Participating Broker-Dealer, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, the Issuers shall not be required to amend or supplement a Registration Statement, any related Prospectus or any document incorporated therein by reference, in the event that, and for a period not to exceed an aggregate of 75 days in any calendar year if, (i) an event occurs and is continuing as a result of which the Shelf Registration would, in the Company's good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii) (a) the Company determines in its good faith judgment that the disclosure of such event at such time would have a material adverse effect on the business, operations, condition (financial or otherwise) or prospects of the Company or (b) the disclosure otherwise relates to a pending material business transaction that has not yet been publicly disclosed or with respect to which financial statements or other financial information would be required to be included in a Registration Statement and are not yet available. (k) Prior to the effective date of the first Registration Statement relating to the Registrable Notes, (i) provide the Trustee with certificates for the Registrable Notes in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Notes. (l) In connection with any underwritten offering of Registrable Notes pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings of debt securities similar to the Notes in form and substance reasonably satisfactory to the Company and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Notes and, in such connection, (i) make such representations and warranties to, and 16 covenants with, the underwriters with respect to the business of the Company and the subsidiaries of the Company (including any acquired business, properties or entity, if applicable) and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of debt securities similar to the Notes, and confirm the same in writing if and when requested in form and substance reasonably satisfactory to the Company; (ii) obtain the written opinions of counsel to the Company and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions reasonably requested in underwritten offerings and such other matters as may be reasonably requested by the managing underwriter or underwriters; (iii) use its reasonable best efforts to obtain "cold comfort" letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent public accountants of the Company (and, if necessary, any other independent public accountants of the Company, any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of debt securities similar to the Notes and such other matters as reasonably requested by the managing underwriter or underwriters as permitted by the Statement on Auditing Standards No. 72; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the sellers and underwriters, if any, than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount of Registrable Notes covered by such Registration Statement and the managing underwriter or underwriters or agents, if any). The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (m) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, make available for inspection by any selling Holder of such Registrable Notes being sold, or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Notes, if any, and any attorney, accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer, as the case may be, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, ---------- during reasonable business hours, all financial and other records, pertinent corporate documents and instruments of the Company and subsidiaries of the Company (collectively, the "Records") as shall be ------- reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the 17 Company and any of its subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement and Prospectus. Each Inspector shall agree in writing that it will keep the Records confidential and that it will not disclose any of the Records unless (i) the disclosure of such Records is necessary to avoid or correct a material misstatement or material omission in such Registration Statement or Prospectus, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, or (iii) the information in such Records has been made generally available to the public not in violation of any person's or entity's confidentiality obligations; provided, however, that prior notice -------- ------- shall be provided as soon as practicable to the Company of the potential disclosure of any information by such Inspector pursuant to clauses (i) or (ii) of this sentence to permit the Company to obtain a protective order (or waive the provisions of this paragraph (m)) and that such Inspector shall take such actions as are reasonably necessary to protect the confidentiality of such information (if practicable) to the extent such action is otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of the Holder or any Inspector. (n) Provide an indenture trustee for the Registrable Notes or the Exchange Notes, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a) hereof, as the case may be, to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Registrable Notes; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Registrable Notes, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its reasonable best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (o) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders with regard to any applicable Registration Statement, a consolidated earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 60 days after the end of any fiscal quarter (or 120 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Notes are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (p) If the Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Notes by Holders to the Company (or to such other Person as directed by the Issuer) in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Company shall mark, or cause to be 18 marked, on such Registrable Notes that such Registrable Notes are being canceled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall such Registrable Notes be marked as paid or otherwise satisfied. (q) Cooperate with each seller of Registrable Notes covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Notes and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). ---- (r) Use its reasonable best efforts to take all other steps reasonably necessary to effect the registration of the Exchange Notes and/or Registrable Notes covered by a Registration Statement contemplated hereby. The Company may require each seller of Registrable Notes as to which any registration is being effected to furnish to the Company such information regarding such seller and the distribution of such Registrable Notes as the Company may, from time to time, reasonably request. The Company may exclude from such registration the Registrable Notes of any seller so long as such seller fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such seller not materially misleading. If any such Registration Statement refers to any Initial Purchaser by name or otherwise as the holder of any securities of the Company, then such Initial Purchaser shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Initial Purchaser and the Company, to the effect that the holding by such Initial Purchaser of such securities is not to be construed as a recommendation by such Initial Purchaser of the investment quality of the securities covered thereby and that such holding does not imply that such Initial Purchaser will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Initial Purchaser by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such Initial Purchaser in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder of Registrable Notes and each Participating Broker-Dealer agrees by its acquisition of such Registrable Notes or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, that, upon actual receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder will forthwith discontinue disposition of such Registrable Notes covered by such Registration Statement or Prospectus or Exchange Notes to be sold by such Holder or Participating Broker-Dealer, as the case may be, until such Holder's or Participating Broker-Dealer's receipt of the copies of the supplemented or 19 amended Prospectus contemplated by Section 5(j) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable ------ Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event that the Company shall give any such notice, the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Notes covered by such Registration Statement or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(j) hereof or (y) the Advice. 6. Registration Expenses --------------------- All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers (other than any underwriting discounts or commissions) shall be borne by the Company whether or not the Exchange Offer Registration Statement or any Shelf Registration is filed or becomes effective or the Exchange Offer is consummated, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) reasonable fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of Issuers' counsel in connection with Blue Sky qualifications of the Registrable Notes or Exchange Notes and determination of the eligibility of the Registrable Notes or Exchange Notes for investment under the laws of such jurisdictions (x) where the holders of Registrable Notes are located, in the case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange Notes to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Notes or Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, by the Holders of a majority in aggregate principal amount of the Registrable Notes included in any Registration Statement or in respect of Registrable Notes or Exchange Notes to be sold by any Participating Broker-Dealer during the Applicable Period, as the case may be, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and reasonable fees and disbursements of one special counsel for all of the sellers of Registrable Notes (exclusive of any counsel retained pursuant to Section 7 hereof), (v) fees and disbursements of all independent certified public accountants referred to in Section 5(l)(iii) hereof (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) Securities Act liability insurance, if the Company desires such insurance, (vii) fees and expenses of all other Persons retained by the Issuer, (viii) internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting duties), (ix) the expense of any annual audit, (x) any fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, and the obtaining of a rating of the securities, in each case, if applicable, and (xi) the expenses relating to printing, word processing and distributing all Registration 20 Statements, underwriting agreements, indentures and any other documents necessary in order to comply with this Agreement. 7. Indemnification --------------- (a) Each of the Issuers, jointly and severally, agrees to indemnify and hold harmless each Holder of Registrable Notes and each Participating Broker-Dealer selling Exchange Notes during the Applicable Period, the affiliates, officers, directors, representatives, employees and agents of each such Person, and each Person, if any, who controls any such Person within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from and against any and all ----------- losses, claims, damages, judgments, liabilities and expenses (including, without limitation, the reasonable legal fees and other expenses actually incurred in connection with any suit, action or proceeding or any claim asserted) caused by, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by, arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of the circumstances under which they were made, not misleading, except insofar as ------ such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant furnished to the Company in writing by such Participant expressly for use therein and with respect to any preliminary Prospectus, to the extent that any such loss, claim, damage or liability arises solely from the fact that any Participant sold Notes to a person to whom there was not sent or given a copy of the Prospectus (as amended or supplemented) at or prior to the written confirmation of such sale if the Company shall have previously furnished copies thereof to the Participant in accordance herewith and the Prospectus (as amended or supplemented) would have corrected any such untrue statement or omission. (b) Each Participant agrees, severally and not jointly, to indemnify and hold harmless the Issuers, their respective affiliates, officers, directors, representatives, employees and agents of each Issuer and each Person who controls each Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent (but on a several, and not joint, basis) as the foregoing indemnity from the Issuers to each Participant, but only with reference to information relating to such Participant furnished to the Company in writing by such Participant expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus. The liability of any Participant under this paragraph shall in no event exceed the proceeds received by such Participant from sales of Registrable Notes or Exchange Notes giving rise to such obligations. 21 (c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified ----------- Person") shall promptly notify the Persons against whom such indemnity may ------ be sought (the "Indemnifying Persons") in writing, and the Indemnifying -------------------- Persons, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Persons may reasonably designate in such proceeding and shall pay the fees and expenses actually incurred by such counsel related to such proceeding; provided, however, -------- ------- that the failure to so notify the Indemnifying Persons (i) will not relieve it from any liability under paragraph (a) or (b) above unless and to the extent such failure results in the forfeiture by the Indemnifying Person of substantial rights and defenses and (ii) will not, in any event, relieve the Indemnifying Person from any obligations to any Indemnified Person other than the indemnification obligation provided in paragraphs (a) and (b) above. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Persons and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Persons shall have failed within a reasonable period of time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both any Indemnifying Person and the Indemnified Person or any affiliate thereof and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Persons shall not, in connection with such proceeding or separate but substantially similar related proceeding in the same jurisdiction arising out of the same general allegations, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed promptly as they are incurred. Any such separate firm for the Participants and such control Persons of Participants shall be designated in writing by Participants who sold a majority in interest of Registrable Notes and Exchange Notes sold by all such Participants and shall be reasonably acceptable to the Company, and any such separate firm for the Issuers, their affiliates, officers, directors, representatives, employees and agents and such control Persons of such Issuer shall be designated in writing by such Issuer and shall be reasonably acceptable to the Holders. The Indemnifying Persons shall not be liable for any settlement of any proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed), but if settled with such consent or if there be a final non-appealable judgment for the plaintiff for which the Indemnified Person is entitled to indemnification pursuant to this Agreement, each of the Indemnifying Persons agrees to indemnify and hold harmless each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Persons (which consent shall not be unreasonably withheld or delayed), 22 effect any settlement or compromise of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party, or indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional written release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of such Indemnified Person. (d) If the indemnification provided for in the first and second paragraphs of this Section 7 is for any reason unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such Indemnified Per son as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect (i) the relative benefits received by the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other from the offering of the Notes or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers on the one hand or such Participant or such other Indemnified Person, as the case may be, on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata --- ---- allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages, judgments, liabilities and expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Notes or Exchange Notes, as the case may be, exceeds the amount of any damages that such Participant has otherwise been required to pay or has paid by reason of 23 such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 7 shall be paid by the Indemnifying Person to the Indemnified Person as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Issuers set forth in this Agreement shall remain operative and in full force and effect, regard less of (i) any investigation made by or on behalf of any Holder or any person who controls a Holder, the Issuer, its directors, officers, employees or agents or any person controlling an Issuer, and (ii) any termination of this Agreement. (g) The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. 8. Rules 144 and 144A ------------------ Each of the Issuers covenants and agrees that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, if at any time such Issuer is not required to file such reports, such Issuer will, upon the request of any Holder or beneficial owner of Registrable Notes, make available such information necessary to permit sales pursuant to Rule 144A under the Securities Act. Each of the Issuers further covenants and agrees, for so long as any Registrable Notes remain outstanding that it will make available any information as any Holder of Registrable Notes may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Notes without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. 9. Underwritten Registrations -------------------------- If any of the Registrable Notes covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Notes included in such offering and shall be reasonably acceptable to the Issuer. 24 No Holder of Registrable Notes may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Notes on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 10. Miscellaneous ------------- (a) No Inconsistent Agreements. The Issuers have not, as of the date -------------------------- hereof, and the Issuers shall not, after the date of this Agreement, enter into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Notes in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Issuers' other issued and outstanding securities under any such agreements. The Issuers will not enter into any agreement with respect to any of their securities which will grant to any Person piggy-back registration rights with respect to any Registration Statement. (b) Amendments and Waivers. The provisions of this Agreement may not ---------------------- be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (I) the Company and (II)(A) the Holders of not less than a majority in aggregate principal amount of the then outstanding Registrable Notes and (B) in circumstances that would materially adversely affect the Participating Broker-Dealers, the Participating Broker-Dealers holding not less than a majority in aggregate principal amount of the Exchange Notes held by all Participating Broker-Dealers; provided, however, -------- ------- that Section 7 and this Section 10(c) may not be amended, modified or supplemented without the prior written consent of each Holder and each Participating Broker-Dealer (including any person who was a Holder or Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case may be, disposed of pursuant to any Registration Statement) affected by any such amendment, modification or supplement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Notes whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Notes may be given by Holders of at least a majority in aggregate principal amount of the Registrable Notes being sold pursuant to such Registration Statement. (c) Notices. All notices and other communications (including, ------- without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand- delivery, registered first-class mail, next-day air courier or facsimile: 25 (i) if to a Holder of the Registrable Notes or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case may be, set forth on the records of the registrar under the Indenture. (ii) if to the Issuers, at the address as follows: c/o Rental Service Corporation 6929 E. Greenway Park Suite 200 Scottsdale, Arizona 85254 Attention: Chief Executive Officer, Chief Financial Officer and Manager of Financial Reporting with a copy to: Latham & Watkins 633 W. Fifth Street Suite 4000 Los Angeles, California 90071 Attention: Elizabeth Blendell All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if sent by facsimile. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address and in the manner specified in such Indenture. (d) Successors and Assigns. This Agreement shall inure to the ---------------------- benefit of and be binding upon the successors and assigns of each of the parties hereto, and to successors and assigns of the Holders who hold Registrable Securities and the Participating Broker-Dealers. (e) Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (f) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. 26 (g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ------------- IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (h) Severability. If any term, provision, covenant or restriction of ------------ this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (i) Securities Held by the Company or Its Affiliates. Whenever the ------------------------------------------------ consent or approval of Holders of a specified percentage of Registrable Notes is required hereunder, Registrable Notes held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (j) Third-Party Beneficiaries. Holders of Registrable Notes and ------------------------- Participating Broker-Dealers are intended third-party beneficiaries of this Agreement, and this Agreement may be enforced by such Persons. (k) Entire Agreement. This Agreement, together with the Purchase ---------------- Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Holders on the one hand and the Issuers on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. The Company: ----------- RENTAL SERVICE CORPORATION By: /s/ Robert M. Wilson --------------------------------- Name: Robert M. Wilson Title: Senior Vice President The Guarantors: -------------- RSC ACQUISITION CORP., RSC ALABAMA, INC., RSC CENTER, INC., RSC DUVAL, INC., RSC HOLDINGS, INC., RSC INDUSTRIAL CORPORATION, RSC RENTS, INC. and WALKER JONES EQUIPMENT, INC. By: /s/ Robert M. Wilson ---------------------------------- Name: Robert M. Wilson Title: Senior Vice President The foregoing Agreement is hereby confirmed and accepted as of the date first above written. BT ALEX. BROWN INCORPORATED MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED MORGAN STANLEY & CO. INCORPORATED WILLIAM BLAIR & COMPANY, L.L.C. BY: BT ALEX. BROWN INCORPORATED By: /s/ Michael R. Duckworth ------------------------------- Name: Michael R. Duckworth Title: Managing Director EX-12.1 9 STATEMENT RE: COMPUTATION OF RATIO EXHIBIT 12.1 RENTAL SERVICE CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31, Three Months Ended March 31, ----------------------------------------------------- -------------------------------- 1995 1996 1997 1997 1998 ----------------------------------------------------- ------------ ------------ Earnings: Income from continuing operations before provision for income taxes................ $ 6,116,000 $ 6,711,000 $23,479,000 $3,905,000 $ 9,585,000 Total fixed charges.............. 4,033,000 7,987,000 16,483,000 1,915,000 8,259,000 ----------- ----------- ----------- ---------- ----------- Total earnings.................. $10,149,000 $14,698,000 $39,962,000 $5,820,000 $17,844,000 =========== =========== =========== ========== =========== Fixed charges: Interest expense................. $ 3,314,000 $ 7,063,000 $14,877,000 $1,597,000 $ 7,583,000 Implicit interest in rent expense......................... 719,000 924,000 1,606,000 318,000 676,000 ----------- ----------- ----------- ---------- ----------- Total fixed charges............. $ 4,033,000 $ 7,987,000 $16,483,000 $1,915,000 $ 8,259,000 =========== =========== =========== ========== =========== Ratio of earnings to fixed charges......................... 2.5x 1.8x 2.4x 3.0x 2.2x =========== =========== =========== ========== ===========
EX-21.1 10 SUBSIDIARIES OF RENTAL SERVICE CORPORATION Exhibit 21.1 SUBSIDIARIES OF RENTAL SERVICE CORPORATION RSC Holdings, Inc. (Delaware) RSC Acquisition Corp. (Delaware) Rental Service Corporation of Canada Ltd. (Alberta, Canada) Wholly owned subsidiaries of RSC Holdings, Inc.: RSC Industrial Corporation (Delaware) RSC Duval Inc. (Delaware) RSC Rents, Inc. (California) Wholly owned subsidiaries of RSC Acquisition Corp.: RSC Alabama, Inc. (Alabama) RSC Center, Inc. (Texas) Walker Jones Equipment, Inc. (Mississippi) EX-23.1 11 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated February 12, 1998, with respect to the consolidated financial statements and schedules of Rental Service Corporation as of December 31, 1996 and 1997 and for each of the three years in the period ended December 31, 1997, in the Registration Statement (Form S-4 No. 333- ) and related Prospectus of Rental Service Corporation for the registration of $200,000,000 of its senior subordinated notes. /s/ ERNST & YOUNG LLP Phoenix, Arizona June 8, 1998 EX-23.2 12 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 30, 1995 with respect to the consolidated financial statements of Acme Holdings Inc. as of December 31, 1993 and 1994, and for each of the three years in the period ended December 31, 1994, in the Registration Statement (Form S-4 No. 333- ) and related Prospectus of Rental Service Corporation for the registration of $200,000,000 of its senior subordinated notes. /s/ ERNST & YOUNG LLP Orange County, California June 8, 1998 EX-23.3 13 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated May 6, 1997 with respect to the combined financial statements of Industrial Air Tool as of March 31, 1996 and 1997 and for the years then ended, in the Registration Statement (Form S-4 No. 333- ) and related Prospectus of Rental Service Corporation for the registration of $200,000,000 of its senior subordinated notes. /s/ ERNST & YOUNG LLP Phoenix, Arizona June 8, 1998 EX-23.4 14 CONSENT OF MCGLADREY & PULLEN, LLP EXHIBIT 23.4 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated April 26, 1997 with respect to the financial statements of Brute Equipment Co. d/b/a Foxx Hy-Reach, Inc. as of December 31, 1995 and 1996 and for each of the years then ended, in the Registration Statement (Form S-4 No. 333- ) and related Prospectus of Rental Service Corporation for the registration of $200,000,000 of its senior subordinated notes. /s/ McGLADREY & PULLEN, LLP Moline, Illinois June 10, 1998 EX-23.5 15 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.5 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated November 7, 1997 with respect to the combined financial statements of Rent-It-Center, Inc. and Affiliates d/b/a Center Rental & Sales as of October 31, 1996 and 1997 and for each of the three years in the period ended October 31, 1997, in the Registration Statement (Form S-4 No. 333- ) and related Prospectus of Rental Service Corporation for the registration of $200,000,000 of its senior subordinated notes. /s/ ERNST & YOUNG LLP Phoenix, Arizona June 8, 1998 EX-23.6 16 CONSENT OF WEINTRAUB & MORRISON, P.C. EXHIBIT 23.6 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 3, 1998 with respect to the financial statements of JDW Enterprises, Inc. d.b.a. Valley Rentals as of December 31, 1996 and 1997 and for the years then ended, in the Registration Statement (Form S-4 No. 333- ) and related Prospectus of Rental Service Corporation for the registration of $200,000,000 of its senior subordinated notes. /s/ WEINTRAUB & MORRISON, P.C. Tempe, Arizona June 8, 1998 EX-25.1 17 STATEMENT OF ELIGIBILITY & QUALIFICATION ON FORM T-1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________ FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE _____________________________ ___ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b) (2) NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION (Exact name of trustee as specified in its charter) A U.S. NATIONAL BANKING ASSOCIATION 41-1592157 (Jurisdiction of incorporation or (I.R.S. Employer organization if not a U.S. national Identification No.) bank) SIXTH STREET AND MARQUETTE AVENUE Minneapolis, Minnesota 55479 (Address of principal executive offices) (Zip code) Stanley S. Stroup, General Counsel NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION Sixth Street and Marquette Avenue Minneapolis, Minnesota 55479 (612) 667-1234 (Agent for Service) _____________________________ RENTAL SERVICE CORPORATION (Exact name of obligor as specified in its charter) DELAWARE 33-0569350 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6926 E. GREENWAY PARKWAY, SUITE 200 SCOTTSDALE, AZ 85254 (Address of principal executive offices) (Zip code) _____________________________ 9% SENIOR SUBORDINATED NOTES DUE 2008 (Title of the indenture securities) ================================================================================ Item 1. General Information. Furnish the following information as to the -------------------- trustee: (a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency Treasury Department Washington, D.C. Federal Deposit Insurance Corporation Washington, D.C. The Board of Governors of the Federal Reserve System Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. Item 2. Affiliations with Obligor. If the obligor is an affiliate of the ------------------------- trustee, describe each such affiliation. None with respect to the trustee. No responses are included for Items 3-14 of this Form T-1 because the obligor is not in default as provided under Item 13. Item 15. Foreign Trustee. Not applicable. ---------------- Item 16. List of Exhibits. List below all exhibits filed as a part of this ----------------- Statement of Eligibility. Norwest Bank incorporates by reference into this Form T-1 the exhibits attached hereto. Exhibit 1. a. A copy of the Articles of Association of the trustee now in effect.* Exhibit 2. a. A copy of the certificate of authority of the trustee to commence business issued June 28, 1872, by the Comptroller of the Currency to The Northwestern National Bank of Minneapolis.* b. A copy of the certificate of the Comptroller of the Currency dated January 2, 1934, approving the consolidation of The Northwestern National Bank of Minneapolis and The Minnesota Loan and Trust Company of Minneapolis, with the surviving entity being titled Northwestern National Bank and Trust Company of Minneapolis.* c. A copy of the certificate of the Acting Comptroller of the Currency dated January 12, 1943, as to change of corporate title of Northwestern National Bank and Trust Company of Minneapolis to Northwestern National Bank of Minneapolis.* d. A copy of the letter dated May 12, 1983 from the Regional Counsel, Comptroller of the Currency, acknowledging receipt of notice of name change effective May 1, 1983 from Northwestern National Bank of Minneapolis to Norwest Bank Minneapolis, National Association.* e. A copy of the letter dated January 4, 1988 from the Administrator of National Banks for the Comptroller of the Currency certifying approval of consolidation and merger effective January 1, 1988 of Norwest Bank Minneapolis, National Association with various other banks under the title of "Norwest Bank Minnesota, National Association."* Exhibit 3. A copy of the authorization of the trustee to exercise corporate trust powers issued January 2, 1934, by the Federal Reserve Board.* Exhibit 4. Copy of By-laws of the trustee as now in effect.* Exhibit 5. Not applicable. Exhibit 6. The consent of the trustee required by Section 321(b) of the Act. Exhibit 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority.** Exhibit 8. Not applicable. Exhibit 9. Not applicable. * Incorporated by reference to exhibit number 25 filed with registration statement number 33-66026. ** Incorporated by reference to exhibit number 25 filed with registration statement number 333-53851. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Norwest Bank Minnesota, National Association, a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Minneapolis and State of Minnesota on the 8/th/ day of June 1998. NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION /s/ Jane Y. Schweiger ____________________________ Jane Y. Schweiger Corporate Trust Officer EXHIBIT 6 June 8, 1998 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: In accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, the undersigned hereby consents that reports of examination of the undersigned made by Federal, State, Territorial, or District authorities authorized to make such examination may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION /s/ Jane Y. Schweiger ______________________________ Jane Y. Schweiger Corporate Trust Officer EX-27.1 18 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED FINANCIAL STATEMENTS OF RENTAL SERVICE CORPORATION AS OF DECEMBER 31, 1995 AND 1996 AND FOR EACH OF THE YEARS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001016572 RENTAL SERVICE CORP YEAR YEAR DEC-31-1995 DEC-31-1996 JAN-01-1995 JAN-01-1996 DEC-31-1995 DEC-31-1996 1,455,000 1,452,000 0 0 16,218,000 23,021,000 1,291,000 2,165,000 5,997,000 10,099,000 0 0 77,156,000 166,210,000 13,709,000 29,246,000 137,832,000 218,933,000 0 0 68,555,000 68,594,000 28,401,000 0 0 0 42,000 114,000 4,000 94,958,000 137,832,000 218,933,000 18,747,000 34,136,000 65,917,000 128,354,000 12,617,000 24,070,000 48,162,000 97,112,000 7,285,000 15,776,000 1,040,000 1,692,000 3,314,000 7,063,000 6,116,000 6,711,000 2,401,000 2,722,000 3,715,000 3,989,000 0 0 478,000 1,269,000 0 0 3,237,000 2,720,000 .38 .16 .37 .15 THE FINANCIAL DATA SCHEDULES FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 ARE RESTATED TO CONFIRM THEIR PRESENTATION TO THE REQUIREMENTS OF FAS # 128.
EX-99.1 19 LETTER OF TRANSMITTAL EXHIBIT 99.1 LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE 9% SENIOR SUBORDINATED NOTES DUE 2008 OF RENTAL SERVICE CORPORATION PURSUANT TO THE PROSPECTUS DATED , 1998 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION, IN WHICH CASE THE TERM "EXPIRATION DATE" SHALL MEAN THE LATEST DATE AND TIME TO WHICH THE EXCHANGE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. THE EXCHANGE AGENT IS: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By Hand: By Registered or Certified Mail: By Overnight Courier: Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A. Northstar East Building Corporate Trust Operations Corporate Trust Services 608 Second Avenue South P.O. Box 1517 Sixth and Marquette Avenue 12th Floor Minneapolis, MN 55480-1517 Minneapolis, MN 55479-0113 Corporate Trust Services Minneapolis, MN
By Facsimile: (612) 667-4927 Confirm by Telephone: (612) 667-9764 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. The undersigned acknowledges receipt of the Prospectus dated , 1998 (the "Prospectus"), of Rental Service Corporation, a Delaware corporation (the "Company"), and this Letter of Transmittal (the "Letter of Transmittal"), which together with the Prospectus constitutes the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount principal amount of its 9% Senior Subordinated Notes due 2008 (the "Exchange Notes") for each $1,000 principal amount of its outstanding 9% Senior Subordinated Notes due 2008 (the "Private Notes"). Recipients of the Prospectus should read the requirements described in such Prospectus with respect to eligibility to participate in the Exchange Offer. Capitalized terms used but not defined herein have the meaning given to them in the Prospectus. The undersigned hereby tenders the Private Notes described in the box entitled "Description of Private Notes" below pursuant to the terms and conditions described in the Prospectus and this Letter of Transmittal. The undersigned is the registered owner of all the Private Notes and the undersigned represents that it has received from each beneficial owner of Private Notes ("Beneficial Owners") a duly completed and executed form of "Instruction to Registered Holder from Beneficial Owner" accompanying this Letter of Transmittal, instructing the undersigned to take the action described in this Letter of Transmittal. This Letter of Transmittal is to be used by a holder of Private Notes (i) if certificates representing Private Notes are to be forwarded herewith, (ii) if delivery of Private Notes is to be made by book-entry transfer to the Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to the procedures set forth in the section of the Prospectus entitled "The Exchange Offer--Procedures for Tendering," or (iii) if a tender is made pursuant to the guaranteed delivery procedures in the section of the Prospectus entitled "The Exchange Offer--Guaranteed Delivery Procedures." The undersigned hereby represents and warrants that the information received from the beneficial owners is accurately reflected in the boxes entitled "Beneficial Owner(s)--Purchaser Status" and "Beneficial Owner(s)--Residence." Any beneficial owner whose Private Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder of Private Notes promptly and instruct such registered holder of Private Notes to tender on behalf of the beneficial owner. If such beneficial owner wishes to tender on its own behalf, such beneficial owner must, prior to completing and executing this Letter of Transmittal and delivering its Private Notes, either maker appropriate arrangements to register ownership of the private Notes in such beneficial owner's name or obtain a properly completed bond power from the registered holder of Private Notes. The transfer of record ownership may take considerable time. In order to properly complete this Letter of Transmittal, a holder of Private Notes must (i) complete the box entitled "Description of Private Notes," (ii) complete the boxes entitled "Beneficial Owner(s)--Purchaser Status" and "Beneficial Owner(s)--Residence," (iii) if appropriate, check and complete the boxes relating to book-entry transfer, guaranteed delivery, Special Issuance Instructions and Special Delivery Instructions, (v) sign the Letter of Transmittal by completing the box entitled "Sign Here" and (v) complete the Substitute Form W-9. Each holder of Private Notes should carefully read the detailed instructions below prior to completing the Letter of Transmittal. Holders of Private Notes who desire to tender their Private Notes for exchange and (i) whose Private Notes are not immediately available or (ii) who cannot deliver their Private Notes, this Letter of Transmittal and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date, must tender the Private Notes pursuant to the guaranteed delivery procedures set forth in the section of the Prospectus entitled "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2. Holders of Private Notes who wish to tender their Private Notes for exchange must complete columns (1) through (3) in the box below entitled "Description of Private Notes," complete the boxes entitled and sign the box below entitled "Sign Here." If only those columns are completed, such holder of Private Notes will have tendered for exchange all Private Notes listed in column (3) below. If the holder of Private Notes wishes to tender for exchange less than all of such Private Notes, column (4) must be completed in full. In such case, such holder of Private Notes should refer to Instruction 5. 2 DESCRIPTION OF PRIVATE NOTES - -------------------------------------------------------------------------------
(1) (2) (3) (4) NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) OF PRIVATE NOTE(S), PRINCIPAL EXACTLY AS AMOUNT NAME(S) TENDERED APPEAR(S) ON PRIVATE NOTE FOR EXCHANGE PRIVATE NOTE NUMBER(S) AGGREGATE (MUST BE IN CERTIFICATE(S) (ATTACH SIGNED PRINCIPAL AMOUNT INTEGRAL (PLEASE FILL LIST REPRESENTED BY MULTIPLES IN, IF BLANK) IF NECESSARY) CERTIFICATE(S)(1) OF $1,000)(2) - --------------------------------------------------------------
--------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- - ------------------------------------------------------------------------------- 1. Unless indicated in the column "Principal Amount Tendered for Exchange," any tendering Holder of 9% Senior Subordinated Notes due 2008 will be deemed to have tendered the entire aggregate principal amount represented by the column labeled "Aggregate Principal Amount Represented by Certificate(s)." 2. The minimum permitted tender is $1,000 in principal amount of 9% Senior Subordinated Notes due 2008. All other tenders must be in integral multiples of $1,000. [_] CHECK HERE IF TENDERED PRIVATE NOTES ARE ENCLOSED HEREWITH. [_] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER DEFINED) ONLY: Name of Tendering Institution: ______________________________________________ Account Number: _____________________________________________________________ Transaction Code Number: ____________________________________________________ [_] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY): Name of Registered Holder of Private Note(s): _______________________________ Date of Execution of Notice of Guaranteed Delivery: _________________________ Window Ticket Number (if available): ________________________________________ Name of Institution which Guaranteed Delivery: ______________________________ Account Number (if delivered by book-entry transfer): _______________________ [_] CHECK HERE IF YOU ARE A BROKER DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO: Name: _______________________________________________________________________ Address: ____________________________________________________________________ 3 SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 6, 7 AND 8) (SEE INSTRUCTIONS 1, 6, 7 AND 8) To be completed ONLY (i) if the To be completed ONLY if the Exchange Notes issued in exchange Exchange Notes issued in exchange for Private Notes, certificates for for Private Notes, certificates for Private Notes in a principal amount Private Notes in a principal amount not exchanged for Exchange Notes, not exchanged for Exchange Notes, or Private Notes (if any) not or Private Notes (if any) not tendered for exchange, are to be tendered for exchange, are to be issued in the name of someone other mailed or delivered (i) to someone than the undersigned or (ii) if other than the undersigned or (ii) Private Notes tendered by book- to the undersigned at an address entry transfer which are not other than the address shown below exchanged are to be returned by the undersigned's signature. credit to an account maintained at DTC. Mail or deliver to: Name _______________________________ Issue to: (PLEASE PRINT) Address ____________________________ Name _______________________________ ____________________________________ (PLEASE PRINT) ____________________________________ Address ____________________________ (INCLUDE ZIP CODE) ____________________________________ ____________________________________ ____________________________________ (TAX IDENTIFICATION OR SOCIAL (INCLUDE ZIP CODE) SECURITY NO.) ____________________________________ (TAX IDENTIFICATION OR SOCIAL SECURITY NO.) Credit Private Notes not exchanged and delivered by book- entry transfer to DTC account set forth below: ____________________________________ (ACCOUNT NUMBER) 4
BENEFICIAL OWNER(S)--RESIDENCE - --------------------------------------------------------------------------------------------- STATE OF DOMICILE/PRINCIPAL PLACE OF BUSINESS OF PRINCIPAL AMOUNT OF PRIVATE NOTES EACH BENEFICIAL OWNER OF PRIVATE NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER(S) ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------
BENEFICIAL OWNER(S)--PURCHASER STATUS - ------------------------------------------------------------------------------- The beneficial owner of each of the Private Notes described herein is (check the box that applies): [_] A "Qualified Institutional Buyer" (as defined in Rule 144A under the Securities Act) [_] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) [_] A non "U.S. person" (as defined in Regulation S of the Securities Act) that purchased the Private Notes outside the United States in accordance with Rule 904 of the Securities Act [_] Other (describe) _________________________________________________________ SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Pursuant to the offer by Rental Service Corporation, a Delaware corporation (the "Company"), upon the terms and subject to the conditions set forth in the Prospectus dated , 1998 (the "Prospectus") and this Letter of Transmittal (the "Letter of Transmittal"), which together with the Prospectus constitutes the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of its 9% Senior Subordinated Notes due 2008 (the "Exchange Notes") for each $1,000 principal amount of its outstanding 9% Senior Subordinated Notes due 2008 (the "Private Notes"), the undersigned hereby tenders to the Company for exchange the Private Notes indicated above. By executing this Letter of Transmittal and subject to and effective upon acceptance for exchange of the Private Notes tendered for exchange herewith, the undersigned will have irrevocably sold, assigned, transferred and exchanged, to the Company, all right, title and interest in, to and under all of the Private Notes tendered for exchange hereby, and hereby will have appointed the Exchange Agent as the true and lawful agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as agent of the Company) of such holder of Private Notes with respect to such Private Notes, with full power of substitution to (i) deliver certificates representing such Private Notes, or transfer ownership of such Private Notes on the account books maintained by DTC (together, in any such case, with all accompanying evidences of transfer and authenticity), to the Company, (ii) present and deliver such Private Notes for transfer on the books of the Company and (iii) receive all benefits and otherwise exercise all rights and incidents of beneficial ownership with respect to such Private Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed to be irrevocable and coupled with an interest. The undersigned hereby represents and warrants that (i) the undersigned is the owner; (ii) has a net long position within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended ("Rule 14e-4") equal to or greater than 5 the principal amount of Private Notes tendered hereby; (iii) the tender of such Private Notes complies with Rule 14e-4 (to the extent that Rule 14e-4 is applicable to such exchange); (iv) the undersigned has full power and authority to tender, exchange, assign and transfer the Private Notes and (v) that when such Private Notes are accepted for exchange by the Company, the Company will acquire good and marketable title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims. The undersigned will, upon receipt, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of the Private Notes tendered for exchange hereby. By tendering, the undersigned hereby further represents to the Company that (i) the Exchange Notes to be acquired by the undersigned in exchange for the Private Notes tendered hereby and any beneficial owner(s) of such Private Notes in connection with the Exchange Offer will be acquired by the undersigned and such beneficial owner(s) in the ordinary course of business of the undersigned, (ii) the undersigned have no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes, (iii) the undersigned and each beneficial owner(s) acknowledge and agree that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or is participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Commission set forth in certain no-action letters, (iv) the undersigned and each beneficial owner understand that a secondary resale transaction described in clause (iii) above and any resales of Exchange Notes obtained by the undersigned in exchange for the Private Notes acquired by the undersigned directly from the Company should be covered by an effective registration statement containing the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (v) neither the undersigned or any beneficial owner is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for the Private Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned does not and will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For purposes of the Exchange Offer, the Company will be deemed to have accepted for exchange, and to have exchanged, validly tendered Private Notes, if, as and when the Company gives oral or written notice thereof to the Exchange Agent. Tenders of Private Notes for exchange may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer--Withdrawal of Tenders" in the Prospectus. Any Private Notes tendered by the undersigned and not accepted for exchange will returned to the undersigned at the address set forth above unless otherwise indicated in the box above entitled "Special Delivery Instructions" as promptly as practicable after the Expiration Date. The undersigned acknowledges that the Company's acceptance of Private Notes validly tendered for exchange pursuant to any one of the procedures described in the section of the Prospectus entitled "The Exchange Offer" and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. Unless otherwise indicated in the box entitled "Special Issuance Instructions," please return any Private Notes not tendered for exchange in the name(s) of the undersigned. Similarly, unless otherwise indicated in the box entitled "Special Delivery Instructions," please mail any certificates for Private Notes not tendered or exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Issuance Instructions" and "Special Delivery Instructions" are completed, please issue the certificates representing the Exchange Notes issued in exchange for the Private Notes accepted for exchange in the name(s) of, and return any Private Notes not tendered for exchange or not exchanged to, the person(s) so indicated. The undersigned recognizes that the Company has not obligation pursuant to the "Special Issuance Instructions" and "Special Delivery Instructions" to transfer any Private Notes from the name of the holder of Private Note(s) thereof if the Company does not accept for exchange any of the Private Notes so tendered for exchange or if such transfer would not be in compliance with any transfer restrictions applicable to such Private Note(s). 6 IN ORDER TO VALIDLY TENDER PRIVATE NOTES FOR EXCHANGE, HOLDERS OF PRIVATE NOTES MUST COMPLETE, EXECUTE AND DELIVER THIS LETTER OF TRANSMITTAL. Except as stated in the Prospectus, all authority herein conferred or agreed to be conferred shall survive the death, incapacity, or dissolution of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as otherwise stated in the Prospectus, this tender for exchange of Private Notes is irrevocable. SIGN HERE __________________________________________ __________________________________________ SIGNATURE(S) OF OWNER(S) Dated: _____________________________, 1998 Must be signed by the registered holder(s) of Private Notes exactly as name(s) appear(s) on certificate(s) representing the Private Notes or on a security position listing or by person(s) authorized to become registered Private Note holder(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information. (See Instruction 6). Name(s): _________________________________ __________________________________________ (PLEASE PRINT) Capacity (full title): ___________________ __________________________________________ Address: _________________________________ __________________________________________ __________________________________________ (INCLUDE ZIP CODE) __________________________________________ Area Code and Telephone No.: ( )_______ Tax Identification or Social Security Nos.: __________________________________________ PLEASE COMPLETE SUBSTITUTE FORM W-9 GUARANTEE OF SIGNATURE(S) (SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 1) Authorized Signature: ____________________ Dated: ___________________________________ Name and Title: __________________________ (PLEASE PRINT) Name of Firm: ____________________________ 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by an institution which is (1) a member firm of a registered national securities exchange or of the National Associate of Securities Dealers, Inc., (2) a commercial bank or trust company having an office or correspondent in the United States, or (3) an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, which is a member of one of the following recognized Signature Guarantee Programs (an "Eligible Institution"): a. The Securities Transfer Agents Medallion Program (STAMP) b. New York Stock Exchange Medallion Signature Program (MSP) c. The Stock Exchange Medallion Program (SEMP) Signatures on this Letter of Transmittal need not be guaranteed (i) if this Letter of Transmittal is signed by the registered holder(s) of the Private Notes tendered herewith and such registered holder(s) have not completed the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (ii) if such Private Notes are tendered for the account of an Eligible Institution. IN ALL OTHER CASES, ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION. 2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND PRIVATE NOTES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by holders of Private Notes (i) if certificates are to be forwarded herewith or (ii) if tenders are to be made pursuant to the procedures for tender by book-entry transfer or guaranteed delivery set forth in the section of the Prospectus entitled "The Exchange Offer." Certificates for all physically tendered Private Notes or by any timely confirmation of a book-entry transfer (a "Book- Entry Confirmation"), as well as a properly completed and duly executed copy of this Letter of Transmittal or facsimile hereof, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its address set forth on the cover of this Letter of Transmittal prior to 5:00 p.m., New York City time, on the Expiration Date. Holders of Private Notes who elect to tender Private Notes and (i) whose Private Notes are not immediately available or (ii) who cannot deliver the Private Notes, this Letter of Transmittal or other required documents to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date, must tender their Private Notes according to the guaranteed delivery procedures set forth in the Prospectus. Holders may have such tender effected if: (a) such tender is made through an Eligible Institution; (b) prior to 5:00 p.m., New York City time, on the Expiration Date, the Exchange Agent has received from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery, setting forth the name and address of the holder of such Private Notes, the certificate number(s) of such Private Notes and the principal amount of Private Notes tendered for exchange, stating that tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, this Letter of Transmittal (or a facsimile thereof), together with the certificate(s) representing such Private Notes (or a Book-Entry Confirmation), in proper form for transfer, and any other documents required by this Letter of Transmittal, will be deposited by such Eligible Institution with the Exchange Agent; and (c) a properly executed Letter of Transmittal (or a facsimile hereof), as well as the certificate(s) for all tendered Private Notes in proper form for transfer or a Book-Entry confirmation, together with any other documents required by this Letter of Transmittal, are received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Date. THE METHOD OF DELIVERY OF PRIVATE NOTES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NEITHER THIS LETTER OF TRANSMITTAL NOR ANY PRIVATE NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. 8 No alternative, conditional or contingent tenders will be accepted. All tendering holders of Private Notes, by execution of this Letter of Transmittal (or facsimile hereof, if applicable), waive any right to receive notice of the acceptance of their Private Notes for exchange. 3. INADEQUATE SPACE. If the space provided in the box entitled "Description of Private Notes" above is inadequate, the certificate numbers and principal amounts of the Private Notes being tendered should be listed on a separate signed schedule affixed hereto. 4. WITHDRAWALS. A tender of Private Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date by delivery of written or facsimile notice of withdrawal to the Exchange Agent at the address set forth on the cover of this Letter of Transmittal. To be effective, a notice of withdrawal of Private Notes must (i) specify the name of the person who tendered the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private Notes to be withdrawn (including the certificate number of numbers and aggregate principal amount of such Private Notes), and (iii) be signed by the holder of Private Notes in the same manner as the original signature on the Letter of Transmittal by which such Private Notes were tendered (including any required signature guarantees). All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company in its sole discretion, whose determination shall be final and binding on all parties. Any Private Notes so withdrawn will thereafter be deemed not validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Private Notes so withdrawn are validly retendered. Properly withdrawn Private Notes may be retendered by following one of the procedures described in the section of the Prospectus entitled "The Exchange Offer--Procedures for Tendering" at any time prior to 5:00 p.m., New York City time, on the Expiration Date. 5. PARTIAL TENDERS. Tenders of Private Notes will be accepted only in integral multiples of $1,000 principal amount. If a tender for exchange is to be made with respect to less than the entire principal amount of any Private Notes, fill in the principal amount of Private Notes which are tendered for exchange in column (4) of the box entitled "Description of Private Notes," as more fully described in the footnotes thereto. In case of a partial tender for exchange, a new certificate, in fully registered form, for the remainder of the principal amount of the Private Notes, will be sent to the holders of Private Notes unless otherwise indicated in the appropriate box on this Letter of Transmittal as promptly as practicable after the expiration or termination of the Exchange Offer. 6. SIGNATURES ON THIS LETTER OF TRANSMITTAL, ASSIGNMENT AND ENDORSEMENTS. (a) The signature(s) of the holder of Private Notes on this Letter of Transmittal must correspond with the name(s) as written on the face of the Private Notes without alternation, enlargement or any change whatsoever. (b) If tendered Private Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. (c) If any tendered Private Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal and any necessary or required documents was there are different registrations or certificates. (d) When this Letter of Transmittal is signed by the holder of the Private Notes listed and transmitted hereby, no endorsements of Private Notes or bond powers are required. If, however, Private Notes not tendered or not accepted, are to be issued or returned in the name of a person other than the holder of Private Notes, then the Private Notes transmitted hereby must be endorsed or accompanied by a properly completed bond power, in a form satisfactory to the Company, in either case signed exactly as the name(s) of the holder of Private Notes appear(s) on the Private Notes. Signatures on such Private Notes or bond powers must be guaranteed by an Eligible Institution (unless signed by an Eligible Institution). (e) If this Letter of Transmittal or Private Notes or bond powers 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 this Company, evidence satisfactory to the Company of their authority to so act must be submitted with this Letter of Transmittal. 9 (f) If this Letter of Transmittal is signed by a person other than the registered holder of Private Notes listed, the Private Notes must be endorsed or accompanied by a properly completed bond power, in either case signed by such registered holder exactly as the name(s) of the registered holder of Private Notes appear(s) on the certificates. Signatures on such Private Notes or bond powers must be guaranteed by an Eligible Institution (unless signed by an Eligible Institution). 7. TRANSFER TAXES. Except as set forth in this Instruction 7, the Company will pay all transfer taxes, if any, applicable to the exchange of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the exchange of the Private Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemptions therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. 8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the Exchange Notes are to be issued, or if any Private Notes not tendered for exchange are to be issued or sent to someone other than the holder of Private Notes or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Holders of Private Notes tendering Private Notes by book-entry transfer may request that Private Notes not accepted be credited to such account maintained at DTC as such holder of Private Notes may designate. 9. IRREGULARITIES. All questions as to the validity, form, eligibility (including time of receipt), compliance with conditions, acceptance and withdrawal of tendered Private Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Private Notes not properly tendered or any Private Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Private Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Private Notes must be cured with such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Private Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Private Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Private Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Date. 10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive, amend or modify certain of the specified conditions as described under "The Exchange Offer--Conditions" in the Prospectus in the case of any Private Notes tendered (except as otherwise provided in the Prospectus). 11. MUTILATED, LOST, STOLEN OR DESTROYED PRIVATE NOTES. Any tendering Holder whose Private Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address listed below for further instructions: ---------------------- ---------------------- ---------------------- 12. REQUESTS FOR INFORMATION OR ADDITIONAL COPIES. Requests for information or for additional copies of the Prospectus and this Letter of Transmittal may be directed to the Exchange Agent at the address or telephone number set forth on the cover of this Letter of Transmittal. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF APPLICABLE) TOGETHER WITH CERTIFICATES, OR CONFIRMATION OF BOOK-ENTRY OR THE NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. 10 IMPORTANT TAX INFORMATION Under current federal income tax law, a holder of Private Notes whose tendered Private Notes are accepted for exchange may be subject to backup withholding unless the holder provides the Company (as payor), through the Exchange Agent, with either (i) such holder's correct taxpayer identification number ("TIN") on Substitute Form W-9 attached hereto, certifying that the TIN provided on Substitute Form W-9 is correct (or that such holder of Private Notes is awaiting a TIN) and that (A) the holder of Private Notes has not been notified by the Internal Revenue Service that he or she is subject to backup withholding as a result of a failure to report all interest or dividends or (B) the Internal Revenue Service has notified the holder of Private Notes that he or she is no longer subject to backup withholding; or (ii) an adequate basis for exemption from backup withholding. If such holder of Private Notes is an individual, the TIN is such holder's social security number. If the Exchange Agent is not provided with the correct taxpayer identification number, the holder of Private Notes may be subject to certain penalties imposed by the Internal Revenue Service. Certain holders of Private Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. Exempt holders of Private Notes should indicate their exempt status on Substitute Form W-9. A foreign individual may qualify as an exempt recipient by submitting to the exchange Agent a properly completed Internal Revenue Service Form W-8 (which the Exchange Agent will provide upon request) signed under penalty of perjury, attesting to the holder's exempt status. See the enclosed Guidelines of Certification of Taxpayer Identification Number on Substitute Form W-9 (the "Guidelines") for additional instructions. If backup withholding applies, the Company is required to withhold 31% of any payment made to the holder of Private Notes or other Payee. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. The holder of Private Notes is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) or the record owner of the Private Notes. If the Private Notes are held in more than one name or are note held in the name of the actual owner, consult the enclosed Guidelines for additional guidance regarding which number to report. INSTRUCTION TO REGISTERED HOLDER FROM BENEFICIAL OWNER OF 9% SENIOR SUBORDINATED NOTES DUE 2008 OF RENTAL SERVICE CORPORATION The undersigned hereby acknowledges receipt of the Prospectus dated , 1998 (the "Prospectus") of Rental Service Corporation, a Delaware corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer"). Capitalized terms used by not defined herein have the meanings ascribed to them in the Prospectus. This will instruct you, the registered holder, as to the action to be taken by you relating to the Exchange Offer with respect to the 9% Senior Subordinated Notes due 2008 (the "Private Notes") held by you for the account of the undersigned. The aggregate face amount of the Private Notes held by you for the account of the undersigned is (fill in amount): $________ of the Private Notes. With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box): [_] To TENDER the following Private Notes held by you for the account of the undersigned (insert principal amount of Private Notes to be tendered, if any): $________ of the Private Notes. [_] NOT to TENDER any Private Notes held by you for the account of the undersigned. If the undersigned instructs you to tender the Private Notes held by you for the account of the undersigned, it is understood that you are authorized (a) to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with 11 respect to the undersigned as a beneficial owner of the Private Notes, including but not limited to the representations that (i) the undersigned's principal residence is in the state of (fill in state)________________ , (ii) the undersigned is acquiring the Exchange Notes in the ordinary course of business of the undersigned, (iii) the undersigned has no arrangement or understanding with any person to participate in the distribution of Exchange Notes, (iv) the undersigned acknowledges that any person who is a broker-dealer registered under the Exchange Act or is participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act of 1933, as amended, in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the Staff of the Securities and Exchange Commission set forth in certain no-action letters (See the section of the Prospectus entitled "The Exchange Offer--Resale of the Exchange Notes"), (v) the undersigned understands that a secondary resale transaction described in clause (iv) above and any resales of Exchange Notes obtained by the undersigned in exchange for the Private Notes acquired by the undersigned directly from the Company should be covered by an effective registration statement containing the selling security holder information required by Item 507 or Item 508, if applicable, of Regulation S-K of the Commission, (vi) the undersigned is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company, and (vii) if the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Private Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any sale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act; (b) to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of Private Notes. The purchaser status of the undersigned is (check the box that applies): [_] A "Qualified Institutional Buyer" (as defined in Rule 144A under the Securities Act) [_] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) [_] A non "U.S. person" (as defined in Regulation S of the Securities Act) that purchased the Private Notes outside the United States in accordance with Rule 904 of the Securities Act [_] Other (describe) _________________________________________________________ ____________________________________________________________________________ SIGN HERE Name of Beneficial Owner(s): _______________________________________________ ____________________________________________________________________________ Signature(s): ______________________________________________________________ ____________________________________________________________________________ Address: ___________________________________________________________________ ____________________________________________________________________________ Principal place of business (if different from address listed above): ______ ____________________________________________________________________________ ____________________________________________________________________________ Telephone Number(s): _______________________________________________________ ____________________________________________________________________________ Taxpayer Identification or Social Security Number(s): ______________________ ____________________________________________________________________________ Date: ______________________________________________________________________ 12 PAYER'S NAME: - -------------------------------------------------------------------------------- SUBSTITUTE Social Security FORM W-9 Number DEPARTMENT OF THE PART 1--PLEASE PROVIDE ____________________ TREASURY YOUR TIN IN THE BOX AT OR INTERNAL REVENUE RIGHT AND CERTIFY BY Employer SERVICE SIGNING AND DATING Identification BELOW. Number PAYER'S REQUEST FOR ____________________ TAXPAYER IDENTIFICATION NUMBER (TIN) - -------------------------------------------------------------------------------- PART 2--CERTIFICATION--Under Penalties of Perjury, I certify that: (1) The number shown on this form is my current taxpayer identification number (or I am waiting for a number to be issued to me) and (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS--You must cross out item (2) in Part 2 above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you are subject to backup withholding you receive another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out item (2). PART 3--AWAITING TIN [_] - -------------------------------------------------------------------------------- Name __________________________________________________________________________ Address _______________________________________________________________________ City __________________________ State ___________ Zip Code ________________ Signature ____________________________________ Date __________________________ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECK THE BOX IN PART 3 OF SUBSTITUTE FORM W-9 PAYOR'S NAME: BANK OF NEW YORK TRUST COMPANY OF FLORIDA - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver such an application in the near future. I understand that if I do not provide a taxpayer identification number within sixty (60) days, 31% of all reportable payments made to me thereafter will be withheld until I provide such number. SIGNATURE ____________________________________________________ DATE __________ 13 EX-99.2 20 NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY WITH RESPECT TO 9% SENIOR SUBORDINATED NOTES DUE 2008 THIS FORM, OR ONE SUBSTANTIALLY EQUIVALENT HERETO, MUST BE USED BY ANY HOLDER OF 9% SENIOR SUBORDINATED NOTES DUE 2008 (THE "PRIVATE NOTES") OF RENTAL SERVICE CORPORATION, A DELAWARE CORPORATION (THE "COMPANY"), WHO WISHES TO TENDER PRIVATE NOTES PURSUANT TO THE COMPANY'S EXCHANGE OFFER, AS DEFINED IN THE PROSPECTUS DATED , 1998 (THE "PROSPECTUS") AND (i) WHOSE PRIVATE NOTES ARE NOT IMMEDIATELY AVAILABLE OR (ii) WHO CANNOT DELIVER SUCH PRIVATE NOTES OR ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL ON OR BEFORE THE EXPIRATION DATE (AS DEFINED IN THE PROSPECTUS) OR (iii) WHO CANNOT COMPLY WITH THE BOOK-ENTRY TRANSFER PROCEDURE ON A TIMELY BASIS. SUCH FORM MAY BE DELIVERED BY FACSIMILE TRANSMISSION, MAIL OR HAND DELIVERY TO THE EXCHANGE AGENT. SEE "THE EXCHANGE OFFER--GUARANTEED DELIVERY PROCEDURES" IN THE PROSPECTUS. RENTAL SERVICE CORPORATION NOTICE OF GUARANTEED DELIVERY TO: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, THE EXCHANGE AGENT
By Hand: By Registered or Certified Mail: By Overnight Courier: Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A. Northstar East Building Corporate Trust Operations Corporate Trust Services 608 Second Avenue South P.O. Box 1517 Sixth and Marquette Avenue 12th Floor Minneapolis, MN 55480-1517 Minneapolis, MN 55479-0113 Corporate Trust Services Minneapolis, MN
By Facsimile: (612) 667-4927 Confirm by Telephone: (612) 667-9764 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. 1 LADIES AND GENTLEMEN: The undersigned hereby tenders to the Company upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount of Private Notes specified below pursuant to the guaranteed delivery procedures set forth under the caption "The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus. By so tendering, the undersigned does hereby make, at and as of the date hereof, the representations and warranties of a tendering Holder of Private Notes set forth in the Letter of Transmittal. The undersigned hereby tenders the Private Notes listed below: - -------------------------------------------------------------------------------
CERTIFICATE NUMBERS (IF AVAILABLE) PRINCIPAL AMOUNT TENDERED
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- All authority herein conferred or agreed to be conferred shall survive the death, incapacity, or dissolution of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. If Private Notes will be tendered by book-entry transfer SIGN HERE -------------------------------------- SIGNATURE(S) Name of Tendering Institution: ______________________________________ ______________________________________ NAME(S) (PLEASE PRINT) - -------------------------------------- ______________________________________ ______________________________________ ADDRESS The Depository Trust Company Account ______________________________________ No.: ZIP CODE - -------------------------------------- ______________________________________ AREA CODE AND TELEPHONE NO. DATE:_________________________________ 2 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a participant in a Recognized Signature Guarantee Medallion Program, guarantees deposit with the Exchange Agent of the Letter of Transmittal (or facsimile thereof), together with the Private Notes tendered hereby in proper form for transfer, or confirmation of the book-entry transfer of such Private Notes into the Exchange Agent's account at the Depository Trust Company, pursuant to the procedure for book-entry transfer set forth in the prospectus, and any other required documents, all by 5:00 p.m., New York City time, on the fifth New York Stock Exchange trading day following the Expiration Date (as defined in the Prospectus). SIGN HERE ----------------------------------------- NAME OF FIRM ----------------------------------------- AUTHORIZED SIGNATURE _________________________________________ NAME(S) (PLEASE PRINT) _________________________________________ ADDRESS _________________________________________ ZIP CODE _________________________________________ AREA CODE AND TELEPHONE NO. DATE:____________________________________ DO NOT SEND CERTIFICATES FOR PRIVATE NOTES WITH THIS FORM. ACTUAL SURRENDER OF CERTIFICATES FOR PRIVATE NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A COPY OF THE PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL. INSTRUCTIONS 1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at one of its addresses set forth on the cover hereof prior to the Expiration Date. The method of delivery of this Notice of Guaranteed Delivery and all other required documents to the Exchange Agent is at the election and risk of the Holder but, except as otherwise provided below, the delivery will be deemed made only when actually received by the Exchange Agent. Instead of delivery by mail, it is recommended that holders use an overnight or hand delivery service, properly insured. If such delivery is by mail, it is recommended that the Holder use properly insured, registered mail with return receipt requested. For a full description of the guaranteed delivery procedures, see the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." In all cases, sufficient time should be allowed to assure timely delivery. No Notice of Guaranteed Delivery should be sent to the Company. 2. SIGNATURE ON THIS NOTICE OF GUARANTEED DELIVERY; GUARANTEE OF SIGNATURES. If this Notice of Guaranteed Delivery is signed by the registered Holder(s) of the Private Notes referred to herein, then the signature must correspond with the name(s) as written on the face of the Private Notes without alteration, enlargement or any change whatsoever. If this Notice of Guaranteed Delivery is signed by a person other than the registered Holder(s) of any Private Notes listed, this Notice of Guaranteed Delivery must be accompanied by a properly completed bond power signed as the name of the registered Holder(s) appear(s) on the face of the Private Notes without alteration, enlargement or any change whatsoever. If this Notice of Guaranteed Delivery is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and, unless waived by the Company, evidence satisfactory to the Company of their authority so to act must be submitted with this Notice of Guaranteed Delivery. 3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the Exchange Offer or the procedure for consenting and tendering as well as requests for assistance or for additional copies of the Prospectus, the Letter of Transmittal and this Notice of Guaranteed Delivery, may be directed to the Exchange Agent at the address set forth on the cover hereof or to your broker, dealer, commercial bank or trust company. 3 EX-99.3 21 FORM W-9 GUIDELINES FOR CERTIFICATION EXHIBIT 99.3 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--Social Security Numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer Identification Numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. - ------------------------------------------------
GIVE THE FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY NUMBER OF: - ------------------------------------------------ 1. An individual's The individual account 2. Two or more The actual owner individuals (joint of the account account) or, if combined funds, any one of the individuals(1) 3. Husband and wife The actual owner (joint account) of the account or, if joint funds, either person(1) 4. Custodian account of The minor(2) a minor (Uniform Gift to Minors Act) 5. Adult and minor The adult or, if (joint account) the minor is the only contributor, the minor(1) 6. Account in the name The ward, minor, of guardian or or incompetent committee for a person(3) designated ward, minor, or incompetent person 7.a. The usual The grantor- revocable savings trustee(1) trust account (grantor is also trustee) b. So-called trust The actual account that is not a owner(1) legal or valid trust under State law - ------------------------------------------------
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GIVE THE EMPLOYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF: ----- 8. Sole proprietorship The owner(4) account 9. A valid trust, estate, The legal entity or pension trust (Do not furnish the identification number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, The organization or educational organization account 12. Partnership account The partnership 13. Association, club or The organization other tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the The public Department of entity Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
--------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner, and you may also enter your business or "doing business as" name. You may use either your social security number or your employer identification number (if you have one). (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE:If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: . A corporation. . A financial institution. . An organization exempt from tax under section 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or an individual retirement plan. . The United States or any agency or instrumentality thereof. . A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. . A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. . An international organization or any agency, or instrumentality thereof. . A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. . A real estate investment trust. . A common trust fund operated by a bank under section 584(a) of the Code. . An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1) of the Code. . An entity registered at all times under the Investment Company Act of 1940. . A foreign central bank of issue. . A futures commission merchant registered with the Commodity Futures Trading Commission. . A middleman known in the investment community as a nominee or who is listed in the most recent publication of the American Society of Corporate Secre- taries, Inc., Nominee List. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441 of the Code. . Payments to partnerships not engaged in a trade or business in the United States and which have at least one nonresident partner. . Payments of patronage dividends where the amount received is not paid in money. . Payments made by certain foreign organizations. . Payments made to a nominee. . Section 404(k) payments made by an ESOP. Payments of interest not generally subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. . Payments of tax-exempt interest (including the exempt-interest dividends under section 852) of the Code. . Payments described in section 6049(b)(5) of the Code to nonresident aliens. . Payments on tax-free covenant bonds under section 1451 of the Code. . Payments made by certain foreign organizations. . Payments made to a nominee. EXEMPT PAYEES DESCRIBED ABOVE SHOULD STILL COMPLETE THE SUBSTITUTE FORM W-9 ENCLOSED HEREWITH TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE SUBSTITUTE FORM W-9 WITH THE PAYER, CERTIFY YOUR TAXPAYER IDENTIFICATION NUMBER ON PART III OF THE FORM, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND SIGN AND DATE THE FORM, RETURN IT TO THE PAYER. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049, 6050A and 6050N of the Code and their regulations. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividends, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. Payers must be given the numbers whether or not recipients are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVE- NUE SERVICE. -----END PRIVACY-ENHANCED MESSAGE-----